Application for Further Review (“AFR”) of Protest No. 0712-15-100186; Discounts

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection September 27, 2016 HQ H274599 OT:RR:CTF:VS H274599 YAG CATEGORY: Valuation Port Director, Port of Champlain Attn: Rebecca Rabideau, Supervisory Import Specialist U.S. Customs and Border Protection 237 West Service Road Champlain, NY 12919 RE: Application for Further Review (“AFR”) of Protest No. 0712-15-100186; Discounts Dear Port Director: This is in response to your correspondence, dated March 25, 2016, forwarding the Application for Further Review (“AFR”) of Protest No. 0712-15-100186, timely filed by Sandler, Travis, and Rosenberg, P.A., on behalf of the Protestant. Protestant has asked that certain information submitted in connection with this AFR be treated as confidential. Protestant’s request for confidentiality is approved. The information contained within brackets and all attachments to this AFR, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision. FACTS: The protested entries cover certain goods that have been designated as distressed merchandise. The distressed merchandise was purchased by Protestant from its related party in Canada. Protestant claims that due to an inadvertent systemic error in their electronic invoicing in 2014, Protestant unintentionally declared the values of the distressed merchandise at a price higher than the price actually paid to its related party from whom the imported distressed merchandise was purchased. Protestant claims that upon learning of the error in 2015, Protestant initiated corrective action, and the price actually paid or payable for the distressed merchandise was adjusted downward. Protestant also states that the alleged overpayments to its related party in Canada were quantified and refunded for 2014 in the form of a lump sum transfer between the two companies. Therefore, Protestant now seeks a refund from CBP for the overpayments in duties that resulted from higher values claimed for the distressed merchandise. The following documents were submitted: Customs Protest Form, CF 19, dated November 11, 2015, together with the following attachments: Entry numbers covered by this protest; Bill of Sale, dated November 18, 2013; Closing inventory list, dated November 18, 2013; Documentation of change of corporate names in Canada from [***] to [***]; Documentation of the change in corporate ownership; Spreadsheet with refund calculations; and, Asset Purchase Agreement; Customs Protest and Summons Information Report, dated March 18, 2016; and, Entry No. [***]. This office held a telephone conference with Protestant’s counsel on September 13, 2016. Protestant states that the distressed merchandise at issue was initially acquired under the cover of the Asset Purchase Agreement (“APA”) between unrelated companies in Canada. Subsequently, a private investment group purchased the then-bankrupt companies. Protestant presents the Bill of Sale, dated November 18, 2013, for our review and states that this Bill of Sale specifically provides for the transfer of the purchased assets in the bankruptcy proceedings. According to Protestant, the purchased assets included the distressed merchandise sold at a discount in the context of the APA. In support of its discount argument, Protestant provides us with the closing inventory list, which specifies the quantities of all of the covered styles and values prior to the APA and under the APA. Protestant states that it is evident the merchandise was distressed from the significant difference between the two prices, i.e., the much lower prices at which the goods were acquired by the buyer. The Port argues that there was no agreement for the sale of the imported merchandise between the related entity in Canada [***] and the related entity in the United States, [***]. Moreover, the Port states that Protestant failed to present sufficient documentary evidence to establish that the discount was agreed to prior to importation. Therefore, the Port opines that the imported merchandise is not eligible for a discount or price adjustment. Our decision follows. ISSUE: Whether a discount should be included in determining the price actually paid or payable for the imported merchandise. LAW AND ANALYSIS: Merchandise imported into the United States is appraised for customs purposes 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 primary 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. See 19 U.S.C. §1401a(b)(1). The term “price actually paid or payable” is more specifically defined in section 402(b)(4)(A) of the TAA as 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 …) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.” The CBP Regulations further provide that 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 . . .” 19 CFR §152.103(a)(1). On the other hand, the Statement of Administrative Action states that changes in price actually paid or payable which are arrived at subsequent to the time of importation shall not be taken into account in determining a transaction value. This would apply to renegotiation, deferred quantity discounts, or rebates. Moreover, 19 U.S.C. §1401a(b)(4)(B) states that “any rebate, or other decrease in, the price actually paid or payable that is made or otherwise affected between the buyer and the seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value.” CBP has consistently enumerated three criteria in determining whether a discount or price adjustment should be considered part of the transaction value of imported merchandise. See HRL 563419, dated May 4, 2006. First, the discount or price adjustment must be agreed on prior to the importation of the merchandise. See Allied International v. United States, 795 F. Supp. 449 (CIT 1992) (importer required to affirmatively show that there was a pre-importation agreement for the claimed discount); see also HRL 964192, dated February 15, 2002 (discounted price constituted the price actually paid for the imported footwear because the discounts were agreed to and effected prior to importation); and HRL 547019, dated March 31, 2000 (discounted price, which was based on established criteria from a price list and was agreed to prior to importation, constituted the price actually paid or payable for the imported merchandise). The second criterion is that the importer must be able to furnish CBP with sufficient documentary evidence to support the existence of the discount and establish that it was agreed to before the time of entry. See HRL 547144, dated November 20, 1998; see also HRL 545659, dated October 25, 1995 (unconditional discount factored into the value declared at the time of entry and reflected on the invoice presented to CBP, may be taken into account in determining transaction value). The third criterion requires that the discount or price adjustment be unconditional, or if conditional all the conditions must be met prior to importation. We articulated this criterion in HRL 545659, in which we determined that a discount is unconditional when there are no specified purchasing obligations placed on the customer. In that case, we held that with respect to both the unconditional and conditional discounts that are indicated on the invoice at the time of entry when no amount is rebated, these discounts are taken into consideration in determining transaction value. In those instances where the customer has not yet fulfilled the specified purchasing obligation at the time of entry, the conditional discounts are not taken into consideration in determining transaction value. Id. In this case, Protestant argues that the pricing for the distressed merchandise is tantamount to a discount, specified in the above referenced rulings, as well as in HRL H197899, dated September 26, 2012. Protestant states that all three criteria are satisfied in this case because the distressed merchandise covered by the subject entries was agreed to at the price established under the APA prior to 2014, with applicable intercompany mark-up for profit that is applied between the related parties. We note that Protestant’s reliance on HRL H197899 is misplaced. In HRL H197899, Protestant imported aircraft components from its unrelated supplier located in Canada. The imported merchandise had been entered at the value declared on the applicable commercial invoices based on values that reflected a 50% discount from the supplier’s catalogue price. Protestant stated that the correct value should have been based on a complex mathematical calculation provided for in a side letter. According to the terms of the side letter, the parties agreed prior to importation that Protestant would receive a maximum discount of 85% or a minimum discount of 65%. The issue was, as in this case, whether a discount should be included in determining the price actually paid or payable for the imported merchandise. CBP found that based on the documentation submitted (emphasis added), the discount in question was included in determining the price actually paid or payable of the imported merchandise, since this discount was effected prior to the date of importation. In other words, after carefully reviewing the relevant provisions in the side letter, CBP determined that the discount was clearly agreed on by the parties to the transaction in the side letter. Protestant furnished sufficient documentary evidence to CBP in the form of the side letter to support the existence of the discount and to establish that it was agreed to before the time of entry. This is not the case here. Upon review of the APA and the Bill of Sale, we note that both documents represent agreements by which a private investment group [***], presently known as [***] or the seller of the imported merchandise, purchased the assets of then-bankrupt [***]. These agreements do not pertain to the purchase of the imported merchandise between the seller in Canada [***] and Protestant, [***], the related parties in the present transaction. In fact, Protestant (as the buyer) of the imported merchandise is not even a party to the APA or the Bill of Sale. The closing date inventory list, which, as Protestant claims, shows that the distressed merchandise was sold between the related parties at a discount, also represents the bankrupt company’s assets that the seller in Canada, [***], purchased in 2013 and cannot be traced to the imported items. This list does not identify the distressed merchandise or the specific discounts and/or price adjustments applied to such merchandise. Furthermore, even if we were to accept the APA and the Bill of Sale as evidence of the bona sale for export of the imported merchandise between [***] and Protestant, we are unable to determine that the imported (or distressed) merchandise at issue was sold at a discount agreed on prior to the importation of the merchandise. The APA between the related parties provides for the purchase of the following assets: the closing date accounts receivable, the closing date inventory, the fixed assets, the intellectual property, the contractual rights, and any and all other rights and assets of the companies relating to their business. The agreement also specifies a lump sum purchase price paid for the purchased assets, with no mention of the distressed merchandise or any of the discounts granted for such merchandise. Similarly, the Bill of Sale provides for the transfer of purchased assets, but with the exception of the allocation of the purchase price between the categories of purchased assets, it sheds no light on any type of discounts claimed for the distressed merchandise. No further agreements were provided for our review. Accordingly, based on the documentation submitted, we find that Protestant failed to satisfy the first and second criteria, as indicated by CBP in numerous rulings, by not providing sufficient information to show that the discount was effected prior to the date of importation. Since Protestant failed to satisfy the first and second criteria, it is not necessary for us to discuss whether the discounts or price adjustments were unconditional, or if conditional all the conditions were met prior to importation. We find that a discount or a price adjustment in this case should not be considered in determining the price actually paid or payable for the imported merchandise. HOLDING: Based on the facts presented above, the Protest is denied. In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP 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. Please do not hesitate to contact us at (202) 325-0042 if you have any questions or concerns. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division