Dutiability of certain bonus payments

HQ H082475 March 2, 2010 VAL OT:RR:CTF:VS H082475 EE CATEGORY: Valuation Leonard L. Fleisig Jeffrey S. Grimson Troutman Sanders LLP 401 9th Street NW, Suite 1000 Washington, D.C. 20004-2134 RE: Dutiability of certain bonus payments Dear Messrs. Fleisig and Grimson: This is in reply to your letter, dated October 27, 2009, on behalf of American Signature, Inc. (“ASI”), concerning the dutiability of certain payments awarded pursuant to ASI’s Maximizing Excellence in Delivery and Logistics (“M.E.D.A.L.”) program. FACTS: ASI is a U.S. importer and retailer of furniture operating the Value City Furniture and American Signature retail stores. ASI introduced the M.E.D.A.L. program, a supply chain initiative, to increase on-time deliveries of shipments and eliminate instances where products that customers would like to purchase are out-of-stock. You state that the M.E.D.A.L. program applies to all goods purchased by ASI, whether sourced from domestic manufacturers or imported. ASI’s goal is to manage its supply chain to guarantee to its customers that any item they want to purchase will be delivered to their home within three to five days of the submission of their order. Accordingly, the M.E.D.A.L. program has been designed by ASI to provide the opportunity to its vendors to partner with ASI in its supply chain initiative. You state that ASI intends to enact the M.E.D.A.L. program and offer it to its vendors. You submitted copies of the M.E.D.A.L. program for domestic FOB vendors, the M.E.D.A.L. program for FOB import vendors, the M.E.D.A.L. program for domestic landed vendors, and the M.E.D.A.L. program for landed import vendors. This ruling does not address ASI’s M.E.D.A.L. program for domestic FOB vendors and the M.E.D.A.L. program for domestic landed vendors as these programs do not relate to imported merchandise. Additionally, ASI’s M.E.D.A.L. program for landed import vendors is similar in nature to the M.E.D.A.L. program for FOB import vendors. Therefore, this ruling will only address ASI’s M.E.D.A.L. program for FOB import vendors. You state that aspects describing the M.E.D.A.L. program relevant to this ruling request can be divided into two topics: (1) on time shipments and (2) rewards. On time shipments Timeliness under the FOB import program is calculated by measuring the timeliness of the delivery of merchandise to vessels set to sail within specific delivery time limits. The percentage of items considered shipped on time is measured by the quantity of items shipped. To calculate the total items shipped the equation “PACK X QUANTITY = TOTAL ITEMS” is applied. The evaluation of on time shipments will last for six months and begin upon a mutually agreed date. To determine whether shipments fall within the evaluation period, the last ship date within a shipping window is analyzed, i.e., if the evaluation period ends February 28, 2010, then a ship window from February 27, 2010 to March 8, 2010 will fall within the evaluation period, regardless of the actual sailing date. Purchase orders are relied upon to identify the shipments upon which the assessment of bonus awards is applied. Rewards As a consequence of the evaluation periods occurring in the month increments, ASI will review vendors’ shipping performances. If the specified percentage of a vendor’s shipping qualifies as timely, then the vendor will be awarded a bonus payment applicable to all transactions within the evaluation period. This bonus payment is based upon a fixed $XX amount for each container shipped during the evaluation period. These payments are not dependent upon any individual import transaction, are not linked to the FOB value, and are not ascertainable at the time of entry. Pursuant to 19 C.F.R. § 177, you seek a ruling on the dutiability of the payments awarded pursuant to ASI’s M.E.D.A.L. program. ISSUE: Whether certain payments awarded pursuant to ASI’s M.E.D.A.L. program are included in the transaction value of the goods. 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 amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). If, for any reason, sufficient information is not available with respect to the additions to the price actually paid or payable, the transaction value of the imported merchandise is treated as one that cannot be determined. 19 U.S.C. § 1401a(b)(1). Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the relationship did not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values.” 19 U.S.C. § 1401a(b)(2)(A)-(B). We will assume, for the purposes of this ruling, that transaction value is acceptable. The term “price actually paid or payable” is defined as “the total payment (whether direct or indirect…) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.” 19 U.S.C. § 1401a(b)(4)(A). We presume that all payments made by the buyer to the seller, or a party related to the seller, are part of the price actually paid or payable. Generra Sportswear Co. v. United States, 905 F.2d 377, 380 (Ct. Int’l Trade 1990) (holding that so long as quota payments were made to the seller in exchange for merchandise sold for export to the U.S., they “properly may be included in transaction value, even if (they represent) something other than the per se value of the goods”). However, this presumption may be rebutted by evidence which clearly establishes that the payments are completely unrelated to the imported merchandise. Chrysler Corporation v. United States, 17 Ct. Int’l Trade 1049, 1055-1056 (1993). In the instant case, the payments at issue are made by ASI to its vendors. The payments are made in consideration for on-time delivery of the imported merchandise pursuant to ASI’s M.E.D.A.L. program. U.S. Customs and Border Protection (“CBP”) has previously examined the issue of whether bonuses paid to vendors for timely shipment of imported merchandise are part of the price actually paid or payable for the goods. For example, in Headquarters Ruling Letter (“HQ”) 544787, dated February 20, 1992, it was determined that amounts paid by the buyer to the seller under a shipping bonus program were included in transaction value. It was noted that the bonus payments were ascertained according to a formula that was in existence prior to the exportation of the merchandise, and that, as such, the price was set before exportation. For that reason, it was deemed immaterial that the exact amount of the bonus may not be known until after the goods had been imported. HQ 544787 is directly on point with regard to the issue at hand, in that ASI’s M.E.D.A.L. program similarly anticipates bonus payments that are calculated on the basis of a pre-determined formula. Consequently, the payments made by ASI to its various vendors under the bonus program are properly included in transaction value. See also HQ 544680, dated June 26, 1992 (bonus paid only if merchandise is timely shipped and meets agreed-to quality standards is part of price actually paid or payable); cf. HQ 546376, dated February 8, 1999 (“delivery bonus” not included in transaction value because it is not linked to the imported components, but rather, to the completion of the steel mill into which the imported components are assimilated). Since the payments at issue are made from the buyer to the sellers and are linked to the imported goods, we find that they are part of the price actually paid or payable for the imported merchandise in accordance with Generra. HOLDING: Based on the information presented, the bonus payments made pursuant to ASI’s M.E.D.A.L. program are part of the price actually paid or payable for the imported merchandise. Thus, the bonus payments will be included in the appraised value of the merchandise. Reference to this ruling letter should be made in the entry documents filed at the time the subject goods are entered. See CBP Form 7501 - Instructions, Additional Data Elements (available online at: www.cbp.gov). If the entry summary has been filed without reference to this ruling letter, the ruling letter should be brought to the attention of the appraising officer at the port of entry. Sincerely, Monika R. Brenner Chief Valuation & Special Programs Branch