Sale for Exportation

HQ W544772 October 8, 1992 VAL CO:R:CV W544772 DPS CATEGORY: Valuation Mr. Joseph Camerata Atlas Copco Canada Inc. 745 Montreal Toronto Blvd. Dorval, Quebec, CANADA H9S 1A3 RE: Sale for Exportation Dear Mr. Camerata: This is in response to your ruling request submitted in August, 1991, on behalf of Atlas Copco Canada Inc. (AC Canada), a distributor of construction and mining equipment and parts in Canada. We regret the delay in responding. You seek a ruling concerning the customs valuation ramifications of certain changes. AC Canada anticipates making in the course of a business reorganization. Since the original submission, your representatives made a supplemental submission in January, 1992, and met with members of the Value and Marking Branch staff on April 29, 1992. Based on the information provided and the nature of the ruling requested (sale for exportation), we are only able to provide a ruling on certain aspects of the proposed transactions . Where information provided is insufficient to enable a ruling in accordance with section 177.2, Customs Regulations (19 CFR 177.2), this response constitutes an information letter pursuant to section 177.1(d)(2), Customs Regulations (19 CFR 177.1(d)(2)). FACTS: AC Canada is currently a distributor of construction and mining equipment and parts in Canada. With the intent of consolidating the company's North American operations, the business is being reorganized. This will enable AC Canada to expand its construction and mining equipment business into the U.S. through additional product lines and distribution channels. As part of this reorganization, merchandise will be purchased by AC Canada from Atlas Copco AB's European manufacturing companies (AC Europe) for direct shipment to the United States. In addition, certain merchandise in AC Canada's warehouse in Canada may periodically be shipped to a public warehouse in the United States. This merchandise will normally originate from AC Europe. The issue that arises under this scenario is how the transferred merchandise should be appraised in the absence of a sale from AC Canada. Further detail about the relationships between the parties, the structure of the proposed transactions, and the documentation reflecting the transactions, is necessary to make "sale for exportation” determinations. The information provided reflects the following. AC Canada is indirectly owned by Atlas Copco AB, a Swedish concern, which also indirectly owns the overseas manufacturers of this equipment (AC Europe). You indicate that .the prices paid by AC Canada to AC Europe will reflect and include all costs for materials, fabrication, general and administrative expenses, packing and transportation costs, and reasonable profits to AC Europe. You further state that these prices will be fully consistent with arm's length pricing and in accordance with generally accepted accounting principles (GAAP). According to the submission, as a result of the reorganization, Atlas Copco Roctec Inc. (AC Roctec) , an affiliated U.S. sales and distribution entity, will no longer be importing goods directly into the U.S. Instead, AC Roctec will be limited to its role as a sales agent for AC Canada and will be reasonably compensated by AC Canada for such services. AC Roctec will not communicate with or be compensated by Atlas Copco Europe in any of the subject transactions. Based on the information provided, AC Canada will be the United States importer of record. It will be invoiced directly by AC Europe. Moreover, AC Canada's U.S. agent will solicit sales on behalf of AC Canada from buyers in the United States. In certain circumstances, AC Canada, acting as importer of record, may designate a U.S. agent/customhouse broker to accept service of process and file all appropriate bonds for AC Canada. The ruling request further states that AC Canada will retain total control over all aspects of the import transaction. This will include bearing the risk of loss from the time of exportation until delivery to the United States purchaser. No documentation reflecting shipping terms or parties to a specific transaction have been submitted, nor have sample invoices from any of the involved parties been submitted. Notwithstanding the absence of transactional documentation, you state that AC Canada will be responsible for the payment of international freight expenses, insurance charges; U.S. customs duties and inland transportation fees. In some cases, the merchandise will be delivered to AC Canada's warehouse facility or freight forwarder in the United States where it will be prepared for subsequent delivery to the United States purchasers. Warehouse facilities will be secured on behalf of AC Canada in both public and private warehouses. While the merchandise is in a warehouse, preparation for redelivery may include relabelling of packages and/or repackaging. Furthermore, you state that any unrelated U.S. resale purchasers of construction and mining equipment or parts may be designated as the consignees. They will be directly invoiced by AC Canada after importation. AC Canada requests a ruling to the effect that the sale for exportation in all situations described herein be the sale between AC Europe and AC Canada. ISSUE: Under the circumstances presented, when transaction value applies, whether the sale between the manufacturer (AC Europe) and the seller (AC Canada), or the sale between the seller (AC Canada) and the ultimate U.S. purchaser, should be considered the sale for exportation to the United States. LAW AND ANALYSIS: For the purpose of this response, we assume that transaction value is the proper basis of appraisement in light of the importer’s representation that the prices between related parties are the result of arms-length negotiations. Transaction value is defined in Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 140la ((b), as the price actually paid or payable when sold for exportation to the United States plus certain enumerated additions not relevant here (emphasis added). A bona fide sale must occur if the imported merchandise is to be appraised under transaction value. The term price actually paid or payable means the total payment, exclusive of certain international transportation charges, made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Section 402 ((b)(4)(A) TAA. Under the various scenarios presented here, we must first determine whether transaction value applies. In certain instances, AC Canada intends to transfer imported merchandise from its Canadian warehouse facility to its U.S. warehouse facility, without a sale. Based on the importer's submissions and discussions with customs Headquarters personnel, depending on the particular transaction, the merchandise may be shipped: (1) from AC Europe to AC Canada's warehouse in Canada; (2) from AC Europe to AC Canada's warehouse facilities in the U.S.; (3) from AC Europe to U.S. purchasers; (4) from AC Canada to U.S. purchasers; (5) from AC Canada to its U.S. warehouse facility; and (6) from AC Canada's U.S. warehouse to U.S. purchasers. In all instances, AC Canada will be invoiced directly by the overseas manufacturers, AC Europe. AC Canada will subsequently invoice the U.S. purchaser. In addressing the issue of "sale for exportation," the Court of International Trade and the Court of Appeals for the Federal Circuit have consistently held that determinations of which sale is for exportation to the U.S. are fact-specific and can only be made on a case-by-case basis . See E.C. McAfee Co., V. U.S., 842 F.2d 314 (Fed. Cir. 1988) and Nissho Iwai American Corp. v. U.S..., Slip Op. 92-18 (CIT1992). Thus, based on the information provided, we can only give general guidance with regard to the proposed actions of AC Canada. Determinations about specific transactions are left to the discretion of the concerned import specialist, upon presentation of all relevant facts and documentation relating to the transaction at issue. In addressing the scenarios you propose, the first issue requiring resolution is whether a bona fide sale between the parties occurred. In J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D 1139 (1974), the U.S. Court of Customs and Patent Appeals defined the term "sale" as the “transfer of property from one party to another for consideration.” Although the J.L. Wood case was decided under the appraisement statute prior to the TAA, Customs has accepted that this basic concept of what constitutes a sale is applicable under the TAA. The scenarios about which you inquire involve sales and transfers of merchandise between related foreign manufacturers and related and unrelated companies. In previous Headquarters Ruling Letters (HRLs), involving the question of whether a bona fide sale existed between a foreign seller and a related company, Customs has examined several factors. To determine whether there was a transfer of property or ownership, customs has ascertained whether title and risk of loss to the merchandise passed to the related company. In addition, Customs has scrutinized whether the alleged buyer paid for the goods, and whether the amounts remitted to the selling company equaled the related party transfer price. Finally, Customs has examined whether the payments can be linked to specific importations of merchandise. With each situation, a determination is made as to whether or not particular transactions are considered sales. Many scenarios, like those you present, involve more than one sale or no sale at all. As a result, we must decide which sale is the sale for exportation to the U.S. for purposes of transaction value. A determination as to which sale is for exportation to the United States is fact-specific and can only be made on a case­ by-case basis. The standard that customs has consistently applied to determine which of two or more sales should be the basis of transaction value, is which sale or transaction most directly caused the merchandise to be exported to the U.S. See, e.g., Brosterhous, Coleman & Co., et al. v. United States, 737 F. Supp. 1997 (CIT 1990), C.S.D. 84-54, 18 Cust. Bull 979 (Dec. 1, 1983); C.S.D. 83-95, 17 Cust. Bull 930 (May 16, 1983); HRL 542928, dated January 21, 1983, cited as TAA #57. In reviewing the court cases and administrative rulings on sale for exportation, it is imperative to recognize the factually specific nature of the decisions. In sum, in approaching a sale for exportation question, customs first determines whether a sale has actually occurred. When there is more than one sale, Customs policy is that transaction value should be calculated according to the sale which most directly caused the merchandise to be exported to the United States. The multitude of scenarios presented in this ruling request differs significantly from the situation presented in HRL 543789, dated February 17, 1987, and cited as support for AC Canada's position that the sale between AC Europe and AC Canada provides the basis for transaction value. Accordingly, while we recognize the position taken in HRL 543789, we are unable to apply it absent a concrete set of circumstances and documents pertaining to a specific transaction. HOLDING: Absent specific documentation reflecting a particular transaction, it is impossible to render a definitive ruling on the importers proposal. However, based on the information presented we can provide the following comments. First, in these situations where a U.S. customer contacts AC Canada AC Canada's U.S. agent and orders merchandise which is in AC Canada's Canadian inventory, the transaction value is the price actually paid for the merchandise when sold by AC Canada to the U.S. customer, i.e. the retail price. In situations where merchandise is sold by AC Europe to AC Canada for its inventory and delivered to AC Canada's warehouse facility in the U.S., the transaction value is the price paid by AC Canada to AC. Europe because that sale caused the merchandise to be exported to the U.S., and title rests with AC Canada. In situations where merchandise is merely transferred from AC Canada's warehouse facility to its facility in the U.S., appraisement under transaction value is inappropriate because no sale occurs. In such situations, the merchandise should be appraised under §402(c) of the TAA, the provision for transaction value of similar and identical merchandise, assuming such transactions of similar or identical merchandise at the same commercial level are available for comparison purposes. In situations where merchandise is ordered by a U.S. customer through AC Canada, and shipped directly to the U.S. purchaser from AC Europe, we would conclude that the sale that most directly caused the merchandise to be exported to the U.S. was the sale between AC Canada and the U.S. purchaser. Accordingly, we would appraise under transaction value using that price. Sincerely, John Durant, Director Commercial Rulings Division Cc: Charles L. Crowley, Deloitte & Touche, New York