Taxes paid in the country of exportation; Caterpillar, Inc. v. United States

HQ H304236 June 4, 2020 OT:RR:CTF:VS H304236 AP CATEGORY: Valuation Richard Furman Furman Law Offices, LLC 180 Froehlich Farm Blvd. Woodbury, New York 11797 RE: Taxes paid in the country of exportation; Caterpillar, Inc. v. United States Dear Mr. Furman: This is in response to your letter, dated June 11, 2019, in which you request a prospective ruling, on behalf of your client, Robert Graham Designs LLC (“RGD”), regarding whether foreign taxes and levies paid by it upon purchase of the merchandise and refunded upon exportation are deductible from the transaction value of apparel imported from India. FACTS: You state that the U.S. importer and consignee, RGD, is a designer and wholesaler of apparel, and has its principal place of business in New York. The foreign vendor and exporter, Texport Industries Pvt. Ltd., located in Bangalore, India, manufactures RGD’s apparel in India. Upon sale of the merchandise, the vendor in India is required to collect Indian taxes and levies from the U.S. buyer, RGD. The taxes/levies are refunded by the foreign government authorities to the U.S. buyer at the time of exportation from India to the United States. The merchandise value listed on the commercial invoice does not include the refunded foreign taxes and levies. You advise that the Indian taxes and levies that are refunded are Goods and Services Tax (“GST”), rebate of State and Central Taxes and Levies (“ROSCTL”), and duty drawback. RGD believes that the transaction value of the imported apparel should not include any of the foreign taxes/levies refunded to it upon exportation from India when the merchandise is entered for consumption in the United States. ISSUE: Whether foreign taxes/levies paid in India and refunded by the foreign authorities to the U.S. buyer upon exportation are included in the price actually paid or payable when the apparel imported from India is entered for consumption in the United States. 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 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). We are assuming, for the purposes of this ruling, that transaction value is the appropriate basis of appraisement for the imported merchandise. In Caterpillar, Inc., v. United States, 941 F. Supp. 1241, 20 CIT 1169 (1996), Caterpillar purchased truck components from a British corporation. The British revenue authorities assessed Value Added Tax (“VAT”) upon the sale of the merchandise. The invoice the British corporation issued to Caterpillar included an amount for the merchandise and a separate amount for the VAT. The merchandise was exported to the United States, and the British government refunded the VAT paid to Caterpillar. Upon importation, U.S. Customs and Border Protection (“CBP”) appraised the merchandise including the VAT taxes in transaction value. The court noted that VAT taxes were not explicitly listed as one of the five statutory enumerated additions to transaction value, nor were they one of the listed exclusions to transaction value pursuant to 19 U.S.C. § 1401a(b)(3). The court ruled that when VAT taxes are separately identified and are refunded, they may not be included in the transaction value of the merchandise pursuant to 19 U.S.C. § 1401a(b). In Headquarters Ruling Letter (“HQ”) 548128, dated July 15, 2002, CBP specifically addressed the issue of whether refunded Canadian taxes should be included in the price paid or payable for the merchandise. In that case, a U.S. resident purchased an automobile in Canada. The paid GST and Provincial Sales Tax (“PST”) were separately listed on the bill of sale. The importer paid the internal Canadian taxes and made a claim that these amounts were subsequently refunded to it. CBP determined that there were no material differences between the facts presented and those in Caterpillar. CBP held that neither the GST nor PST should be included in the price actually paid or payable for the merchandise assuming that the taxes paid in the country of exportation were refunded to the importer. Similarly, in HQ 548161, dated Aug. 21, 2002, the U.S. importer purchased an automobile in Canada. The purchase contract price included a GST, which was separately itemized. The importer paid the entire purchase price and the GST amount paid to the seller was refunded to the importer by the Canadian government. CBP concluded that the GST was not properly included in the transaction value as part of the price actually paid or payable, and that it also was not an addition to the price actually paid or payable for the merchandise. From the facts presented in the matter that you forwarded to us, the importer paid internal Indian taxes/levies for the purchase of the apparel. These taxes/levies were separately identified in the shipping bill for export submitted to us. The shipping bill for export indicates a notation that the importer intends to claim a refund of the paid tax/levies from the Indian authorities and includes a bank account number for the deposit of the refund. Although we have no proof before us, you indicate that these taxes/levies were refunded to the importer. Consequently, based on Caterpillar, Inc. and rulings HQ 548128 and HQ 548161, and assuming that the Indian taxes/levies were refunded to the importer, they are not included as part of the price actually paid or payable for the merchandise. HOLDING: Based on the information provided, assuming the subject taxes/levies paid in the country of exportation were refunded to the importer, they are not included in the price actually paid or payable for the merchandise. 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 & Special Programs Branch