OT:RR:CTF:VS H304125JMV
Nicole O’Reilly
Lee Valley
1090 Morrison Dr.
Ottawa, ON K2H 1C2
Canada
RE: Valuation of Tools Transferred between Related Parties
Dear Ms. O’Reilly,
This is in response to your letter received on June 10, 2019, on behalf of Lee Valley Tools Ltd. (LV Canada), in which you request a ruling, pursuant to 19 C.F.R. Part 177, regarding the acceptable basis of appraisement of tools that will be transferred between related parties.
FACTS:
LV Canada is an importer and retailer of woodworking and garden tools and kitchen supplies. LV Canada ships orders to U.S. consumers directly from Ottawa, ON to 43 U.S. states. LV Canada ships orders to the remaining seven U.S. states from Lee Valley Tools USA Inc. (“LV USA”), which acts as a warehousing facility for LV Canada in the United States. When a U.S. consumer located in one of these seven states purchases goods from LV Canada, LV USA picks and packs the goods, then ships them to the U.S. consumer. LV Canada then pays LV USA a per transaction pick/pack fee. You note that LV Canada retains ownership of the product until the U.S. consumer purchases the good directly from LV Canada.
You state that the average turn rate for product warehoused with LV USA is two times per year. However, you also note that the value at which the warehoused product sells to U.S. consumers generally remains the same compared to the value when they are first imported into the United States since LV Canada’s prices only change approximately once a year. You further stated, in a telephone call with this office, that the only price list that LV Canada has is for the products sold at the unit level to the end user.
ISSUE:
Whether the correct method of appraisement of the imported tools is the modified deductive value under section 402(f).
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 primary method of appraisement is transaction value, defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States” plus the value of certain statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1).
In order for transaction value to be used as a method of appraisement, there must have been a “sale” between the parties. 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 title from one party to another for consideration (citing J.L. Wood v. United States, 62 CCPA, 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). Without a sale for exportation to the United States, transaction value must be eliminated as a means of appraisement.
Here, you state that the goods are not sold, but are transferred to LV USA for storage until sold to a U.S. consumer. LV USA never receives title to the goods; rather, LV Canada retains title of the goods until a sale to a U.S. consumer occurs. Therefore, no bona fide sale occurs and transaction value cannot be used as the basis of appraisement.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. The alternative bases of appraisement, in order of precedence, are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; and computed value. If the value of imported merchandise cannot be determined under these methods, it is to be determined in accordance with section 402(f) of the TAA. 19 U.S.C. § 1401a(a)(1).
The first and second alternative bases of appraisement are the transaction value of identical merchandise and the transaction value of similar merchandise, as determined in accordance with section 402(c) of the TAA. Appraised values of identical and similar merchandise are based on values that are acceptable as appraised values under section 402(b) of the TAA. 19 U.S.C. § 1401a(c)(1). Transaction values determined under section 402(c) should be based on sales of merchandise at the same commercial level and in substantially the same quantity as the sales of the merchandise being appraised. However, if no such sale is found, sales of merchandise at either a different commercial level or in different quantities, or both, should be used, but adjusted to take account of any such difference. Any adjustment shall be based on sufficient information, such as valid price lists containing prices referring to different levels or quantities. Here, sufficient information means information that establishes the accuracy of any adjustments. 19 C.F.R. 152.102(j)(3). See Headquarters Ruling (“HQ”) 544375 dated, July 6, 1990 (finding that the submission of an invoice and an adjusted worksheet that could not be verified did not adequately provide the price actually paid or payable).
Although LV Canada imports the same merchandise to U.S. consumers not located in the seven states replenished by LV USA, it is stated that neither the commercial level nor the quantity is the same. Further, LV Canada states that it does not have information that would constitute “sufficient information” upon which to base any adjustments. Therefore, the transaction value of identical or similar merchandise is not an appropriate basis of appraisal.
Deductive value pursuant to section 402(d) of the TAA is the next applicable basis of appraisement and is based on the unit price at which the merchandise concerned is sold in the United States in the greatest aggregate quantity, generally in the condition as imported and at or about the time of importation of the merchandise being appraised. Provided the merchandise is not further processed, the unit price at which imported merchandise is sold in the greatest aggregate quantity means the unit price at which it is sold to unrelated persons at the first commercial level after importation. In order to use this method, the merchandise must be sold in the United States within 90 days of the date of importation. 19 U.S.C. § 1401a(d).
Here, the average turn rate for products imported into the United States is twice per year. Therefore, LV USA does not typically sell product within 90 days and the deductive value cannot be used to value the tools imported by LV Canada.
The next method of appraisement is the computed value method, set forth in section 402(e) of the TAA. Computed value is defined as the sum of, inter alia: the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise; and an amount for profit and general expenses equal to that usually reflected in sales for export to the United States, by producers in the country of exportation, of merchandise of the same class or kind. 19 U.S.C. § 1401a(e)(1).
Since LV Canada buys products from unrelated suppliers, LV Canada does not have the required information to determine the computed value. Therefore, computed value is precluded as a method of valuation in this instance.
When the value of imported merchandise cannot be determined under 19 U.S.C. § 1401a(b-e), it may be appraised under 19 U.S.C. § 1401a(f) on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method. Certain limitations exist under this method, however. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the United States, minimum values, or arbitrary or fictitious values. 19 U.S.C. § 1401a(f); 19 C.F.R. § 152.108.
Under section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, the appraising officer may:
fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding…
19 U.S.C. § 1500(a).
In this regard, the Statement of Administrative Action (SAA), which forms part of the legislative history of the TAA, provides in pertinent part:
Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations. . . . Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.
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. Section 152.107 of the CBP regulations (19 C.F.R. § 152.107) provides:
Reasonable adjustments. If the value of imported merchandise cannot be determined or otherwise used for the purposes of this subpart, the imported merchandise will be appraised on the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States will be used.
Here, you propose to use the deductive value reasonably adjusted. You suggest that the value of the imported goods be based on the retail price minus the allowable deductions (i.e. commissions, profit, general expenses, transportation and insurance costs, Customs duties and federal taxes). You assert that, because the retail price of the goods changes only once a year, the 90 day requirement should be eased to arrive at a deductive value reasonably adjusted.
CBP has accepted a similar method of valuation in the past. In Headquarters Ruling (“HQ”) 546312, dated January 17, 1997 merchandise was consigned to the importer from its related party supplier and was often sold in the United States 6 to 9 months after the goods were imported. After ruling out all the other methods of valuation, CBP found that the most appropriate way to appraise the imported merchandise was to use a modified deductive value pursuant to 19 U.S.C. 1401a(f), where the time restriction of “90 days” was relaxed. In making this decision, CBP cited 19 C.F.R. 152.107(c), which states that the “90 days” requirement for the sale of merchandise under the deductive value may be administered flexibly.
Similarly, because the sales of the merchandise in the United States generally occur over 90 days after importation, the most appropriate way to appraise the imported tools would be to use a modified deductive value under 19 U.S.C. 1401a(f) where the time restrictions of 19 U.S.C. 1401a(d) are relaxed. The value should be based on the price the goods will be sold for, the retail price, minus the allowable deductions.
HOLDING:
As set forth above, the subject merchandise may be using a modified version of deductive value under the fallback method set forth in 19 U.S.C. § 1401a(f) as described above.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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