Internal Advice Request; Applicability of Transaction Value; Section 1401a(f); Technology Products

August 18, 2014 HQ H254798 OT:RR:CTF:VS H254798 YAG CATEGORY: Valuation Field Director Port of Miami, Office of Regulatory Audit 11232 NW 20th Street Miami, FL 33172 Re: Internal Advice Request; Applicability of Transaction Value; Section 1401a(f); Technology Products Dear Field Director: This is in response to your request for internal advice, transmitted to our office on June 16, 2014, regarding the proper method of appraisement of merchandise imported by Software Brokers of America, Inc. (“SBA”). FACTS: SBA is an importer and wholesale distributor of technology products. SBA purchases these products from its suppliers in China and stores them in a Deutsche Post (“DHL”) warehouse, also located in China. The company uses a first in first out (“FIFO”) inventory system. SBA imports the technology products into the United States on an as needed basis. Prior to importation, SBA sends a request to the DHL warehouse in an excel file, with the desired items and quantity. DHL creates a packing list and based on this packing list, Jetshop (SBA’s supplier and warehouse management company) creates a customs invoice. This invoice includes the current market price of the item, which is the value declared to the U.S. Customs and Border Protection (“CBP”) at the time of importation and claimed to be the transaction value method of appraisement. This market price represents the selling price SBA would have paid to its foreign supplier for the merchandise had it been purchased at the time for exportation for sale directly to the United States, without prior storage in the Chinese warehouse. SBA states that it is unable to isolate the price actually paid or payable for specific units being imported into the United States from its DHL warehouse due to the intermingled inventory (making it difficult to assign a specific cost to an individual unit). The Office of Regulatory Audit (“RA”), Miami Field Office, Florida audited the company and disclosed deficiencies in SBA’s internal controls for reporting accurate value. Specifically, RA discovered that the commercial invoice and corresponding payments provided did not represent the purchase of the imported merchandise, but instead represented the purchase of identical or similar items. In other words, in many instances, the declared values could not be linked to payments. Therefore, the market value declared was the foreign vendor’s unit price at the time of exportation, which may or may not have reflected the price paid for the imported merchandise. RA opines that transaction value method is not the appropriate method of appraisement in this case, and the imported merchandise should be valued under 19 U.S.C. §1401a(f). RA provided the following documents for our review: (1) SBA d/b/a Intcomex import procedures; (2) CBP Form 7501; (3) customs invoice reflecting “market value” of the imported merchandise (prepared by Jetshop and issued to Intcomex (SBA d/b/a Intcomex) at the time of importation); (4) commercial invoice prepared by a foreign supplier and issued to Intcomex (SBA d/b/a Intcomex); (5) packing list (prepared by Jetshop for account and risk of Intcomex); (6) receiving slip (issued by Intcomex); (7) bill of lading (issued by CEVA Ocean Line and identifying Intcomex, Inc. as consignee); and, (8) payment record (identifying SBA as originator and a foreign supplier of SBA as beneficiary). Our decision follows. ISSUE:   What is the proper method of appraisement in this case? LAW AND ANALYSIS: Merchandise imported into the United States is appraised for customs purposes 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). Imported merchandise must have been sold for exportation to the United States in order for transaction value to be applicable. 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)). CBP will consider such factors as whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. No single factor is decisive in determining whether a bona fide sale has occurred. See Headquarters Ruling Letter (“HRL”) 548239, dated June 5, 2003. Evidence to establish that consideration has passed includes payment by check, bank transfer, or payment by any other commercially acceptable means. Payment must be made for the imported merchandise at issue; a general transfer of money from one corporate entity to another, which cannot be linked to a specific import transaction, does not demonstrate passage of consideration. See HRL 545705, dated January 27, 1995. In the instant case, SBA’s declared values cannot be linked to the imported merchandise; thus, SBA does not have the necessary evidence to establish that consideration has passed between the parties for the imported merchandise. Additionally, it is not clear that there is a sale for export to the United States when SBA purchases the merchandise in China and stores the merchandise in the DHL warehouse, to be withdrawn from this warehouse on an as needed basis. Therefore, the imported merchandise at issue cannot be appraised on the basis of transaction value. When imported merchandise cannot be appraised on the basis of transaction value, it is to be appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. §1401a(a). The alternative bases 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 or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as the merchandise being appraised. Once again, SBA’s declared values and payments cannot be linked to the imported merchandise; therefore, we are unable to tie the purchase of identical or similar merchandise to a specific importation. Accordingly, it is not possible to appraise the imported merchandise on the basis of the transaction value of identical or similar merchandise method of appraisement. Under the deductive value method, imported merchandise is appraised on the basis of the price at which it or identical or similar merchandise 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). This price is subject to certain enumerated deductions. 19 U.S.C. §1401a(d)(3). Pursuant to 19 U.S.C. §1401a(a)(2), if the value cannot be determined on the basis of the transaction value of identical or similar merchandise, the merchandise shall be appraised on the basis of the computed value, rather than the deductive value, if the importer makes a request to that effect to the customs officer concerned. See also 19 CFR §152.102(c). According to the facts in this case, the imported merchandise is not sold in the United States. As a result, the deductive value method of appraisement is also inapplicable under the circumstances of the instant case. The computed value method is the next potentially applicable basis of appraisement. 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). SBA is not a manufacturer of the imported merchandise. Since there is no information on which to base computed value, this method is also unavailable. If merchandise cannot be appraised under the above methods, its value is to be determined in accordance with section 19 U.S.C. §1401a(f)), which provides that merchandise should be appraised on the basis of a value derived from one of the previous methods, reasonably adjusted to the extent necessary to arrive at a value. To the greatest extent possible, values determined under section 1401a(f) should be based on previously determined values. In this case, SBA is appraising the imported merchandise on the basis of the “market value.” We understand that the “market value” represents the current selling price of identical or similar merchandise from the foreign vendor to SBA, had a sale taken place for exportation to the United States. So, the “market value” is the price that SBA would have paid to its suppliers in China at the time, had a bona fide sale for exportation into the United States occurred. Upon examination of the documents provided in this case, we find that the “market value” stated on Jetshop’s invoice to SBA/Intcomex may serve as an appropriate customs value to appraise SBA’s imported merchandise on the basis of modified transaction value of identical or similar merchandise under 19 U.S.C. §1401a(f). HOLDING: In conformity with the foregoing, we find that transaction value is not the appropriate method of appraisement in this case; however, we determine that SBA’s “market value” is an acceptable basis of determining the appraised value of the imported merchandise. 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, the Office of Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web 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) 325-0042 if you have any questions or concerns. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch