Internal advice; foreign inland freight

HQ H189076 June 26, 2013 CLA-2 OT:RR:CTF:VS H189076 EE CATEGORY: Valuation Field Director Regulatory Audit Office of International Trade 10 Causeway Street, Room 895 Boston, MA 02222 RE: Internal advice; foreign inland freight Dear Sir: This is in response to your memorandum dated October 14, 2011, forwarding a request for internal advice submitted by Sandler, Travis & Rosenberg, P.A., on behalf of IKEA Distribution Services (“IKEA”), concerning the dutiability of certain foreign inland freight charges. This request arose in connection with an audit conducted by the Boston Office of Regulatory Audit Division in 2012. FACTS: IKEA, located in Westampton, New Jersey, orders most of its merchandise for sale in the U.S. through related overseas suppliers. Counsel states that IKEA generally purchases the merchandise on a Free Carrier “FCA Supplier” basis where IKEA assumes responsibility for the goods, i.e., takes title and risk of loss, at the supplier’s premises when the carrier arrives to pick up the goods. To transport merchandise to the U.S., IKEA contracts with IKEA Svenska AB or IKEA Freight Services who use local unrelated freight providers to transport the goods from the supplier’s premises to a consolidation point (“CP”), and from the CP to the foreign port of export for shipment to IKEA in the U.S. IKEA reimburses IKEA Svenska AB and IKEA Freight Services AB who incur the initial expense for these inland freight costs. The goods are tracked by the IKEA Cargo Network Services System, which is the global system used to book the freight for IKEA worldwide. Counsel states that regardless of the supplier or whether the goods move to a CP for consolidation, the goods are always and irrevocably destined for IKEA in the U.S. Counsel states that given the complexities and commercial realities of IKEA’s global supply chain, it is commercially impracticable, if not impossible, for IKEA to order merchandise from overseas suppliers on a through bill of lading. Counsel submitted documents for two transactions. The documents for the first transaction include: a diagram summarizing the movement of the goods from the point of manufacture to the U.S.; an inland bill of lading issued by an unrelated local carrier, Kenig Spedition, to IKEA Supply AG; the freight invoice issued by Kenig Spedition to IKEA Supply AG; the inland bill of lading issued by an unrelated local carrier, ATC Cargo, to IKEA; IKEA’s self-billing freight invoice issued on behalf of ATC Cargo to IKEA; a waybill issued by Maersk to IKEA listing the port of loading as Gdansk and the port of discharge as Los Angeles; an IKEA self-billing invoice issued on behalf of Maersk to IKEA Freight Services AB; and an invoice issued by IKEA Handels AG on behalf of IKEA Freight Services AB to IKEA for services provided in arranging for the foreign inland freight. The documents for the second transaction include: a copy of CBP Form 7501; an invoice from Wood on Wood located in Bracke (Sweden) to IKEA Supply AG in Switzerland; a purchase agreement between IKEA Supply AG and Wood on Wood; an invoice from IKEA Supply AG to IKEA Handels in Switzerland; an invoice from IKEA Handels AG to IKEA; a payment slip from IKEA Handels to Wood on Wood; IKEA Handels receipt of payment from IKEA; a waybill issued by Hapag-Lloyd reflecting the shipment of merchandise from Goteborg (Sweden) to Los Angeles; IKEA’s self-billing invoice issued on behalf of Alwex Transport AB to IKEA Freight Services AB for the transportation of merchandise from Bracke to Jonkoping (Sweden); a transport agreement between IKEA Freight Services AB and Alwex Transport AB listing freight rates including transportation of merchandise from Bracke to Jonkoping; and screen shots from IKEA’s systems showing each leg of the transportation for the shipments. This internal advice addresses the second transaction as it includes a more complete set of documents. ISSUE: Whether charges for foreign inland freight are dutiable. 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). The term “price actually paid or payable” is defined as: [T]he 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. 19 U.S.C. § 1401a(b)(4)(A). Regulatory Audit determined that the transaction value is based on the sale between IKEA Handels and IKEA. This determination is supported by the commercial documents submitted for the second transaction including an invoice from Wood on Wood to IKEA Supply AG listing IKEA as the consignee; an invoice from IKEA Supply AG to IKEA Handels listing Wood on Wood as the consignor and IKEA as the consignee; an invoice from IKEA Handels AG to IKEA listing Wood on Wood as the consignor and IKEA as the consignee and indicating Free Carrier “FCA Bracke” term of sale; a payment slip from IKEA Handels to Wood on Wood for the amount listed on the Wood on Wood to IKEA Supply invoice; IKEA Handels receipt of payment from IKEA for the same transaction; and a waybill issued by Hapag-Lloyd reflecting the shipment of merchandise from Goteborg to Los Angeles. As previously noted, the term of sale listed on the commercial invoice issued by IKEA Handels to IKEA is “FCA Bracke”. Counsel for the protestant claims that IKEA’s “FCA Supplier” sales are equivalent to “ex-factory” sales in which the seller fulfills its obligation to deliver when the goods are made available at its premises. CBP Regulations 19 C.F.R. § 152.103(a)(5) specifically distinguish between two categories of sales for the purpose of the dutiability of foreign inland freight charges: 1) “ex-factory sales” to which 19 C.F.R. § 152.103(a)(5)(i) applies, or 2) “sales other than ex-factory” to which 19 C.F.R. § 152.103(a)(5)(ii) applies. With respect to foreign inland freight in ex-factory sales, section 152.103(a)(5)(i), CBP Regulations (19 C.F.R. § 152.103(a)(5)(i)), provides: Ex-factory sales. If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise (an ex-factory price), those charges will not be added to the price. With respect 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)(5)(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 to the United States and placement for through shipment to the United States be accepted in lieu of a through bill of lading. It is clear from the language of the regulation that if the term of sale is not ex-factory, 19 C.F.R. § 152.103(a)(5)(ii) applies. Further, in All Channel Products v. United States, 16 C.I.T. 169, 787 F.Supp. 1457, 1460 (1992), aff’d 982 F.2d 513 (Fed. Cir. 1992), where the deductibility of foreign inland freight charges was at issue, the U.S. Court of International Trade stated: “without belaboring what is obvious from a reading of § 152.103(a)(5)(ii) and (iii), the amended regulations were intended to provide a tightly circumscribed exception to the “general rule” (i.e., that inland freight charges included in a CIF or other non-ex-factory sales price are dutiable) where the importer can satisfactorily document that the FIF [foreign inland freight] charges were incident to the international shipment of the merchandise.” 16 C.I.T. at 173. (emphasis added). Accordingly, since “FCA Supplier” term of sale is used in the instant case, 19 C.F.R. § 152.103(a)(5)(ii) applies. Further, in All Channel Products, 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 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).” In the instant case, the bill of lading submitted reflects the shipment of the merchandise from the Port of Goteborg to the Port of Los Angeles; it does not show through shipment from the factory to the Port of Los Angeles. Since there is no evidence of through shipment from the factory to the U.S., no deduction may be made for foreign inland freight charges. HOLDING: Based upon the information submitted, foreign inland freight charges are dutiable. This decision should be mailed to the internal advice applicant no later than sixty days from the date of this letter. On that date, Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel and to the public via the CBP Home Page on the World Wide Web at www.cbp.gov, through the Freedom of Information Act, and by other methods of public distribution. Sincerely, Monika R. Brenner Chief Valuation & Special Programs Branch