Request for Internal Advice; Discount; Related Parties

HQ H236744 December 12, 2013 OT:RR:CTF:VS H236744 JHR Area Port Director U.S. Customs and Border Protection 6747 Engle Road Middleburg Heights, OH 44130 ATTN: Ashley A. McDonough Re: Request for Internal Advice; Discount; Related Parties Dear Port Director: This is in response to your memorandum dated December 7, 2012, in which you request internal advice on whether a customer discount of [xx]% from the total entered value is applicable and whether a refund on the duty paid may be granted. FACTS: Pratt & Whitney Engine Services (PWES) imported aircraft engine spare parts from its related party Pratt & Whitney Canada (P&WC). According to P&WC, a [xx]% discount is provided to its affiliates and certain independent overhaul facilities. PWES filed multiple entries without accounting for the [xx]% discount, so PWES has filed protests to reduce the value of its entered goods by [xx]% and obtain a refund of the duties paid. As this is a recurring issue, you have requested internal advice from this office and have included a sample protest. Along with the protest are two letters that the importer claims explain the customer discount it receives. One letter is from P&WC to the broker, UPS Supply Chain Solutions, stating that PWES is a wholly-owned subsidiary, ultimately owned by United Technologies Corporation and an affiliated company of P&WC. The letter also states that PWES can confirm that it obtains a [xx]% discount off the published spare parts price list. The second letter is from P&WC stating that it is its customary commercial practice to sell engine spare parts to affiliates and certain independent overhaul facilities at a discounted rate of [xx]% off the published Engine Spare Parts List in order to afford those entities the ability to obtain a fair and reasonable profit margin on the re-selling of the parts to engine operators. The second letter also states that the facilities that receive the discounted rate provide certain functions and marketing activities for P&WC’s benefit and that the independent facilities are not restricted by P&WC in any way. PWES has not provided a sales contract between the companies establishing the pricing agreement, nor has it provided any proof of such pricing agreement with any other affiliates or independent overhaul facilities. A “customs invoice” has been submitted from P&WC for the sale of various parts to PWES, indicating the price of the part minus a [xx]% discount. Additionally, the spare parts price lists are submitted for our review. ISSUE: Whether the letters provided by the importer are sufficient to establish transaction value as the appropriate basis of appraisement for the imported merchandise. 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; TAA). The preferred method of appraisement of imported merchandise for customs purposes is transaction value. Transaction value is the price actually paid or payable for the merchandise when sold for export to the United States, plus certain enumerated additions. 19 U.S.C. §1401a(b)(1). The term “price actually paid or payable” means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C §1401a(b)(4)(A). In determining transaction value, the price actually paid or payable is considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula. Pursuant to 19 U.S.C. § 1402a(b)(2)(A)(iv), the transaction value of imported merchandise shall be acceptable only if the buyer and the seller are not related, or if the buyer and the seller are related, the transaction value is acceptable under 19 U.S.C. § 1402a(b)(2)(B). A transaction value between related parties is acceptable under 19 U.S.C. § 1402a(b)(2)(B) if the circumstances of the sale of the imported merchandise indicates that the relationship did not influence the price actually paid or payable; or if the transaction value closely approximates the transaction value, deductive value or computed value of identical or similar merchandise, also known as "test values". In this case, the buyer and seller are related parties. Accordingly, in order to use transaction value as the method of appraisal, the importer must demonstrate that its relationship with the seller did not influence the price actually paid or payable. To this end, the importer has only submitted the two letters described above and its published spare parts list. In Headquarters Ruling Letter (HRL) 547019, dated March 31, 2000, CBP held that transaction value was the proper basis of appraisement for a related party transaction because the importer satisfied CBP that the “circumstances of the sale” test had been met. In that case, the importer submitted invoices from the foreign supplier to other unrelated foreign buyers for CBP review to show that identical price discounts for merchandise identical to the imported merchandise was given to unrelated parties. This case is distinguishable from HRL 547019 because the importer has submitted no information to demonstrate that it provides a similar discount to unrelated parties. Here, the importer has not provided CBP with a list of affiliates and independent overhaul facilities that it allegedly provides the same discount too, nor has it provided CBP with actual invoices from these unrelated companies to demonstrate that they receive the same price discount. Thus, the importer has not established that its relationship with the seller did not influence the price actually paid or payable. Additionally, the importer has not provided test values for goods imported into the U.S. Therefore, we are unable to determine if the “test values” test has been met. Accordingly, to the extent that your office has doubts about the acceptability of the price and is unable to accept transaction value without further inquiry, no discount should be afforded on the protest pending before your office. Should the importer wish to establish the acceptability of the discounted price, it should be prepared to demonstrate that the relationship between it and P&WC has not influenced the price. HOLDING: The importer has not provided sufficient documentation to establish transaction value as the appropriate basis of appraisal. To the extent that your office has doubts about the acceptability of the price and is unable to accept transaction value without further inquiry, no discount should be afforded on the protest pending before your office. This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, Regulations and Rulings, Office of International Trade, will make the decision available to CBP personnel and the public on the CBP Home Page at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution. Please do not hesitate to contact us at (202) 325-0226 if you have any questions or concerns. Sincerely, Monika R. Brenner Chief, Valuation & Special Programs Branch