Price Actually Paid or Payable; Testing Fees

HQ H308695 February 25, 2020 OT:RR:CTF:VS H308695 AP CATEGORY: Valuation Tammy Flanders Hetrick, LCB Senior Trade Advisor A.N. Deringer, Inc. 173 West Service Road Champlain, NY 12919 RE: Price Actually Paid or Payable; Testing Fees Dear Ms. Hetrick: This is in response to your letter, dated January 27, 2020, in which you request a prospective ruling, on behalf of your client, Hayward Tyler, concerning the dutiability of certain testing fees it will be paying to an unrelated third-party testing service in Canada and to a related party in China. Our response follows. FACTS: Hayward Tyler, a U.S. buyer, plans to purchase canned motor pumps from an unrelated supplier in China. The merchandise will be manufactured in China. You have presented two scenarios. Scenario 1: The supplier in China will ship the canned motor pumps to a third-party testing facility in Canada to perform specific testing prior to delivery to the U.S. The testing facility in Canada will import the pumps under a Duty Deferral Order. The testing facility in Canada will test the pumps, repack them in their original shipping material, and then ship them directly to Hayward Tyler’s U.S. customer. The testing facility will never hold title to the pumps and will invoice Hayward Tyler for the costs related to the testing operation in Canada. Upon export to the U.S., the testing facility will close out the Canada Duty Deferral Order. The testing fees will not accrue to the benefit of the pumps seller. Scenario 2: The testing will take place at Hayward Tyler China, a related party. Hayward Tyler China is located a few hours away from the unrelated manufacturer in China. Hayward Tyler China will perform the same test and will never take title to the pumps. Hayward Tyler China will invoice Hayward Tyler solely for the testing operations. The testing fees will not accrue to the benefit of the pumps seller. ISSUE: Whether the payments, made by the U.S. buyer, Hayward Tyler, to the unrelated third-party testing company or to the related party, Hayward Tyler China, are to be included in the transaction value of the canned motor pumps, as part of the price actually paid or payable for the imported merchandise. LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with section 402 of the Trade Agreements Act of 1979 (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. We are assuming, for the purposes of this ruling, that transaction value is the appropriate basis of appraisement for the imported merchandise. The “price actually paid or payable” means the total payment (whether direct or indirect, and exclusive of any charges, costs, 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 U.S.) 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). U.S. Customs and Border Protection (“CBP”) has previously considered whether payments made for testing services are part of the price actually paid or payable. CBP has consistently held that testing fees paid to a third party are not part of the price actually paid or payable for the imported merchandise. CBP has cautioned, however, that when inspection services are at issue and entail quality control along the lines of production-related design or development, then the fees may be dutiable as part of the price actually paid or payable. In Headquarters Ruling Letter (“HQ”) H270670, dated Feb. 17, 2016, a U.S. buyer purchased merchandise from its supplier overseas and engaged an unrelated third party located in the U.S. to arrange the overwrapping of the merchandise and to perform testing services. The unrelated third party in the U.S. contracted with a company in Canada to overwrap the merchandise. The U.S. buyer delivered the merchandise it purchased from its suppliers in China to the Canadian company, which entered the merchandise in Canada under a Duty Deferral Order. After the Canadian company overwrapped the merchandise, it was imported into the U.S. and shipped to the U.S. buyer. The unrelated third party in the U.S., engaged by the U.S. buyer, performed the testing services. The Canadian company never held title to the goods. The U.S. buyer paid the unrelated third party in the U.S. for the testing services. CBP concluded that the payments made for testing services were not part of the price actually paid or payable for the imported merchandise because the buyer paid the independent third-party company in the U.S. for the testing services and did not pay the seller of the imported goods. The payments were not made by the buyer to, or for the benefit of, the seller; the testing services performed did not amount to quality control along the lines of production expenses; and the testing services did not relate to design or development of the imported merchandise. In HQ 256223, dated Aug. 20, 2014, CBP also concluded that payments made by the U.S. buyer to a third party test vendor were not part of the price actually paid or payable for the imported goods. Similarly, in HQ W563480, dated June 9, 2006, CBP found that testing costs were not part of the price actually paid or payable for the imported merchandise where the buyer would make the testing payments to an independent third-party tester, not to the seller of the imported goods, and the testing performed did not appear to amount to production related design or development of the imported merchandise. In comparing the instant matter to the rulings referenced above, we find that the payments that will be made for testing services to the unrelated party in Canada and to the related party in China will not be part of the price actually paid or payable for the imported pumps. This is because the U.S. buyer will not make the testing payments to the Chinese seller of the imported goods. Thus, the testing service payments will not be made by the U.S. buyer to, or for the benefit of, the seller in China. In addition, the testing services performed by the third-party testing service in Canada and by Hayward Tyler China do not amount to quality control along the lines of production expenses related to design or development of the imported pumps. HOLDING: Based on the information provided, the payments for testing services, performed by the unrelated third-party testing service in Canada and by related party Hayward Tyler China, are not included in transaction value as part of the price actually paid or payable for the imported pumps. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika R. Brenner, Chief Valuation & Special Programs Branch