RE: First Sale; Multi-Tiered Transactions; Related Parties; Beverage Equipment

HQ H350676 September 24, 2026 OT:RR:CTF:VS H350676 RMC CATEGORY: Valuation Conor McHugh ASK Supply Chain Consultants Ltd. Unit 4 Rath Lodge Ashbourne, Ireland RE: First Sale; Multi-Tiered Transactions; Related Parties; Beverage Equipment Dear Mr. McHugh: This is in response to your request of July 4, 2025, on behalf of your client, Marco Beverage Systems US (“MBUS”) for a prospective ruling on the use of “first sale” appraisement for imported merchandise. Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for response. FACTS: The proposed multi-tier transaction involves three parties: (1) MBUS, the U.S. importer; (2) Marco Beverage Systems Ltd. (“MBS”), an Irish middleman; and (3) Marco Catering Equipment Ningbo (“Ningbo”), a Chinse manufacturer. All three entities are “related parties” for purposes of customs valuation. The sample transaction outlined in your submission involves a “countertop tap boiler,” which is designed for compact and energy-efficient hot water dispending in low-volume applications such as cafes, offices, and catering stations. The following documents were provided for our review: • A purchase order from MBUS to MBS for 24 units of the merchandise, along with a corresponding order confirmation, indicating shipment to MBUS in the United States; • A purchase order from MBS to Ningbo for 24 units of the merchandise, along with a corresponding order confirmation, indicating shipment from Ningbo to MBS in Ireland; • An invoice from MBS to MBUS, with a delivery location in the United States and the annotation that “[a]ll goods are sold on the understanding that the title of the goods does not pass to the purchaser until such time as any debt to Marco Beverage Systems by the 1
purchaser has been discharged in full, regardless of whether the debt is associated with the present transaction or otherwise”; • An invoice from Ningbo to MBS, with FOB Ningbo terms and shipment to the United States; • A bill of lading for the merchandise, indicating shipment by sea from Ningbo, China to Vancouver, Canada, with a place of delivery in the United States; • An invoice from the freight forwarder to MBUS corresponding to the bill of lading; • Proof of payment by MBUS for the goods and freight-forwarding services; and • Proof of payment by MBS for the goods. In response to our request for information establishing that the transactions were conducted at arm’s length, you provided a “memorandum for benchmarking study” that was prepared for Ningbo by an accounting firm. The document notes that: “according to the China transfer pricing laws and regulations, the [Transactional Net Margin Method] (“TNMM”) is the most appropriate method to validate the connected transactions between Marco Ningbo and its related parties” and cautions that the analysis “is not intended to be used for transfer pricing inspection in countries or regions outside China.” The document attempts to identify similar companies in the Asia-Pacific region; however, it states that “given it is difficult to locate exact comparable companies, we have 1 expanded the product type to the extent possible, such as commercial equipment.” The study then goes on to identify ten “comparables” and establish an average interquartile range of profits between fiscal years 2019 and 2021, concluding that “MTC of the 10 comparable companies yielded an interquartile range of 4.13% to 10.10%, with a median of 7.73% on a three-year weighted average basis” and that “the EBITDA margin of the 10 comparable companies yielded an interquartile range of 4.94% to 11.14%, with a median of 8.52% on a three-year weighted average basis.” ISSUE: Whether the merchandise will be eligible for appraisement based on the first sale between Ningbo and MBS. 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 preferred 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 certain statutory additions. 19 U.S.C. § 1401a(b)(1). In Nissho Iwai American Corp. v. United States, 982 F. 2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there 1 We note that while one of the pages containing the list of comparables is missing from the document, it appears that they produce merchandise such as air conditioners, ice machines, gas stoves, heaters, sushi making machines, and rice cookers. 2
is more than one sale which may be considered as being a sale for exportation to the U.S. The case involved a foreign manufacturer, a middleman, and a U.S. purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influences, and involving goods clearly destined for the U.S. See also Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993). In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. In further keeping with the court’s holding, we note that an importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. However, it is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai. That is, the importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length sale,” and that it was “a sale for export to the United States” within the meaning of 19 U.S.C. § 1401a. In Treasury Decision (T.D.) 96-87, dated January 2, 1997, the Customs Service (now U.S. Customs and Border Protection (“CBP”)) advised that the importer must provide a description of the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the U.S. The documents may include, but are not limited to purchase orders, invoices, proof of payments, contracts, and any additional documents (e.g., correspondences) that establishes how the parties deal with one another. The objective is to provide CBP with “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value. The first issue in this case is therefore whether a bona fide, arm’s-length sale will occur between Ningbo and MBS. 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 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. See Headquarters Ruling Letter (“HQ”) 548239, dated June 5, 2003. CBP will consider such factors as to whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. 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 HQ 545705, dated January 27, 1995. In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HQ H005222, dated June 13, 2007. Finally, pursuant to the CBP's Informed Compliance Publication, entitled “Bona Fide Sales and Sales for Exportation,” CBP will consider whether the buyer provides or could provide instructions to the seller, is free to sell the transferred item at any price he or she desires, selects or could select its own 3
downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory. Here, the invoice from Ningbo to MBS lists FOB Ningbo terms. According to the INCOTERMS 2010 rules, FOB means that “the seller delivers the goods loaded on board the vessel nomination by the buyer at the port of shipment. At this delivery point, the risk of loss or damage transfers to the buyer.” See Incoterms 2020: FAS or FOB?, https://academy.iccwbo.org/ incoterms/article/incoterms-2020-fas-or-fob (last visited September 1,2026). On the issue of transfer of title, however, CBP has previously explained that INCOTERMS and other shipping terms do not, by themselves, establish when title transfers. See H008101, dated October 9, 2012, quoting St. Paul Guardian Ins. Co. v. Neoromed Med. Sys. & Support, 2002 WL U.S. Dist. LEXIS 5096 at *12 (“INCOTERMS, however, only address passage of risk, not transfer of title.”) (citations omitted). The parties may incorporate INCOTERMS into a sales contract that specifies that title passes at the same time as risk of loss. But here, as in H008101, no sales contracts are available. Without a sales contract between the parties, the Uniform Commercial Code (“UCC”) aids in determining when title to the goods was transferred. In HQ 543446, dated April 2, 1986, we relied on UCC § 2-401(2) which provided, in pertinent part: Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place . . . . Applying UCC § 2-401(2), we concluded “unless the parties otherwise agree, title passes from the seller to the buyer on delivery of the property, irrespective of whether the agreed-upon purchase price has actually been paid.” In this case, the seller (namely, Ningbo) delivers when the goods are placed on board the vessel in Ningbo. Therefore, under UCC § 2-401(2), title also transfers from the Ningbo to MBS at that time. In addition to qualifying as a bona fide sale, however, Nissho Iwai also requires the transaction to be conducted at arm’s length. The importer may substantiate the use of transaction value in a related-party transaction if it satisfies one of two tests: (1) circumstances of the sale; or (2) test values. See 19 U.S.C. § 1401a(b)(2)(B); 19 C.F.R. § 152.103(l). No information was provided on test values. Under the circumstances of the sale approach, the transaction value between related parties will be considered acceptable if the parties buy and sell from one another as if they were unrelated, meaning their relationship did not influence the price actually paid or payable. See e.g., HQ H032883 dated March 31, 2010. All relevant aspects of the transaction are analyzed including: (1) the way the buyer and seller organize their commercial relations, and (2) the way that the price was determined. Id.; see also 19 C.F.R. § 152.103. 4
The three examples to demonstrate that a relationship did not influence the price under 19 C.F.R. § 152.103(l) are as follows: (i) the price was settled in a manner consistent with the normal pricing practices of the industry in question; (ii) the price was settled in a manner consistent with the way the seller settles prices for sales to buyers who are not related to it; or (iii) the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind. Here, regarding the related-party transaction between Ningbo and MBS, the only document provided for our review was the benchmarking study. In U.S. Customs and Border Protection’s Informed Compliance Publication entitled “Determining the Acceptability of Transaction Value for Related Party Transactions” (April 2007), we explained that: Importers sometimes claim that a related party transaction value is acceptable because it satisfies the [Internal Revenue Code] Section 482 arm’s length principle as determined using the best transfer pricing method. Sometimes, a copy of an APA or transfer pricing study is submitted along with the claim. In various rulings addressing this issue, CBP has determined that an APA or transfer pricing study by itself is not sufficient to show that a related party transaction value is an acceptable transaction value. In this case, however, only a benchmarking study was provided, and that study was conducted under Chinese law, rather than Section 482 of the Internal Revenue Code. It applies the TNMM (similar to the Comparable Profits Method under U.S. law), which compares the profitability of the related party to the profitability of companies that are functionally comparable (i.e., companies that undertake similar functions and risks), and thus has little similarity to the customs methods in 19 C.F.R. § 152.103, which require product similarity. Moreover, key information was missing about the “comparable” companies here, which may in fact sell dissimilar merchandise, such as air conditioners and sushi makers. Additionally, no information was provided about the tested party’s actual profitability or how the merchandise in question would be priced to achieve an appropriate profit level. In sum, MBUS has not met its burden to demonstrate that the Ningbo-MBS transactions are at arm’s length with the benchmarking study alone. Because the transactions have not been shown to be at arm’s length, we need not consider in detail the “clearly destined” requirement under Nissho Iwai. We note, however, that the purchase order from MBS to Ningo lists a delivery address in Ireland, which raises questions about a contingency of diversion. HOLDING: The sale between Ningbo and MBS is not at arm’s length and therefore cannot constitute the basis for a first-sale appraisement under Nissho Iwai. 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 5
complete in every material respect. The application of a ruling letter by a CBP 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.” A copy of this ruling letter should be attached to the entry documents 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 6