Transaction value; Charges incident to the international shipment of merchandise

HQ H167112 October 11, 2011 OT:RR:CTF:VS H167112 SEK CATEGORY: Valuation Jane W. Pilsbury Sears Holdings Management Corporation 3333 Beverly Road A3-356B Hoffman Estates, IL 60179 RE: Transaction value; Charges incident to the international shipment of merchandise Dear Ms. Pilsbury: This is in response to your letter dated May 6, 2011, requesting a ruling on behalf of Sears Holdings Management Corporation (“SHMC”), regarding the proper deduction of freight charges and other costs incidental to the importation of merchandise produced abroad included in the invoice price of such merchandise. FACTS: SHMC imports a variety of consumer products from a variety of countries. In all cases, UPS Supply Chain Services or Damco is the overseas forwarder, and/or US customhouse broker. In some cases, one company acts as both forwarder and broker, and in other instances one is the forwarder and the other the broker. The origin forwarder enters all shipping information into their logistics tracking system. The shipping information by bill of lading, order number, and item number is sent electronically to the broker via SHMC’s data portal. The electronic feed of information is used for all modes of transport. For the majority of shipments, the transport is via ocean carrier, and the terms of sale are Free on Board (“FOB”), port of export. For all transactions of this nature, the forwarders facilitate all supplier/vendor communication, cargo handling, and a variety of other origin related services. Some examples of the services that are contained in the ultimate invoice paid by SHMC include the following: Carrier agent booking fee: fee charged by the carrier’s booking agent for booking services; Carrier bill of lading: fee charged by the carrier for issuing the bill of lading; Container Freight Station (“CFS”) fee: receiving fee for receiving, unloading, storing, and packing cargo into containers; Foreign customs clearance: fee for origin export Customs clearance services and formalities; Container Yard (“CY”) monitoring fee: fee for handling the cargo, vendor management, receiving vendor booking, coordinating carrier booking, coordinating equipment, handling documentation, and performing systems update; Documentation fee for issuing the Freight Cargo Receipt (“FCR”) or the House Bill of Lading (“HBL”); Foreign inland freight in the country of export; Fees charged by the carrier for equipment management; Fee for handling Less than Container Load (“LCL”) cargo; Port construction fee: charge from the carrier for port construction; Port security charge: cost to build, maintain, and manage port security facilities; Supply chain security fee: service charge in relation to the CBP 24-hour carrier rule; Terminal handling charge: the fee charged to SHMC by the carrier for entering the terminal; and, Wharfage charge: port usage fee paid to the Port Authority. You provided documentation in the form of one Vendor-Paid Origin Charge Summary (VPCOS) provided by one of SHMC’s freight forwarders. Each VPCOS references specific forwarder charges to a vendor for particular bills of lading containing merchandise from that particular vendor, and those same bills of lading are then referenced on the subsequent entry summaries covering imports from that vendor. You state that SHMC plans to deduct an amount equaling the sum of the fees charged by the origin forwarder to the vendor and then included in the vendor’s invoice to SHMC, as represented on the VPCOS, on the bill of lading level. The remaining value after this deduction will be declared as entered value, which is the total invoice less the non-dutiable charges, and thus the dutiable value for each entry. This VPCOS document states a price which includes the following charges: carrier bill of lading, CY monitoring, supply chain security fee, terminal handling charge. ISSUE: Whether certain charges that are included in the invoice price for the imported merchandise may be properly excluded from transaction value as costs incident to the international shipment of the 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 (“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 enumerated additions. Section 402(b)(4)(A) of the TAA defines the term “price actually paid or payable” as: The total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation 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. 19 U.S.C. § 1401a(b)(4)(A). In Headquarters Ruling Letter (“HRL”) H092560, dated April 7, 2010, CBP determined that under FOB terms of sale, the 10+2 management fee, carrier agent booking fee, carrier bill of lading, CFS receiving, customs clearance, CY monitoring, documentation fee, equipment management fee, FCR/HBL issuance, LCL handling, port construction charge, port security charge, supply chain security fee, terminal handling charge, and wharfage fees were incident to the international shipment and, thus, excluded from the price actually paid or payable of the imported merchandise. In Treasury Decision (“T.D.”) 00-20, CBP reiterated its longstanding position that with regard to freight, insurance, and other costs incident to international shipment, including foreign inland freight, the importer of record must deduct the actual costs for these charges from the price actually paid or payable. The notice advised that CBP considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company, or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable. We note that even though this ruling request deals with a variety of fees that might be charged UPS Supply Chain Services or Damco, as referenced in the FACTS portion of this letter, the sample VPCOS only specifies the following charges: carrier bill of lading, CY monitoring, supply chain security fee, and terminal handling charge. Therefore, inasmuch as these are the only actual charges substantiated by the documentary evidence in this sample transaction, only these fees may be excluded from the price actually paid or payable in this case. However, the rest of the charges, with the exception of foreign inland freight, may also be deducted from the price actually paid or payable in line with our ruling in HRL H092560, if supported by the necessary documentation. In regard to foreign inland freight in sales other than ex-factory, section 152.103(a)(5)(ii), CBP Regulations (19 C.F.R. § 152.103(a)(5)(ii)), provides: Sales other than ex-factory. As a general rule, in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoices or other commercial documents, that charge will be part of the transaction value to the extent included in the price. However, charges for foreign inland freight and other services incident to the shipment of the merchandise to the United States may be considered incident to the international shipment of that merchandise within the meaning of § 152.102(f) if they are identified separately and they occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States. According to section 152.103(a)(6)(iii), CBP Regulations (19 C.F.R. § 152.103(a)(5)(iii)): Evidence of sale for export and placement for through shipment. A sale for export and placement for through shipment to the United States under paragraph (a)(5)(ii) of this section shall be established by means of a through bill of lading to be presented to the port director. Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (e.g. shipments via the seller’s own conveyance) will other documentation satisfactory to the port director showing a sale for export ot the United States and placement for through shipment to the United States be accepted in lieu of a through bill of lading. In All Channel Products v. United States, 16 CIT 169, 787 F.Supp. 1457, 1460 (1992), aff’d 982 F.2d 513 (Fed. Cir. 1992), the court interpreted 19 C.F.R §§ 152.103(a)(5)(ii) and (iii) as permitting the deduction of foreign inland freight charges in a CIF or other non-ex-factory sale as incident to the international shipment of the merchandise “only in cases where the merchandise was placed with one freight forwarder or carrier for through shipment from the factory to the United States documented by a through bill of lading (or other satisfactory documentation establishing through shipment).” You state that for the majority of shipments, the terms of sale are FOB, port of export. Furthermore, the VPCOS that you submitted with your ruling request does not establish through shipment from the factory to the United States. Without such, evidence, no deduction may be made for foreign inland freight charges. See HRL H144039, dated April 19, 2011. HOLDING: Based on the information presented, the following costs charged by Damco may be excluded from the price actually paid or payable for the imported merchandise with respect to the sample transaction: carrier bill of lading, CY monitoring, supply chain security fee, and terminal handling charge. Additionally, CFS receiving, Customs clearance, drayage/haulage/trucking, LCL handling, port construction, and wharfage feels, may be excluded from the price actually paid or payable of the imported merchandise in line with our ruling in H096250, provided that all documentary requirements are satisfied. The foreign inland freight charges should be included in the price actually paid or payable for the imported merchandise. Please note that 19 CFR § 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 complete in every material respect. The application of a ruling letter by a Customs Service 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.” Sincerely, Monika Brenner, Chief Valuation and Special Programs Branch