Price Actually Paid or Payable; Early Payment Discount; Formula

HQ H021424 February 3, 2009 OT:RR:CTF:VS H021424 GOB CATEGORY: Valuation Brenda Bodnar Director, Corporate Customs Compliance Jones Apparel Group USA, Inc. 180 Rittenhouse Circle Bristol, PA 19007 RE: Price Actually Paid or Payable; Early Payment Discount; Formula Dear Ms. Bodnar: This is in response to your correspondence of December 13, 2007, requesting a valuation ruling. Our ruling follows. FACTS: You describe the pertinent facts as follows. Jones Apparel Group USA, Inc. (“JAG”) imports merchandise on an arm’s length basis from unrelated foreign vendors. JAG is considering an arrangement where, prior to exportation of the goods, it would negotiate a price to be paid for the merchandise. An early payment discount would be built into such pre-exportation negotiated price. The discount would apply if JAG paid the vendor prior to the date agreed upon for payment. You state that goods would normally be paid for subsequent to importation. ISSUE: Whether the early payment discount, negotiated prior to exportation of the goods and utilized by JAG, should be considered in determining the price actually paid or payable of the imported merchandise? 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 (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 enumerated additions. 19 U.S.C. § 1401a(b)(1)(C). For the purpose of this ruling we assume that transaction value is the proper basis of appraisement. As provided in 19 U.S.C. § 1401a(b)(4): (A) The term “price actually paid or payable” means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. (B) Any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value under paragraph (1). We have ruled that prices subject to an adjustment, either upward or downward, cannot represent transaction value. See e.g., HQ 544944, dated May 26, 1992. Those rulings have been made pursuant to 19 CFR § 152.103(a)(1). Section 152.103(a)(1), Customs and Border Protection (“CBP”) Regulations (19 CFR § 152.103(a)(1)) provides, in pertinent part, as follows: In determining transaction value, 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. . . . Example 5. A seller offers merchandise at $100, less a 2% discount for cash. A buyer remits $98 cash, taking advantage of the cash discount. The transaction value is $98, the price actually paid or payable. Prices which require adjustment, either upward or downward, and are arrived at by the application of a formula, represent transaction value under 19 CFR § 152.103(a)(1). Since the formula is in existence prior to the date of exportation, the downward price adjustment and any ensuing payment or transfer of funds from the seller to the importer is not considered a rebate. In HQ 544791, dated March 11, 1992, CBP considered a purchase order agreement which included the following language: In the event Buyer makes payment to Seller or Buying Agent for any payments due pursuant to this Purchase Order prior to the date payment is required under this Purchase Order, Buyer shall be entitled to anticipation interest. Such payment shall be made in the form of a discount to present value of the amount of such early payment. In HQ 544791, CBP held that: “[w]here it can be established … that such a discount is agreed to prior to exportation, and since the price actually paid or payable reflects the discount, then the discount should be taken into account in determining the transaction value of the imported merchandise.” In HQ 544791, CBP referred to HQ 543189, dated October 19, 1983 and stated: To the extent that such early payment discount is not considered to be agreed and effected prior to importation, but contingent on a methodology or formula that exists prior to importation so that a final sales price can be subsequently determined, it is necessary to view the subject transaction as one in which the price is determined pursuant to a formula. In HRL 543189, dated October 19, 1983, Customs held that even though it may not be possible at the time of exportation to ascertain an exact amount owed for the goods, a price actually paid or payable has been set if the price is to be determined pursuant to a formula which is in existence prior to the exportation of the goods. After consideration of this matter, and based upon the applicable authorities, we conclude that HQ 544791 is instructive in this situation. We find that, provided JAG has documentation reflecting a discount arrangement entered into with its vendors prior to exportation of the goods, the early payment discount may be taken into account in determining the price actually paid or payable of the imported merchandise. HOLDING: Provided JAG has documentation reflecting a discount arrangement entered into with its vendors prior to exportation of the goods, the early payment discount may be taken into account in determining the price actually paid or payable of the imported merchandise. A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy of this ruling letter, the ruling letter should be brought to the attention of CBP official at the port of entry. Sincerely, Monika R. Brenner Chief Valuation & Special Programs Branch