• HQ H269186
• Nov 06, 2015

• Type : Valuation • HTSUS :
•  Related:   563355   

OT:RR:CTF:VS H269186 AJR

Virginia A. Morris NCR Corporation Law Department, U.S. Import Compliance 3097 Satellite Boulevard Building 700, Second Floor Duluth, GA 30096

RE: Valuation of consumable products imported between related parties without a sale

Dear Ms. Morris:

This is in response to the ruling request, dated November 25, 2014, filed by NCR Corporation (“NCR”), regarding the proper appraisement of certain consumable products that it will import from a related party. Additional information was submitted on July 31, 2015.

FACTS:

NCR is a global company that is comprised of various business divisions. At issue are the consumable product transactions between NCR’s Interactive Printer Solutions division (“NCR IPS”) in the United States, and its subsidiary, NCR Consumables SA de CV (“SMX”) in Mexico. The subject consumable products will be paper receipt rolls for retail point of sale terminals and automated teller machines, but may also include other types of paper, toner, and ink.

SMX serves as NCR’s paper conversion facility. At this facility, SMX will use its equipment to cut, print, and otherwise manufacture the consumable products into their final form. However, the materials that are used to make the consumable products will be supplied to SMX by NCR IPS. That is, NCR IPS will ship materials to SMX in Mexico, and then, SMX will use its equipment to cut, print, and process these materials into consumable products. Once complete, SMX will ship the consumable products to warehouses in the United States as directed by NCR IPS.

According to NCR, there are no internal accounting transactions between NCR IPS and SMX. Rather, NCR IPS will own the materials it sends to SMX, and will retain ownership of these materials as they are being processed into consumable products and delivered back into the United States, without any ownership transfer to SMX. As a result, because NCR IPS retains ownership of the consumable products before, during, and after the processing by SMX, no commercial transaction will occur when these consumable products are transported from Mexico to the United States. Title will not transfer from NCR IPS to another party until sometime after importation when the consumable products are removed from the warehouse as purchased by an unrelated customer in the United States.

NCR seeks to appraise these consumable product transactions under computed value. NCR proposes to calculate the computed value by taking the sum of the four computed value elements as follows:

Materials, fabrication, and other processing used in producing the imported merchandise:

NCR will set base line costs of materials for future imports by using the frozen unit costs from the previous year. It will adjust and update these costs throughout the year by examining recent purchase prices and current market conditions; reviewing raw material pending costs to ensure the most recent price structures; and, performing cost roll-ups to update overhead costs, absorption rates, standard costs, and account for other variances.

Profit and general expenses:

NCR states that no profit will have attached to the goods at the point of the border crossing from Mexico into the United States. NCR did not provide its general expenses.

Any assists, if not included in item (1) or item (2):

NCR states that no assists will have attached to the goods at the point of the border crossing from Mexico into the United States.

Packing costs:

NCR will include the packing costs (material and labor) in its bill of materials or overhead rate, which are reflected in the costs to item (1).

To support this proposed calculation, NCR submitted cost spread sheets, bills of materials, and entry package documentation for consumable products. All of these consumable products are classified in Chapter 48, Harmonized Tariff Schedule of the United States (“HTSUS”), which covers different types of paper products. These consumable products are identified under 10 different part numbers. Four of these part numbers were only imported in 2014, five of these part numbers were only imported in 2015, and one of these part numbers was imported in both 2014 and 2015. Because NCR proposes to calculate the cost elements of its computed value from previous years, and only one part number provides a comparison between the current year and the previous year, we will address the proposed calculation with regard to that part number.

The two imports of the part number were entered on February 14, 2014, and July 11, 2015, and were classified under 4811.90.9030, HTSUS. The 2014 entry was for 150 thermal paper rolls with an invoice value of $127.80, amounting to an entry cost per unit of $0.85198. The bill of materials shows that SMX manufactured these paper rolls by processing three separately identified materials into thermal paper rolls at costs of $42.60 per carton of 50 rolls. These cost values are consistent with the 2014 entry values. The 2014 documentation does not provide a country of origin for the materials. The 2015 entry was for 7,200 thermal paper rolls with an invoice value of $5,962.19, amounting to an entry cost per unit of $0.82608. The bill of materials shows that SMX manufactured these paper rolls by processing four separately identified materials into thermal paper rolls at costs of $41.40 per carton of 50 rolls. These cost values are consistent with the 2015 entry values. The 2015 documentation indicates that the country of origin of the thermal paper rolls is the United States. All three materials used in the production of the rolls in 2014 were used in the production of the rolls in 2015. The additional material used in 2015 was an NCR label that was processed into the rolls, which was not used in 2014.

The Office of Regulatory Audit in Atlanta, Georgia (“RA”) of U.S. Customs and Border Protection (“CBP”) also reviewed NCR’s cost information during a Focused Assessment audit. RA indicated that the manner in which NCR accounted for its costs reasonably aligned with the manner in which similar companies accounted for their costs. RA confirmed that these costs included NCR’s packing costs. RA also provided the resale information for another consumable product that was imported by NCR in 2013, and then sold to an unrelated party. This consumable product was identified as “BPA Free Thermal Printed Paper Roll” and had the same classification number as the part number above. The roll from 2013 had a cost of $17.84 per unit, an entry invoice value of $17.74 per unit for the invoice between NCR IPS and SMX, and a final invoice value of $22.03 per unit for the invoice between NCR and an unrelated party. While RA conducted a Focused Assessment, we are informed that no current entries remain pending.

ISSUE:

What is the proper method of appraisement for the consumable products at issue? 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 (TAA; 19 U.S.C. §1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. §1401a(b)(1).

In order for transaction value to be applicable for appraisement purposes, there must be a bona fide sale of merchandise for export to the United States. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. §1401a(b)(1) means a transfer of property from one party to another for consideration, citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974).

In Headquarters Ruling Letter (“HQ”) 563355, dated January 18, 2006, there was no sale for exportation to the United States for a transaction that was similar to a bailment. Bailment was defined as a “delivery of goods or personal property, by one person to another in trust for the execution of a special object upon or in relation to such goods, beneficial either to the bailor or bailee or both, and upon a contract, express or implied, to perform the trust and carry out such object, and thereupon either to redeliver the goods to the bailor or otherwise dispose of the same in conformity with the purpose of the trust.” “Bailment” was distinguished from “sale” because “bailment always contemplates the return to the bailor of the specific article delivered, either in its original form or in a modified or altered form, or the return of the article which, though not identical, is of the same class, and is equivalent,” while a sale “never involves the return of the article itself, but only a consideration of money.” Like a bailment, the importer in HQ 563355 never transferred ownership of the product at issue, retained titled to the product at all times, assumed any risk of loss of the product, and the eventual return of the product to the importer was always a part of the transaction.

In this case, NCR IPS will own and supply the materials supplied to SPX for the production of consumable products. While the materials are being processed into consumable products, NCR IPS will retain title to the materials along with the consumable products that are eventually produced from these materials. There will never be a transfer of ownership, and the eventual return of the materials as consumable products is always part of the transaction between NCR IPS and SPX. Based on these facts and the similarities to a bailment as illustrated in HQ 563355, we find that there is no sale for exportation of the consumable products to the United States. Therefore, the consumable products at issue cannot be appraised on the basis of transaction value.

When transaction value is not available as an appraisement method, the remaining methods of appraisement set forth in 19 U.S.C. §1401a must be applied in sequential order. The alternative methods of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. §1401a(d)); computed value (19 U.S.C. §1401a(e)); and, the “fallback” method (19 U.S.C. §1401a(f)).

The transaction value of identical merchandise or similar merchandise is based on sales, which have been previously accepted by CBP, that are at the same commercial level, in substantially the same quantity, and exported to the United States at or about the same time, as the merchandise being appraised. See 19 U.S.C. §1401a(c). No information is provided with regard to this appraisement method, and we have no other information concerning previously accepted values of such consumable products. Therefore, to the extent that such information is not available, the consumable products cannot be appraised using transaction value of identical merchandise or similar merchandise.

Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the United States in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. 19 U.S.C. §1401a(d)(2)(A)(i)-(ii). However, at the time of entry, an importer may elect to reverse the order of appraisement under deductive and computed value. See 19 U.S.C. §1401a(a)(2) and 19 CFR §152.101(c). If the importer makes the request, but the value of the imported merchandise cannot be determined using the computed value method, the merchandise will be appraised using the deductive value method if it is possible to do so. If the deductive value cannot be determined, the appraised value will be determined as provided for in 19 CFR §152.107. Therefore, provided NCR elects to reverse the order of appraisement under deductive value and computed value, and presents CBP with the documents to support computed value, it is possible that the merchandise may be appraised under computed value.

The computed value statute, per 19 U.S.C. §1401a(e), provides the following:

(1) The computed value of imported merchandise is the sum of – (A) the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise; (B) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States; (C) any assist, if its value is not included under subparagraph (A) or (B); and (D) the packing costs.

(2) For purposes of paragraph (1) – (A) the cost or value of materials under paragraph (1)(A) shall not include the amount of any internal tax imposed by the country of exportation that is directly applicable to the materials or their disposition if the tax is remitted or refunded upon the exportation of the merchandise in the production of which the materials were used; and (B) the amount for profit and general expenses under paragraph (1)(B) shall be based upon the producer’s profits and expenses, unless the producer’s profits and expenses are inconsistent with those usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by producers in the country of exportation for export to the United States, in which case the amount under paragraph (1)(B) shall be based on the usual profit and general expenses of such producers in such sales, as determined from sufficient information.

NCR proposes to calculate the computed value by taking the sum of the four elements described in 19 U.S.C. §1401a(e)(1). With regard to the first element, NCR will use the cost information from previous years and adjust it based on roll ups and reviews of the recent price structures. NCR submitted documentation showing the costs incurred to produce the consumable products in 2014 and 2015. The documentation for the one part number that was imported in both years shows how the costs that were incurred for the production of this part when it was imported in 2014 could be used when calculating the costs for producing the same part for importation during the following year. NCR also shows how it tracks the cost adjustments from one year to the next per its supply chain bills of materials, which indicate that NCR could file for reconciliation if it needed to enter the consumable parts with estimated cost values, and then accurately adjust them to the actual cost values when the information becomes available. Furthermore, RA indicated no problems with NCR’s cost information, and confirmed that NCR includes its packing costs in its cost calculations, which covers the fourth element of computed value. Therefore, to the extent that NCR calculates the computed value of its other consumable products in the same manner as it does for the part number imported during 2014 and 2015, we have no issue with NCR’s calculations of the first and fourth elements of computed value.

With regard to the second element of computed value, NCR states that no profit will be attached or applied to the consumable products at the point of border crossing from Mexico into the United States. As noted in 19 U.S.C. §1401a(e)(2)(B), the computed value calculation would use NCR’s actual profit and general expenses, unless such is inconsistent with the usual profit and general expenses for sales of the same class or kind of merchandise from a producer in Mexico to a buyer in the United States. Section 152.106, CBP Regulations (19 CFR §152.106), further explains that “the amount for profit and general expenses will be taken as a whole. If the producer’s profit figure is low and general expenses high, those figures taken together nevertheless may be consistent with those usually reflected in sales of imported merchandise of the same class or kind.” Thus, even if there is no sale between SPX and NCR IPS, and no profit with regard to the transaction between them, we still need the general expenses that will be incurred from cutting and printing the consumable products at the facility in Mexico. Since the actual profit and general expenses are taken as a whole and there is no actual profit, then we would need to determine if the actual general expenses are consistent with the usual profit and general expenses for sales of imported merchandise of the same class or kind. If they are consistent, then we can include the general expenses in the calculation of the computed value; otherwise, we would include the usual profit and general expenses in the computed value calculation. Because we have no information on the actual general expenses or the usual profit and general expenses, we cannot definitively rule that the third element of NCR’s proposed calculation would be calculated in accordance with the computed value method of appraisement.

With regard to the third element of computed value, NCR states that no assists will be attached or applied to the consumable products at the point of border crossing from Mexico into the United States. We note that NCR IPS supplies the materials to SPX, which SPX in turn uses to produce the consumable products. These are technically assists, but since the cost of these assists are included in the cost calculation per 19 U.S.C. §1401a(e)(1)(A), the proposed calculation with regard to these assists is acceptable. However, since SPX is owned by NCR IPS, and we have no information as to how SPX acquires the equipment it uses to cut and print the consumable products, we cannot definitely rule that all of the assists to SPX will be included in the computed value calculation.

Therefore, in this case, because we cannot definitely calculate the second and third elements of computed value, we note that NCR’s proposed computed value calculation may be proper, but only to the extent that such profit and general expenses information, and assist information, is available and can be verified as needed. See 19 CFR §141.88; see also 19 CFR §177.9(b)(1). If such information is not available, then computed value appraisement may be inapplicable.

If the computed value is not available, then the deductive value method may be applicable. In this case, RA provided the resale price information for a similar consumable product that was imported from SPX in Mexico to NCR IPS in the United States under similar circumstances, and then sold to an unrelated party in the United States. If such resale information is available for the consumable products at issue, then deductive value may be the proper method of appraisement for this case. Otherwise, NCR should appraise the consumable products under the fallback method per 19 U.S.C. §1401a(f), making reasonable adjustments to either the computed value or deductive value. Whether adjustments are made to the computed value or deductive value, will depend on the method that permits CBP to determine the appropriate value by reasonable ways and means using whatever information is available, within certain constraints. See Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess., pt 2, reprinted in, Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 67.

HOLDING:

Based on the facts submitted, the subject consumable products should be appraised under the computed value method of appraisement pursuant to 19 U.S.C. §1401a(e), provided NCR is prepared to present CBP with documentation to support appraisement under this method. The documentation is also subject to any verification deemed necessary in accordance with 19 CFR §141.88 and 19 CFR §177.9(b)(1).

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.                           Sincerely,

Monika R. Brenner, Chief Valuation and Special Programs Branch