iquidated on March 10, 1995 under transaction value based on the price actually paid or payable from the U.S. customers, less certain non-dutiable charges.

HQ 546424 February 2, 1999 RR:IT:VA 546424er CATEGORY: Valuation Port Director JFK Airport Jamaica, New York 11430 Application for Further Review of Protest ( 100 l -95-104580); Sale; Sale for Exportation; Related Parties. Dear Port Director: This is in response to the above-referenced protest and application for further review which was filed by Shannon North America, Ltd. ("SNA") and was forwarded by you to this office for response. Counsel for the importer supplemented the protest with several submissions. We regret the delay in responding. FACTS: The subject entries involve various types of merchandise imported from Ireland including perfumes, ceramic statuettes, leather goods, crystal glassware, jewelry and textiles. The merchandise was exported from Ireland on October 18, 1994 and the entries were liquidated on March 10, 1995 under transaction value based on the price actually paid or payable from the U.S. customers, less certain non-dutiable charges. The following description was submitted by counsel regarding the roles of the parties and the ordering and importation process for the subject merchandise. SNA, the importer, is a joint venture between Aer Rianta, a state-owned company in Ireland, and DM Management ("DM"), a private company headquartered in Massachusetts. A copy of the Joint Venture Agreement dated April 8, 1992, was provided to us. Missing from the Joint Venture Agreement were the schedules referenced in the agreement. According to counsel, SNA was an Irish corporation until September 1995. As of September 18., 1995, SNA became a U.S. corporation. Shannon Mail Order of Shannon Intemational Airport in Ireland ("SMO") is a mail order division of Aer Rianta. Because this decision involves transactions through the mail order division of Aer Rianta, we shall refer to the company and its division collectively as "AR/SMO". AR/SMO holds 51 percent of SNA (the importer). DM owns the remaining 49 percent of SNA_ Through catalog distribution in the U.S., SNA offers for sale the various types of merchandise which are the subject of this protest. Per Article 3(c) of the 1992 Joint Venture Agreement, AR/SMO provides "(i) inventory purchasing, including financing thereof; (ii) inventory management, including warehousing; (iii) order fulfillment, including sale of relevant 2 inventory to the Company [SNA] at the time of order fulfillment and shipping of ordered merchandise to the customer in the U.S.; and (iv) all creative and production functions relating to the AR/SMO catalog." Article 3(c) further provides that AR/SMO provides these goods and services to SNA on a "'cost' basis, without any allowance or provision for profit to AR[/SMO]." Per Article 3(d) of the 1992 Joint Venture Agreement, DM provides "(i) order taking, (ii) telemarketing, (iii) marketing data-processing and reporting, and (iv) financial processing and reporting." Article 3(d) further provides that DM provides these services to SNA on a "'cost' basis, without any allowance or provision for profit to DM." Under the 1992 Joint Venture Agreement, counsel claims that SNA paid AR/SMO for ( 1 ) the cost of the goods, plus (2) general expenses and profit costs, plus (3) ocean freight, insurance, etc. In January 1994, the parties purportedly renegotiated these payments to include (1) the cost of goods, plus (2) $5.40 per order filled, plus (3) $65,000 per month overhead. We were not provided with copies of any written instruments reflecting the agreement to change payments or how the change in payments was negotiated. According to counsel, SNA's payments to DM purportedly include charges for (1) order processing fees (at a fixed rate per order), (2) the cost of payroll plus a 5 percent administrative fee to cover the cost of a limited number of employees solely assigned to SNA, and (3) miscellaneous charges. When asked for a copy of any and all other agreements which may pertain to the appraisement of the imported merchandise, particularly with regard to issues regarding price, we were informed by counsel that it is counsel's belief that no other agreements exist (other than the submitted 1992 Joint Venture agreement, without referenced schedules) which pertain to the appraisement of merchandise. Counsel described the ordering process as follows. Customer catalog orders are received by either mail (30 percent) or telephone (70 percent). Mail orders are collected at a lock box at JFK Airport and are forwarded daily to AR/SMO in Ireland. These orders are entered into the DM computer system by SMO personnel. Individual customer orders are printed at AR/SMO on a weekday basis. Telephone orders are received on an "800" line and entered into the DM computer system by telemarketing representatives employed by DM in New Hampshire. Ihese orders are presumably forvirded to AR/SMO in Ireland. All customer orders are filled from AR/SMO inventory and are individually packed in boxes. The boxes are assembled in a container for air shipment to JFK. Once the container clears Customs, the container is forwarded to Airbome Express for delivery of the individual packages to their various U.S. destinations. Prices and payments are described by counsel as follows. On a monthly basis, AR/SMO and DM invoice SNA under the terms of certain "service agreements". When asked for copies of these service agreements, counsel, as noted above, claimed that no other agreements relevant to the appraisement of the merchandise exist, other than the 1992 Joint Venture Agreement.  Regarding other fees received by AR/SMO and DM, the Joint Venture agreement provides the following. In Article 3(b), it is written that in consideration of the transfer and conveyance to SNA of all the rights and privileges possessed by AR/SMO and required for SNA to carry out its business, including without limitation the exclusive right to market the SMO catalog and use the SMO name in the U.S., ARJSMO shall receive a franchise fee calculated as set forth in Schedule 3.h (We were not provided with the schedule attachments to the Joint Venture agreement.) As for DM, Article 3(e) of the Joint Venture agreement provides that in return for its consulting services in the marketing area, DM shall be paid a fee equal to fifty percent of SNA's net profits before taxes and consulting fees, as described in Schedule 6. (We were not provided with a copy of Schedule 6.) According to counsel, ARJSMO has provided the majority of funding for SNA since its inception. Article 4 of the Joint Venture Agreement provides that ARJSMO loans to SNA shall bear interest at the Dublin InterBank Offered Rate for Irish pound deposits of IR L250,000 for one month. Counsel additionally informs us that when ~xcess cash is available, SNA transfers cash to AR/SMO in payment of the accumulated charges on account. Regarding the annual distribution of profits, Article 5 of the Joint Venture agreement provides that unless otherwise agreed by the shareholders, SNA shall distribute its net income for each fiscal year to the shareholders in the proportions described in Schedule 6. (As noted above, we were not provided with a copy of schedule 6.) Other documents submitted include a letter from the SNA Director of Finance/Operations dated February 20, 1996 to JFK Customs which describes how deposits for credit card and cash and/or check orders are handled. The letter states that deposits for credit card sales are processed by a third party processor and are then wired into SNA's account in New Hampshire. The deposits for cash and/or check orders are entered into the system by data entry in Ireland and are then deposited into the SNA account in the Bank of Ireland in Dublin. Included with the letter is a credit card order service summary from the third party processor and a bank statement from the Bank of Ireland for June 1995 showing the debit and credit activity and the balance f or SNA's account. Also submitted were several order activity summaries listing the identity of the U.S. customers, the method of payment (i.e., credit or cash), and price of the merchandise to the U.S. customer. A letter dated January 31, 1996 from the SNA Director of Finance/Operations to JFK Customs was included and states that SNA takes title and assumes risk of loss on all shipments when the merchandise is tumed over to Aer Lingus for air shipment to the U-S. Attached to the letter were claims for lost and damaged shipments. A letter dated January 31, 1996 from the SNA Director of Finance/Operations to JFK Customs was included which provides that transfers of funds from SNA to AR/SMO are linked to specific transactions. Attached to the letter is a schedule of 1995 charges and payments. A review of the schedule reveals a summary of periodic payments made which relate to each monthly invoice from AR/SMO to SNA It is not apparent from the schedule of payments how the payments can be reconciled to the individual import transactions that occurred over the month. Other documents submitted include an international wire transfer application dated February 20, 1996 showing a transfer of money from SNA's bank in New Hampshire to the freight forwarder's bank (Bank of Ireland) in Ireland for freight forwarding charges for the month of January 1996. Submitted in conjunction with the wire transfer document were a list of the wire transfers from SNA to the freight forwarder for the month of January, 1996, a sales invoice from the freight forwarder for a shipment in December 1995 and an air waybill for the same December shipment. At the time the protest was filed, the importer, through counsel, made several alternative claims for appraisement. The first claim is that the merchandise should be appraised under transaction value between the middleman, AR/SMO in Ireland and its unrelated suppliers. The importer has now dropped this claim. The second alternative claim is that the merchandise should be appraised under transaction value based on the transaction between the importer, SNA, and its related party in Ireland, AR/SMO. In support of this position, counsel states that a bona fide sale takes place between the related parties and that this sale is a sale for exportation within the meaning of the valuation statute. Counsel claims that the transaction between AR/SMO and SNA is a shipment contract with SNA taking title and assuming risk of loss for the merchandise at Shannon International Airport. Counsel claims that the subsequent transaction between SNA and the U.S. customer is a destination contract with SNA retaining title and risk of loss until the merchandise is delivered to the ultimate purchaser in the U.S. No transaction documents were submitted which reflect the shipping terms. Counsel further claims that the transactions between SNA and AR/SMO are bona fide sales as evidenced by the fact that SNA makes payment for the merchandise on a timely basis. Lastly, counsel claims that a bona fi~l¢ sale occurs because SNA is not a wholly owned subsidiary of AR/SMO; instead, it is 49 percent owned by another company, DM, which has no "business interest in providing services or acting as a collection agent for [AR/]SMO." Rather, counsel asserts "[i]t was the opportunity to make a profit through sales in the U.S. that induced DM to participate in the joint venture." For the third alternative claim, counsel maintains that if transaction value is not found to exist between SNA and AR/SMO then the merchandise should be appraised under transaction value of identical merchandise. In:this regard, counsel notes that approximately half of what SNA imports into the U.S. is Waterford crystal. Citing to a headquarters ruling letter ("HRL" 545709 dated May 12, 1995) in which Customs found that transaction value exited based on transactions between Waterford Ireland and its suppliers, counsel claims that a basis exists upon which to appraise the subject merchandise under transaction value of identical merchandise.  Finally, in making the fourth alternative claim, counsel states that the merchandise could be appraised under deductive value based on the prices paid by the U.S. purchasers, less approximately 40 percent. It is the position of your office that the appraisement of entries for SNA should be under transaction value at the price paid by the U.S. customers, less certain non-dutiable charges. In your opinion, the transaction between SNA and AR/SMO does not represent a bona title sale at the time of exportation. You concede that there is a transfer of goods for consideration in the transaction between AR/SMO and SNA; however, your review of the sales documents indicates that a valid price actually paid or payable cannot be determined from the documentation submitted by the importer. No invoice, or other document, was presented which reconciles payments with individual shipments. Further, you point out that the importer receives from the related parent a monthly statement which includes the costs of goods plus amounts for numerous miscellaneous charges and order fulfillment fees. The statements presented to Customs instead represent monthly totals of all costs, fees and charges which accrue to the "seller". You conclude, therefore, that the transactions between SNA and AR/SMO do not constitute sales for exportation upon which transaction value may be based. Instead, the price actually paid or payable by the U.S. purchaser is the basis upon which the merchandise should be appraised under transaction value. Regarding counsel 's argument in the alternative for appraisement under transaction value of identical merchandise (19 U.S.C. 1401a(c)), you maintain that the precedent upon which counsel relies, HRL 545709, is inapplicable to the facts at hand because the line of merchandise in that ruling was of a lesser line than that marketed by SNA. As regards counsel's argument for appraisement under deductive value (19 U.S.C. 1401 a(d)), you reiterate your opinion that because there is a valid transaction value as represented by the price actually paid or payable by the U.S. customer, there is no authority to appraise the merchandise under deductive value based on that same transaction. Counsel also seeks confirmation that should the protest be denied, all sales to the U.S. customers under $200 would be exempt from duties and user fees in accordance with 19 U.S.C. 1321. ISSUE: Whether the merchandise was properly appraised under transaction value based on the price actually paid or payable by the U~S. customer? LAW AND ANALYSIS: Merchandise imported into the U.S. is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (the "TAA"; 19 U.S.C. 140 1 a). The primary basis ofappraisement under the TAA is transaction value, defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus, to the extent not already included, certain statutorily enumerated additions thereto. 19 U.S.C. 1401 a(b)( 1 )(B). However, imported merchandise is appraised under transaction value only if, inter alia, the buyer and seller are not related, or if related, transaction value is found to be acceptable. 19 U.S.C. 1401a(b)(2)(A)-(B). The parties at issue are AR/SMO in Ireland, SNA as the U.S. importer, and the U.S. customers. Also involved is DM, the Massachusetts based company which shares ownership of SNA with AR/SMO. Contrary to counsel 's characterization of the facts, AR/SMO, SNA and DM are related parties within the meaning of 19 U.S.C. 140 1 a(g). AR/SMO and DM are related to SNA by virtue of their ownership, control and power to vote in SNA (19 U.S.C. 1401 a(gX 1 )(F)). And, AR/SMO and DM are related parties by virtue of their common control of a third party, SN.& (19 U.S.C. 1401a(g)(1) (G)). As set forth above, counsel has made several claims in the altemative for appraisement. The first claim is for appraisement under transaction value between AR/SMO in Ireland and its unrelated suppliers has been dropped. The second claim is for appraisement under transaction value between AR/SMO in Ireland and SNA, the importer. Thus, SNA must present sufficient evidence that the transactions between itself and AR/SMO constitute bona fide sales, and if so, whether their related party price may form the basis of transaction value under 19 U.S.C. 1401 a(b)(2)(A)-(B). As regards whether the transactions between SNA and AR/SMO were bona fide sales, the word "sale", for Customs purposes, generally is defined as a transfer of ownership in property from one party to another for consideration. J,L, Wood v. U.S.. 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974). While ~ was decided under the prior appraisement statute, Customs adheres to this definition under the TAA~ In determining whether a bona fide sale has taken place between a potential buyer and seller of the imported merchandise, no single factor is determinative. Rather, the 'relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. DorfIntemational. Inc.. v. U.S., 61 Cust. Ct. 604, AR.D. 245 (1968). In determining whether the relationship of the parties to the transaction in question is that of a buyer-seller, where the parties maintain an independence in their dealings, as opposed to that of a pnncipal-agent, where the former controls the actions of the latter, Customs will consider whether the potential buyer: 7 a. Provided (or could provide) instructions to the seller; b. Was free to sell the items at any price he or she desired; c. Selected (or could select) his or her own customers without consulting the seller; and d. Could order the imported merchandise and have it delivered for his or her own inventory. The information and documentation submitted do not support finding a bona fide sale between AR/SMO in Ireland and SNA, the importer. The information submitted fails to establish that SNA was in a position to provide instructions to the seller or was free to sell the items at a discretionary price. Instead the description of the ordering process indicates that DM and AR/SMO are the parties involved at the inception of the orders and throughout the delivery of the merchandise. As far as we can tell from the information submitted, the prices at which SNA resells the merchandise are subject to the control of AR/SMO, with little evidence that SNA is in a position to negotiate. Because sales are solicited through catalog distribution, there is no indication that SNA exercises any discretion in the selection of customers. And, as far as we can tell, while SNA did begin to inventory goods in the U.S. in 1996, it is unclear or doubtful whether SNA continues to do so or has to capacity to do so; instead, orders are filled and shipped from inventory in keland. Other factors which Customs considers in determining whether a bona fide sale takes place include whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. Customs, additionally, may examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. Counsel claims that SNA takes title and assumes risk of loss. As evidence that SNA retains title to the goods and retains risk of loss until the merchandise is delivered to the ultimate purchaser, counsel submitted a statement to this effect from the Controller of SNA, with attached copies of claims for lost and damaged shipments. (See Counsel's exhibit 5 in February 1, 1996 submission.) The claims f6r reimbursement addressed to the freight company for lost or damaged merchandise reflect that the total amounts to be refunded by the freight company are payable, not to SNA, but to DM. These documents are inconclusive with regard to shipping terms and lend no support to the claim that SNA retains title to the goods and retains risk of loss until the merchandise is delivered to the U.S. customer. In support of the claim that payments from SNA to AR/SMO are linked to specific importations of the merchandise, Counsel submitted a statement from the Controller of SNA with attached schedules of payments made by SNA to AR/SMO. (See Counsel' s exhibit 3 in March 1, 1996 submission) This schedule of payments provides a monthly breakdown of amounts 8 associated with the importation of the merchandise, but does not link the payments to specific importations. Under the circumstances, the evidence submitted fails to establish that bona fl0e sales took place between the importer, SNA, and its related party AR/SMO. Moreover, even if a bona fide sale had occurred, there is no evidence in the documents submitted that the relationship between the parties did not affect the price within the meaning of 19 U.S.C. 1401 a(b)(2)(B). Regarding the relationship between the parties, counsel states in their January 14, 1998 submission that "It was DM Management's 49% interest in SNA that assured that all transactions were at arm's length, and that SNA was not merely the alter ego of SMO." As noted above, counsel incorrectly characterizes DM and AR/SMO as unrelated parties. To the contrary, however, all of the parties to the transaction are related to each other. DM and AR/SMO are each related to SNA under 19 U.S.C. 1401 a(g)( 1 )(F) by virtue of their respective 49 percent and 51 percent ownership interest in SNA, and DM and AR/SMO are related to each other under 19 U.S.C. 140 1a (g)( 1 )(G) by virtue of their direct or indirect control of SNA_ These sections of the statute provide that: (1) For purposes of this section, the persons specified in any of the following subparagraphs shall be treated as persons who are related: (F) Any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting stock or shares of any organization and such organization. (G) Two or more persons directly or indirectly controlling, controlled by, or under common control with, any person. Moreover, even if DM were an independent party unrelated to AR/SMO, we are not aware of any authority which supports counsel's argument that under circumstances where a bona fide sale is found to occur between related parties, i.e., SNA and AR/SMO, DM's 49 percent ownership in the importer (SNA) would ipso facto mean the relationship between the importer and parent did not influence the price between the parties within the meaning of 19 U.S.C. 1401 a(b)(2)(B). Finally, in response to counsel's request for appraisement under transaction value of identical merchandise (19 U.S.C. 1401a(c)) or deductive value (19 U.S.C. 1401a(d)) we note that goods cannot be appraised under alternate methods of appraisement where a valid transaction value is found to exist. Th/~ statute mandates that the hierarchy of appraisement be observed. (19 U.S.C. 1401a(a)). Under the circumstances, the evidence has failed to establish that the goods were improperly appraised under transaction value based on the price actually paid or payable by the U.S. customer. This protest is denied. Counsel additionally sought confirmation that should the protest be denied, all sales to the ultimate purchasers under $200 would be exempt from duties and user fees in accordance with 19 U.S.C. 1321. This inquiry is outside the scope of the protested entries and should be addressed as a separate ruling request. Entry Procedures and Carriers Branch is responsible for the interpretation and appication of 19 U.S.C. 1321. 9 HOLDING: Pursuant to the foregoing, the protest should be denied. The importer has not provided sufficient evidence to demonstrate that the merchandise was improperly appraised under transaction value based on the price actually paid or payable by the U.S. customer. In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the Protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, the Freedom of information Act and other public access channels. Sincerely, Thomas L. Lobred Chief, Value Branch