Ruling Request Regarding Dutiability of Payments Made for Consultation Services

HQ 544143 July 5, 1988 CLA-2 CO:R:CV:V 544143 EK CATEGORY: Valuation Robert L. Eisen, Esquire Coudert Brothers 200 Park Avenue New York, New York 10166 RE: Ruling Request Regarding Dutiability of Payments Made for Consultation Services Dear Mr. Eisen: This is in response to your letter of January 29, 1988, requesting a ruling as to the dutiability of certain payments made by your client (importer), to an unrelated Hong Kong company for consultation services in locating quota holding companies. You state that this request relates to prospective transactions. FACTS: You state that due to the importer's import volume and restrictions of articles of apparel from Taiwan, a substantial amount of quota allocations is necessary in order to import Taiwanese merchandise. In order to facilitate this endeavor, the importer has commissioned the services of an unrelated Hong Kong company (hereinafter referred to as HT) to consult with the importer as to which manufacturers have available quota. Subsequent to locating a manufacturer to produce the imported merchandise, HT will contact another Taiwanese company (hereinafter referred to as company A) and instruct it to transfer the necessary quota sufficient to cover the importer's purchase order. You indicate that HT and company A are related parties. Company A will transfer the quota to the manufacturer designated by HT, and the manufacturer will pay the costs incurred in connection with the quota transfer. - 2 - The importer and the manufacturer then agree upon a price for the merchandise and the purchase order is placed. Payment for the imported merchandise will be made by the importer directly to the manufacturer once the goods are shipped. In exchange for HT's services, the importer will pay a fixed consultation fee equal to $10 per dozen garments shipped. The payments are to be made once per season and are made directly to HT. You state that the payments are not required as a condition to exportation of the merchandise and that the payments made by the importer to the manufacturers are entirely separate from the payments made to HT. You indicate that HT is not related to any of the companies that will manufacture the imported merchandise. ISSUE: Whether the payments made by the importer to the unrelated Hong Kong company (HT) are to be included in the transaction value of the imported merchandise pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)). LAW AND ANALYSIS: For purposes of this ruling request, we are assuming that transaction value, the preferred method of appraisement, is applicable in appraising the imported merchandise. Transaction value is defined in section 402(b) of the TAA as "the price actually paid or payable" for the merchandise when sold for exportation to the United States. The phrase "the price actually paid or payable" is further defined in section 402(b)(4)(A) as: . . . the total payment (whether direct or indirect . . . ) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Section 402(b)(1), in defining transaction value, enumerates certain additions to be made to the "price actually paid or payable." However, none of these are relevant for purposes of this request, other than to indicate that the fees indicated by the importer are not one of the additions to transaction value. - 3 - The payments in question are not made to the seller of the imported merchandise. The payments are made pursuant to an arrangement which is separate and apart from the transactions vis-a-vis the manufacturers of the imported goods. As indicated above, the payments are not tied to particular shipments of merchandise but rather, are made once every season. HOLDING: In view of the foregoing, the payments made by the importer to HT in connection with services rendered in locating sources of quota are not to be added to the "price actually paid or payable," assuming the applicability of transaction value. Sincerely, John Durant Acting Director, Commercial Rulings Division