OT:RR:CTF:VS H338211 EE
Center Director
Electronics Center of Excellence and Expertise
U.S. Customs and Border Protection
423 Canal Street, Room 251
New Orleans, LA 70130
RE: Application for Further Review of Protest No. 5501-23-106984; Transaction Value; First Sale
Dear Center Director:
This is in reference to the Application for Further Review (“AFR”) of Protest No. 5501-23-106984, timely filed on October 10, 2023, on behalf of [X] Inc. (hereinafter, the “protestant”), concerning the valuation of certain cryptocurrency mining equipment.
The protestant has requested that certain information submitted in connection with this AFR request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this AFR request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The entries at issue pertain to cryptocurrency mining machines (“miners”) purchased by the protestant from its related seller, Company A [X], which in turn purchases the miners from unrelated supplier, Company B [X]. Company B sources the goods from a related manufacturer. Company B is unrelated to both the protestant and Company A. The protestant states that the products are manufactured in China at the factory and exported from China to the United States, generally imported through the Port of Houston, Texas. The entries at issue were declared at the invoice price between the protestant and Company A; however, the protestant claims that the first sale price between Company A and Company B is the appropriate transaction value.
On December 12, 2023, U.S. Customs and Border Protection (“CBP”) requested documents from the protestant to substantiate their claim that transaction value should be based on the sale between Company A and Company B. On December 22, 2023, counsel for the protestant submitted the Purchase and Sale Agreement between Company A and Company B; Sale and Purchase Agreement between the protestant and Company A; and refund request calculations. Counsel indicated that the protestant would further supplement the protests in January 2024 with the respective entry packets. This information was not provided. On February 22, 2024, CBP requested again the additional entry documents to support the protestant’s first sale claim, which the protestant acknowledged would be provided. Once again, this information was not provided. On July 25, 2024, our office requested commercial documents including purchase orders, commercial invoices, packing lists, bills of lading, and payment records between the three parties at issue. We have not received the additional documents nor acknowledgment of our request.
ISSUE:
Whether the sales between Company A and Company B are bona fide sales for export to the United States which may be used for appraisement purposes under transaction value.
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, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1).
The protestant seeks to utilize transaction value based on the sale between Company A and Company B. In Nissho Iwai American Corp. v United States, 982 F. 2d 505 (Fed. Cir. 1992), the court reviewed the standard for determining transaction value in a multi-tiered transaction. The court case involved a foreign manufacturer, a middleman, and a U.S. purchaser. The court held that the price paid by the middleman to the foreign manufacturer was the proper basis for transaction value. The court stated that in order for the foreign manufacturer’s price to be a valid transaction value, the transaction between the foreign manufacturer and the middleman needed to be a sale negotiated at “arm’s length” that was free from any non-market influences, and involved goods clearly destined for exportation to the United States.
In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. An importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. It is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai. The U.S. importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length sale” and that it was “a sale for export to the United States” within the meaning of 19 U.S.C. § 1401a.
In Treasury Decision (“T.D.”) 96-87, dated January 2, 1997, the Customs Service (now CBP) advised that the importer must describe in detail the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States (e.g., the alleged sale between the importer and middleman, and the alleged sale between the middleman and the manufacturer). Relevant documents include, but are not limited to purchase orders, invoices, proof of payments, contracts, and any additional documents (i.e. correspondence) that establish how the parties deal with one another. CBP is looking for “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value.
In this case, the CEE found that certain documentation, such as purchase orders, commercial invoices, packing lists, bills of lading, payment records, and cargo insurance documents were not provided to establish that transaction value should be based on the sale between Company A and Company B. The CEE requested these commercial documents from the protestant demonstrate their first sale claim. Further, on July 25, 2024, our office requested commercial documents including purchase orders, commercial invoices, packing lists, bills of lading, and payment records between the three parties at issue. We have not received the additional documents nor acknowledgment of our request. The protestant indicated in their protest submission that a representative document package of a transaction with Company B inclusive of sales contracts, invoices, shipping documents, and proofs of payment would be provided. However, only the contracts between the three parties were provided.
In this case, CBP has not been presented with a complete paper trail. The submitted documents, the purchase and sale agreements between the three parties and refund request calculations are not sufficient evidence of a complete paper trail showing the structure of the entire transaction, including the roles of the parties, terms of sale between the parties, and evidence of the passage of consideration between parties. We agree with the CEE that insufficient evidence has been presented to support valuation based upon a sale between Company A and Company B. Accordingly, we find that the appraisement of the merchandise should be based upon the price paid by the protestant.
HOLDING:
Based on the information presented, the appraisement of the merchandise should be based upon the price paid by the protestant. The protest should be DENIED.
You are instructed to notify the protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel and the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/, or other methods of public distribution.
Sincerely,
for Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division