Application for Further Review of Protest 4701-06-100626; centrifugal fan parts; transfer pricing study; post-importation adjustments

HQ H008706 January 12, 2010 VAL-2 OT:RR:CTF:VS H008706 KSG CATEGORY: Valuation Port Director U.S. Customs & Border Protection JFK International Airport Area Jamaica, NY 11430 Re: Application for Further Review of Protest 4701-06-100626; centrifugal fan parts; transfer pricing study; post-importation adjustments Dear Port Director: This is in response to the Application for Further Review of Protest 4701-06-100626 timely filed by counsel on behalf of EBM Papst Inc. addressing whether certain post-importation adjustments to the originally reported appraisement of parts of centrifugal fans should be accepted. FACTS: Counsel states and the entry summary indicates that the manufacturer and the importer are related parties. Counsel contends that the goods were appraised under transaction value based on a transfer price using a pre-arranged formula. Counsel claims that the values at the time of importation based on the original invoice presented to CBP on the Form 7501 were inflated, and that CBP should now base the duties on the adjusted values shown on a spread sheet submitted with the protest. The spreadsheet represents an allocation of aggregate downward adjustments across all reported and applicable line item entries which are claimed to be necessary as a result of compensating adjustments made to comply with an income tax transfer pricing review to retroactively account for any differences between actual transactional results and true arm’s length results, in this case arm’s lengths results that are defined in the transfer pricing study. Your office states that the original invoice values as entered are correct. ISSUE: Whether post-importation adjustments to the originally reported appraisement of the imported parts of centrifugal fans should be accepted. LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a. 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 enumerated statutory additions. 19 U.S.C. 1401a(b). Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the transaction value is considered acceptable. 19 U.S.C. §1401a(b)(2)(B); 19 CFR §152.103(l). The port director shall not disregard a transaction value solely because the buyer and seller are related. 19 CFR 152.103(l)(1). While the fact that the buyer and seller are related is not in itself grounds for regarding transaction value as unacceptable, where CBP has doubts about the acceptability of the price and is unable to accept transaction value without further inquiry, the parties will be given the opportunity to supply such further detailed information as may be necessary to support the use of transaction value pursuant to the methods outlined above. It is clear that in this case your office is not questioning the original invoice amount, therefore, transaction value is the appropriate method of appraisement. However, by this protest, protestant is reporting compensating IRS adjustments to CBP. We note that under this protest the importer has not submitted information regarding the transfer pricing study or provided any information how the downward adjustments are calculated. Additionally, information must also be provided to demonstrate that the related party price after the transfer pricing adjustments are taken into account meets the circumstances of the sale test. Accordingly, since the importer failed to present its transfer pricing study, any evidence substantiating its downward post-importation adjustments, and any information demonstrating that the relationship of the parties did not influence the price after the adjustments are all accounted for at the time of the protest, we have no legal basis to grant this protest. Nevertheless, please note that 19 CFR §152.103(a)(1) provides that “the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market.” Therefore, in the event that the importer should make upward compensating adjustments pursuant to its transfer pricing study, the adjustments must immediately be reported to CBP and any additional duties resulting therefrom must be tendered. See Headquarters Ruling Letter (“HRL”) 548233, dated November 7, 2003. HOLDING: The protest should be denied. Based on the evidence presented, we find that insufficient information was presented in regard to accept the post-importation adjustments. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP 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. Sincerely, Myles B. Harmon, Director Commercial & Trade Facilitation Division