Request for Internal Advice Regarding Deductions from Entered Value of Softwood Lumber; Countervailing Duties; Anti-Dumping Duties

HQ H304314 November 5, 2019 OT:RR:CTF:VS H304314 CMR CATEGORY: Valuation Center Director Ann Marie Paul U.S. Customs and Border Protection Industrial and Manufacturing Materials Center of Excellence and Expertise 726 Exchange Street, Suite 400 Buffalo, NY 14201 RE: Request for Internal Advice Regarding Deductions from Entered Value of Softwood Lumber; Countervailing Duties; Anti-Dumping Duties Dear Ms. Paul: This is response to an internal advice request received by this office from the Industrial and Manufacturing Materials Center of Excellence and Expertise (“CEE”) with regard to certain deductions from the entered value for a shipment of softwood lumber subject to anti-dumping duties (case A-122-857) and countervailing duties (case C-122-858). The internal advice request was filed with the CEE by counsel for the importer. Counsel has requested, on behalf of his client, and in accord with 19 C.F.R. § 177.2(b)(7), that certain information contained in the internal advice request be afforded confidential treatment as it is proprietary business information, the release of which would cause substantial harm to his client’s business. Counsel submitted an explanation of the reasons for the confidentiality request. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in this ruling, the ruling request, or in the attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling. This decision does not reference the identified information or such information will be redacted in any public version of this decision, if referenced. FACTS: As noted above, the entry at issue involves softwood lumber subject to anti-dumping (AD) and countervailing (CV) duties. The softwood lumber was sold by a Canadian mill (the importer) to a Canadian middleman distribution company who sold the lumber to a U.S. buyer. A Post Summary Correction (PSC) was filed with regard to the entry to change the deduction for freight because of an issue during shipping and, as a consequence, to change the amounts for deductions of duties, fees and taxes (including the AD and CV duties). The early payment discount and the brokerage fee, however, did not change. The commercial invoice indicates that the delivery terms were CPT (carriage paid to), and that the freight was prepaid. The commercial invoice also describes the lumber; the amount purchased; the price per foot, board measure; and the invoice total. The invoice specifies a discount amount to be deducted from the invoice total (delivered price) if payment is received by a specified date. The original pro forma invoice, issued by the importer to their customs broker and filed with the entry summary, indicated that the “Prices Shown Include: Freight, Discount, and Brokerage.” The pro forma invoice lists the gross invoice amount from the commercial invoice from which itemized deductions, listed as discount, freight, broker fee, CVD, and ADD, were deducted to determine the entered value of the softwood lumber. The Customs and Border Protection Form (CF) 7501 also lists deductions from the invoice amount which matched the information from the pro forma invoice. The entered value on the 7501, the entered value on the pro forma invoice, the total value on the Canadian Softwood Lumber Export Permit, and the entered value on the APHIS form are all the same amount. The importer submits that the softwood lumber was shipped in accordance with Delivered Duty Paid (DDP) terms of sale. To support this claim, the importer has submitted statements from the general manager of the importer and the president of the middleman company attesting that all parties involved in the transaction understood that the importer would pay the freight and the duties owed at entry into the United States. Furthermore, the statement from the general manager of the importer indicates that the importer adds a percentage for duties into the price it charges customers. As further evidence of a percentage for duties being added to the price, the importer submitted emails with a customer explaining the percentage addition to the price of the lumber. The importer claims that the CPT terms on the invoice between the importer and the middleman were incorrect and has submitted a corrected invoice with the internal advice request. The corrected invoice states the delivery terms are “DDP – Incl CVD & ADD.” The import specialist who reviewed this entry has appraised the shipment based solely on the documents between the importer and the middleman, consisting of the original invoice with CPT terms, the order confirmation between the parties, and additional related shipping documents. Documentation, in addition to that discussed above, was submitted by the importer, through counsel, including a copy of the purchase order from the middleman to the seller; the freight bill; proof of payment of the freight bill by the importer; relevant pages from the “Periodic Monthly Statement” from the broker to the importer listing shipments and duty amounts involved; evidence of payment by the importer to the broker of the duty amounts for ADD/CVD, including the amounts for the entry at issue, so that the broker could pass the payment onto CBP; and, an article about the softwood lumber industry that appeared in the December 2018 Random Lengths publication entitled, “U.S.-Canada Trade Dispute Timeline.” We note that the purchase order from the middleman to the importer reflects sales terms which indicate the middleman receives a discount on the delivered price if payment is received within a specified period of time. The CEE does not question that a bona fide sale for export to the United States occurred between the importer and the middleman. Therefore, we have no need to examine that issue. However, the CEE has taken the view that the ADD/CVD have not been separately identified in accordance with 19 U.S.C. § 1401a(b)(3)(B) at the time of entry. You also believe that the requirements of 19 C.F.R. § 141.86 have not been met. This regulation requires all charges upon the merchandise be itemized by name and amount on the invoice. Finally, you believe that 19 C.F.R. § 142.6(a)(3) requires the invoice value to reflect the value of the merchandise without the inclusion of duties, taxes, and fees. You have asked this office to address the allowable deductions from the invoice value at the time of entry. We note that the importer has withdrawn the claim to deduct additional freight charges, which was the subject of the PSC. As such, we have no need to address that issue. ISSUE: Whether the deductions taken at entry by the importer were allowable deductions under a DDP transaction. 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 statutory additions. 19 U.S.C. § 1401a(b)(1). In this case, the seller uses transaction value as the basis of appraisement and claims the terms of sale are delivered duty paid (DDP). DDP is described in Incoterms® 2010, ICC Rules for the use of domestic and international trade terms, published by the International Chamber of Commerce (2010), at 69, as follows: “Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. Under DDP sales, the seller must contract, at its own expense, for the transportation of the goods to the named place of destination. See supra at 70. In addition, the seller pays the duties, fees, taxes and other charges payable upon export and import of the goods. See supra at 72. In determining the transaction value of merchandise, it is necessary to determine what the “price actually paid or payable for the merchandise when sold for exportation to the United States” actually is. At 19 U.S.C. § 1401a(b)(4), the statute provides: For purposes of this subsection – (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). Furthermore, at 19 U.S.C. § 1401a(b)(3), the statute provides, in relevant part: The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1): * * * (B) The customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable. Reading 19 U.S.C. § 1401a(b)(3) and (b)(4) together, it appears that while § 1401a(b)(4) defines “price actually paid or payable” in a manner that includes customs duties and other Federal taxes within the phrase, § 1401a(b)(3) clarifies that customs duties and other Federal taxes currently payable may be deducted from the price actually paid or payable if these charges are identified separately. However, if they are not identified separately, they are not deductible. CBP has previously held that ADD/CVD fall within the phrase “customs duties and other Federal taxes currently payable” in 19 U.S.C. § 1401a(b)(3). See Headquarters Ruling Letter (HQ) 545304, dated January 4, 1994; HQ 546191, dated April 12, 1999. Therefore, if the ADD/CVD are identified separately from the price actually paid or payable for the merchandise, these charges may be deducted from the transaction value of the merchandise, that is, the invoiced amount paid by the buyer. In a DDP transaction, as noted above, the seller pays the duties, fees, taxes and other charges payable upon export and import of the goods, which includes the customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation. If the seller can show that the invoice amount paid by the buyer includes these charges, per § 1401a(b)(3), the seller may reduce the invoice amount to remove these charges from the transaction value of the merchandise for purposes of appraisement. In other words, the seller needs to show the amounts within the invoice that are attributable to duties, and not just that the responsibility for paying duties lies with the seller. Nineteen CFR § 141.90(c), provides: The importer must show in clear detail on the invoice or on an attached statement the computation of all deductions from total invoice value, such as the nondutiable charges, and all additions to invoice value which have been made to arrive at the aggregate entered value. In addition, the entered unit value for each article on the invoice must be shown where it is different from the invoiced unit value. The purpose of the invoicing requirements, among other things, is to enable CBP to ascertain the value of the imported merchandise. Nineteen CFR § 142.6(a)(3) requires, among other things, that the commercial invoice, or documentation acceptable in place of a commercial invoice, such as a pro forma invoice, shall contain “[t]he values or approximate values of the merchandise.” When read together, the regulations indicate that the commercial invoice does not need to specifically provide the ADD/CVD amounts on its face, as long as acceptable documentation is available in place of a commercial invoice, or a statement attached to the commercial invoice provides the required information in accordance with 19 CFR § 141.90(c) and 19 CFR § 142.6(a)(3). In this case, the pro forma invoice provided by the importer to their broker separately identifies the itemized deductions, i.e., the discount, freight, broker fee, CVD, and ADD. The pro forma invoice provides the computation of all the deductions from the total invoice value as required by 19 CFR § 141.90(c). This is sufficient to meet the requirement of 19 U.S.C. § 1401a(b)(3)(B) to identify the customs duties separately from the price actually paid or payable for the imported merchandise. In addition, in this case, additional documentation has been submitted to support the importer’s claim that the invoice price included the ADD/CVD duties which were deducted. Thus, the deductions indicated on the pro forma invoice price are allowable deductions. HOLDING: As discussed above, the deductions taken on this DDP transaction were separately identified on the pro forma invoice issued by the importer to their broker. As such, these deductions, including the ADD/CVD are allowable as the importer met the requirements of 19 U.S.C. § 1401a(b)(3)(B), 19 CFR § 141.90(c), and 19 CFR § 142.6(a)(3). You are to mail this decision to the Internal Advice requester no later than 60 days from the date of the decision. At that time, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and the public on the CBP website located at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch