Bona fide sale; Three-tiered transaction

HQ H308931 March 12, 2020 OT:RR:CTF:VS H308931 AP CATEGORY: Valuation Maya Amir Storkcraft Manufacturing Ltd. Unit 201 12033 Riverside Way Richmond, BC V6W 1 K6 Canada RE: Bona fide sale; Three-tiered transaction Dear Ms. Amir: This is in response to your letter, dated October 25, 2019, on behalf of Storkcraft Manufacturing Ltd. (“Storkcraft”), requesting a ruling as to whether the transaction between Storkcraft and the end purchaser in the U.S., in the three-tiered transaction described below, constitutes a bona fide sale. FACTS: Storkcraft is a Canadian company manufacturing baby and child furnishings, including changing tables, dressers, gliders, cribs, beds, and bunk beds. It has partnered with U.S. intermediaries to sell goods on their e-commerce platforms and websites. Storkcraft and the U.S. intermediaries are not related to each other as that term is defined in 19 C.F.R. § 152.102(g). The three parties involved in the transaction will be Storkcraft, the U.S. intermediary, and the U.S. end purchaser (U.S. ultimate consignee). The U.S. end purchaser will buy the furniture from the intermediary website. The online order will then be sent from the intermediary to Storkcraft. The Storkcraft warehouse in Guelph, Ontario, Canada will pick, pack, and label the shipment for delivery to the U.S. end purchaser. Storkcraft will fulfill the order and will arrange for the merchandise to be shipped from its warehouse in Canada to the carrier facility in Buffalo, New York. The product will be shipped on the intermediary’s account to the U.S. end purchaser, which will serve as the U.S. ultimate consignee. You advise that Storkcraft will assume the risk and liability for all issues that occur during transit, including damage, loss of product, and failure to deliver. Storkcraft, as a seller to an intermediary, will deliver the merchandise to the carrier for shipment, but will never pass title and risk of loss to the intermediary. If the product is late or is not delivered, the intermediary will penalize Storkcraft with a full chargeback or percentage off the selling price. Storkcraft will arrange for cargo insurance through a third-party insurer or the carrier through to the purchaser’s door. Storkcraft will be responsible for all duties and taxes, and will act as the foreign importer of record if the value of the shipment exceeds $800. For purposes of exporting to the U.S., Storkcraft will generate a customs invoice by using the actual price that the U.S. end purchaser pays to the intermediary. The U.S. end purchaser will pay the intermediary who in turn will remit payment to Storkcraft less applicable fees, which could include damage allowances and program fees. You state that Storkcraft does not have supporting commercial documentation because it does not currently ship from Canada to the U.S., and the subject transaction has not been placed into effect yet. You believe that the transaction between Storkcraft and the U.S. ultimate consignee is a bona fide sale and would like us to confirm that. ISSUE: Whether the transaction between Storkcraft and the U.S. ultimate consignee is a bona fide sale. 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). When transaction value cannot be applied, then the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. § 1401a(a). In order to use transaction value, there must be a bona fide sale for exportation to the United States. In VWP of Am., Inc. v. United States, 175 F.3d 1327, 1139 (Fed. Cir. 1999) (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, 505 F.2d 1400, 1406 (1974)), the court found that the term “sold,” for purposes of 19 U.S.C. § 1401a(b)(1), means “a transfer of title from one party to another for consideration.” Several factors are relied on to determine whether a bona fide sale exists. See Headquarters Ruling Letter (“HQ”) 546067, dated Oct. 31, 1996. No single factor is decisive in determining whether a bona fide sale has occurred. See HQ 548239, dated June 5, 2003. U.S. Customs and Border Protection (“CBP”) will consider such factors as whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HQ H005222, dated June 13, 2007. Based on the information you have provided, the purported buyer, the U.S. end user, pays for the goods and Storkcraft is functioning as the seller. Consideration will be paid for the merchandise and the parties will conduct a bona fide sale. The end purchaser will place the online order on the intermediary’s website, the online order will be sent from the intermediary to Storkcraft, who in turn will generate the customs invoice by using the actual price paid by the U.S. end purchaser to the U.S. intermediary. The U.S. intermediary will remit the payment less applicable fees to Storkcraft. Moreover, the additional information concerning the roles of the parties and of the transaction in general confirms that the transaction between Storkcraft and the end purchaser constitutes a bona fide sale. Storkcraft will possess title and risk of loss. Specifically, you state that Storkcraft will pick, pack and label the shipment for delivery to the U.S. end purchaser and will arrange for the merchandise to be shipped from Storkcraft’s warehouse in Canada to the carrier facility in Buffalo, NY. Storkcraft will assume the risk and liability for all issues that occur during transit and will arrange for cargo insurance through to the purchaser’s door. Finally, pursuant to CBP’s Informed Compliance Publication, entitled “Bona Fide Sales & Sales for Exportation to the United States,” Question and Answer 11, at 4-5 (2005), CBP considered a scenario where, as here, the merchandise was shipped directly from the seller to the ultimate U.S. consignee, as opposed to being shipped from the seller to the intermediary and then to the ultimate U.S. consignee. CBP determined that under such scenario, the title and risk of loss would pass from the seller to the intermediary, then immediately thereafter from the intermediary to the ultimate U.S. consignee, and the intermediary was considered to hold title only momentarily, if ever. CBP further concluded that a bona fide sale would appear to have occurred between the seller and the ultimate consignee in the U.S., with the intermediary potentially serving as an agent (most likely for the seller). Accordingly, there is a bona fide sale between Storkcraft and the U.S. ultimate consignee. HOLDING: Based on the totality of information presented, we find that there is a bona fide sale between Storkcraft and the U.S. ultimate consignee. Please note that 19 C.F.R. § 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.” 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