OT:RR:CTF:VS H264394 RMC
Mr. Brett Ian Harris
Pisani & Roll LLP
1629 K St. NW, Suite 300
Washington, DC 20006
Re: Apportionment of Lockheed Martin Aeronautics Assists; 19 C.F.R. § 152.103(e)
Dear Mr. Harris:
This is in response to your April 29, 2015, request for a ruling on behalf of your client Lockheed Martin Aeronautics Company (“LM Aero”). Specifically, you ask whether your proposed method of apportioning assists that LM Aero pays to foreign suppliers is acceptable to CBP. We find that your proposed method of apportioning assists is consistent with the requirements of 19 C.F.R. § 152.103(e)(1).
FACTS:
LM Aero is the prime contractor for the F-35 Lightning II Joint Strike Fighter (“F-35”), a single-seat, single-engine combat aircraft. In its role as prime contractor, LM Aero leads an industrial team comprising over 100 subcontractors and suppliers around the world. LM Aero notes that the “vast majority” of its imports for the F-35 project are eligible for duty-free treatment under either subheading 9808.00.30, Harmonized Tariff Schedule of the United States (“HTSUS”) (“articles for the use of any agency of the United States government”) or subheading 8803.30.00, HTSUS (“parts of airplanes or helicopters”).
LM Aero states that it provides two types of assists to its foreign suppliers and subcontractors. First, it pays international subcontractors “significant amounts for research and development, tooling and related support activities associated with the manufacture and testing of various F-35 subassemblies and individual components.” Second, it provides material assists such as parts, fasteners, and related consumables that are incorporated into the finished subassemblies and components.
LM Aero identifies several hurdles to accurately allocating the value of these assists to the merchandise that it imports from its foreign subcontractors and suppliers. The engineering, research, and development costs, it contends, are ongoing over the life of each subcontract. Further, the payments “cannot be easily allocated to individual shipments of merchandise imported from subcontractors” given the sheer volume of parts, subassemblies, and international suppliers involved in global co-production programs. As for the material assists, problems arise because LM Aero pays its carrier aggregate, rather than entry-by-entry or per-unit, freight charges. Further, the prices for the materials “varies greatly over time” depending on suppliers’ needs and market factors, and the materials are not always traceable to any particular finished product.
LM Aero proposes to apportion the value of its assists using an alternate method under 19 C.F.R. § 152.103(e)(1). Specifically, LM would identify all payments to foreign vendors over the previous quarter that were related to imported merchandise but were not listed on the commercial invoices covering shipments of finished products to the United States. It would then generate reports that capture all physical goods provided to foreign vendors, as well as any freight costs incurred to ship them abroad. Once the total additional value for the previous quarter for each foreign vendor is calculated, LM Aero would apportion it pro-rata to the total value of goods entered under each HTSUS subheading from that vendor for the previous quarter. Apportioned in this way, the additional value would be reported either on the next entry filed using each applicable HTSUS provision from that vendor or through a PEA filed on an entry including that tariff provision from the previous quarter.
ISSUE:
Whether apportioning the value of assists described above is an acceptable method for CBP appraisement purposes.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions, including the value of any assist, apportioned as appropriate. 19 U.S.C. § 1401a(b)(1)(C). For the purposes of this decision, we assume that transaction value is the proper basis of appraisement.
There is no dispute here that the payments and materials that LM Aero provides to foreign suppliers are assists that must be added to the price actually paid or payable. The only question is whether LM Aero’s proposed method of apportionment is acceptable to CBP.
CBP has authority to accept a method of apportionment that is “[m]ade in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles.” See 19 C.F.R. § 152.103(e)(1). The total value of the assist may be apportioned over the first shipment (if the importer wishes to pay duty on the entire value at once), the number of units produced up to the time of the first shipment, or the entire anticipated production. Id. In addition to these three methods, the importer may, as LM Aero does here, request some other method of apportionment in accordance with generally accepted accounting principles. Id.
CBP has previously found that apportionment methods similar to LM Aero’s proposed methodology satisfy the requirements of 19 C.F.R. § 152.103(e)(1). In Headquarters Ruling (HQ) H015975, dated Sept. 13, 2007, for example, CBP allowed an importer to declare all of its assists from a given month on the first entry in the following month. CBP found that this method was acceptable because the importer provided some assists “sporadically” and therefore could not easily apportion them to individual shipments and because the costs of transportation of the assists to the production facility were not paid on a per-unit basis. Similarly, in HQ H086246, dated Mar. 2, 2010, CBP allowed an importer to use the same methodology when the value of the assists varied each month depending on the price of materials.
As in H015975 and H086246, LM Aero states that it cannot easily apportion its assists to specific shipments. LM Aero argues that it is difficult, for example, to link payments to foreign suppliers for research and development to individual shipments because those payments are often part of an ongoing development process that lasts for the life of the contract. Further, as in H015975, LM Aero does not pay for transportation of its material assists on a per-unit basis, further complicating the allocation process. Similar to the material assists in H086246, LM Aero states that the price of its material assists will fluctuate constantly because of the scope of individual purchases, multiple sources of supply, and market factors.
We note that the value of the assists will be pro-rated to the next quarter on goods from the same foreign vendor to which the assist was provided. Further, provided that most of the articles are eligible for duty-free treatment, there is less concern about avoiding paying duties on the assists on subsequent entries. See HQ H190269, dated Feb. 20, 2014.
Therefore, we find that LM Aero’s proposed method of apportioning assists is reasonable and consistent with the requirements of 19 C.F.R. § 152.103(e)(1) provided that it meets generally accepted accounting principles.
HOLDING
We find that the apportionment proposed by LM Aero in this case is an acceptable method for CBP appraisement purposes provided that the apportionment meets generally accepted accounting principles.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch