Related Parties; Aircraft parts imported under consignment; Method of Appraisement

HQ H307779 March 24, 2020 OT:RR:CTF:VS H307779 AP CATEGORY: Valuation [ ] [ ] Support & Services [ ] [ ], VA [ ] Re: Related Parties; Aircraft parts imported under consignment; Method of Appraisement Dear Ms. [ ]: This is in response to your request for a binding ruling, dated December 20, 2019, regarding the proper appraisement of commercial aircraft parts imported under consignment from a parent company in [ ]. You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), your request for confidentiality is approved. The information contained within brackets and all attachments to your request for a binding ruling, forwarded to our office, will not be released to the public and will be withheld from the published version of this ruling. FACTS: The relevant entities to the intercompany transaction at issue are the parent company operating in [ ] and its U.S. related party located in the United States. The parent company will transfer aircraft parts on consignment from its warehouse in [ ] to the U.S. related party’s non-bonded warehouse in [ ], Virginia. The U.S. related party supports regional airline customers in [ ]. The parent company is responsible for customers in all other countries. The U.S. related party will be the importer of record for the merchandise being transferred. The parent company will deliver the merchandise to the U.S. related party at the parent company’s sole risk, cost, and expense. The U.S. related party will clear the goods through U.S. Customs and Border Protection (“CBP”) using a pro forma invoice with a computed value for the merchandise and will pay all duties/taxes/fees. After importation, the parent company will maintain legal control of the merchandise and the inventory will be carried on its books at cost in [ ] currency. The U.S. related party also owns an inventory of mostly the same parts as in the consignment, which is stored in the same building as the consignment and carried in the U.S. related party’s books in USD. Customers in the [ ] will place orders with the U.S. related party. If it does not have the parts in its own inventory stored in the same building as the consignment, the U.S. related party will purchase the merchandise from the parent company’s consignment and ship the parts to its customers. The U.S. related party will also replenish its own stock from the consignment without a customer order. There are no direct sales from the parent company to the customers in the [ ]. The parent company only sells the merchandise to its customers located outside of the [ ]. The only sale between the parent company and a U.S. customer is when selling from the parent company to the U.S. related party. The sales price between the parent company and the U.S. related party is the transfer price, which is the inventory value markup (cost of goods with a markup for general expenses included). The cost of merchandise is the purchase price plus the receiving markup. The currency rate used for the transfer price is the currency rate at the time of sale. The sales price is at arm’s length based on the fair market value and is sufficient to cover all costs plus a profit. The transfer price is usually the same as the computed price declared at the time of entry as per the pro forma invoice. The obligation by the U.S. related party to pay for the merchandise arises at the time of sale between the U.S. related party and the parent company. The terms of delivery of the aircraft parts into the consigned property are Delivery at Place (“DAP”), [ ], USA in accordance with Incoterms 2010. The risk to the consigned property will pass to the U.S. related party upon delivery of the aircraft parts into the consigned property DAP, [ ], VA, USA in accordance with Incoterms 2010. Title to the merchandise will transfer from the parent company to the U.S. related party at the time of delivery of the aircraft parts to the U.S. related party as a result of the post-importation sale between the related parties. The U.S. related party will bear the risk for loss or damage to the consigned property while it is in its possession. The title and risk of loss will transfer from the U.S. related party to the end customer when the merchandise is delivered to the end customer. The U.S. related party will invoice the end customer. Transportation to the end customer will be arranged by the U.S. related party if the end customer so requires or will be arranged by the end customer and picked up from the U.S. warehouse in [ ], Virginia. You suggest that the appropriate method of appraisement for the consigned goods is computed value. You state that the Resale Price Method (“RPM”) was determined by Ernst & Young to be the best method to evaluate the related party transaction between the parent company and the importer, the U.S. related party. ISSUE: Whether computed value is the appropriate method of appraisement for the goods imported in the U.S. on a consignment basis from the parent company in this case. LAW AND ANALYSIS: Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. See 19 U.S.C. § 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. Since the merchandise is entered into the U.S. under a consignment agreement and the importer does not acquire title to the goods until it buys the merchandise from its parent company, there is no sale for the purposes of determining transaction value and transaction value cannot be used as a method of appraisement. 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 good being appraised. See 19 C.F.R. § 1401a(c). Whether the merchandise can be appraised on the basis of the transaction value of identical or similar merchandise will depend on whether there are other entries of the same or commercially interchangeable merchandise from the same country proximate in time to the merchandise being entered. Since, in this case, there are no sales of similar or identical aircraft parts from the parent company to parties in the U.S., and information by other producers in [ ] exporting similar or identical aircraft parts to the U.S. is unavailable, this method of appraisement cannot be used. Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. to an unrelated party 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. See 19 U.S.C. § 1401a(d)(2)(A)(i)-(ii). Since many sales of the consigned merchandise may occur more than 90 days after importation, the merchandise cannot be appraised under the deductive value method. Further, we note that an importer may elect to apply the computed value method before the deductive value method and in this matter, the importer has chosen computed value. Under the computed value method, merchandise is appraised on the basis of the materials and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. § 1401a(e)(1). You advise that the parent company’s general expenses, except the packing costs, are covered by the general mark-up added on each purchase order covering inbound freight, inbound stock handling, and warehouse costs, and all assists are included in the mark-up. You also state that the profit on the sales to the importer, the U.S related party, is derived from the transfer pricing price between the parent and the U.S. related party because the parent company does not sell to any other U.S. customer. Since this is a prospective ruling request, you did not provide any of the documents substantiating the standard and actual costs, and the relevant profit concerning the imported parts. Based upon the facts which you have provided to us, it is likely that appraisement under computed value is proper. Please note that Section 141.88 of the Code of Federal Regulations, Title 19 (19 C.F.R. § 141.88) states: When the Center director determines that information as to computed value is necessary in the appraisement of any class or kind of merchandise, he shall so notify the importer, and thereafter invoices of such merchandise shall contain a verified statement by the manufacturer or producer of computed value as defined in § 402(e), Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(e)). Accordingly, you must be prepared to provide to CBP, if requested, the documentation, which supports the computed value method of appraisement. HOLDING: Based on the facts submitted, and provided the company is prepared to present CBP with documentation to support appraisement under computed value, the subject merchandise should be appraised under the computed value method of appraisement pursuant to 19 U.S.C. § 1401a(e). Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch