Internal Advice Concerning Deduction of Freight Costs from Appraised Value

HQ W547026 July 31, 1986 RR:IT:VA W547026 RC CATEGORY: Valuation Regional Director, Regulatory Audit Division U.S. Customs Service Northeast Region 10 Causeway Street Boston, MA 02222-1056 RE: Internal Advice Concerning Deduction of Freight Costs from Appraised Value Dear Sir: This is in response to your memorandum forwarding a request for internal advice, submitted by Farkas & Manelli, P.L.L.C., on February 9, 1998, on behalf of Land Rover North America, Inc. (LRNA), concerning the deduction of certain freight costs from appraised value. The importer made a supplemental submission on February 1 1, 1998. The request for internal advice was precipitated by a Compliance Assessment (CA) in 1997. FACTS: LRNA purchases vehicles from Land Rover United Kingdom (LRUK) for resale in the United States. The vehicles are appraised under transaction value. As part of the negotiated unit price, the costs of transporting the vehicles from the factory to the port of importation are included in the transfer price. As such, LRUK arranges for the shipment of the vehicles to the United States. In relation to the transport of the vehicles from the port of exportation to the port of destination in the United States, LRUK contracts with Wallenius Lines UK Ltd. (Wallenius), a foreign shipper in Southhampton, England. Your review of the contract between LRUK and Wallenius discloses that the ocean freight charges included loading of the vehicles onto the vessel, ocean transportation, discharge and movement to the point of rest (Liner Terms). You state that the charges do not include customary port or terminal charges, dues handling charges or wharfage, and other related local charges that are the responsibility of LRUK or its consignee in the United States. The Wallenius invoice to LRUK for the contracted cost of the ocean freight includes two additional charges separately identified on the invoice as "Consolidated Charges" and "Survey Fees." These additional charges are the subject of LRNA's request for internal advice. In LRNA's request for internal advice, and other internally written explanations, LRNA has alleged that the consolidated charges are for wharfage and port handling services at Southampton in the U.K. The survey fees are allegedly tendered for inspection of the vehicles, performed by an independent third party, after the vehicles are delivered to the port of exportation. In LRNA's February 9, 1998, submission, LRNA stated that according to Wallenius, LRUK pays Wallenius for the consolidated charges which include the following services rendered at the port of exportation: (1) moving the vehicles from a drop point of shipment at the port into a holding compound; (2) moving the vehicles into load lines in the compound, labeling the vehicles to indicate the ship on which they will be loaded, and security while the vehicles remain in the compound; and (3) use of the port facility. Wallenius pays the port and the port, in turn, pays the providers of the services.
According to a letter from Wallenius, dated February 19, 1998, the consolidated charges cover the following activities: (l) receiving of cargo from inland transport vehicle by receiving authority; (2) placement into secure compound by receiving authority; (3) provision of secure compound by Port Authority; (4) Movement from secure compound to alongside vessel prior to loading; (5) labeling and tallying cargo; (6) payment of Port Authority Goods Dues; and (7) documentation costs for Bill of Lading Preparation and Customs presentation. Additionally, Wallenius states that the additional charge covers part of the survey costs incurred as each vehicle is received for shipment at the Port of Loading. Wallenius claims that all these activities are integral parts of the transportation of vehicles from the U.K. to the U.S. "forming the bridge between inland haulage and carrier by vessel." LRNA did not provide documentation to confirm the existence of the alleged arrangements between the port authority and Wallenius; or the port authority and LRUK; or Wallenius and LRUK. As indicated above, the contract between Wallenius and LRUK does not include port or other such charges. LRNA claims that the consolidated charges and survey fees constitute costs incident to the international transportation of the vehicles to the United States and, therefore, should be deducted from the invoice value. The requisite through bill of lading was not presented to Customs at the time of importation. Therefore, the Customs field office has taken the position that, in the absence of an explanation and documentation identifying the specific services provided for the charges, Customs cannot make a determination in favor of the importer. ISSUE: Whether subject consolidated charges and survey fees may be considered incident to the international shipment of the merchandise. LAW AND ANALYSIS: As you are aware, the preferred method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated statutory additions. The "price actually paid or payable" is 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.” Transportation costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. The costs associated with transportation are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc. See, HRL 544538, dated December 17, 1992. Foreign inland freight and other inland charges incident to the international shipment of the merchandise are provided for in section 152.103(a)(5), Customs Regulations: (5) Foreign inland freight and other inland charges incident to the international shipment of merchandise. Ex-factory sales. If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise (an ex-factory price), those charges will not be added to the price. Sales other than ex-factory. As a general rule, in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoices or other commercial documents, that charge will be part of the transaction value to the extent included in the price. However, charges for foreign inland freight and other services incident to the shipment of the merchandise to the United States may be considered incident to the international shipment of that merchandise within the meaning of §152.102(f) if they are identified separately and they occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States. (Emphasis added). Evidence of sale for export and placement for through shipment. A sale for export and placement for through shipment to the United States under paragraph (a)(5)(ii) of this section shall be established by means of a through bill of lading to be presented to the port director. Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (e.g., shipments via the seller's own conveyance) will other documentation satisfactory to the port director showing a sale for export to the United States and placement for through
shipment to the United States be accepted in lieu of a through bill of lading.
The issue presented in this case is whether the fees in question may be considered incident to the international shipment of the merchandise as provided for above. In Headquarters Ruling Letter (HRL) 544346, dated September 11, 1990, Customs addressed the dutiability of foreign inland freight and other fees concerning the importation of vehicles. Some of the fees paid were for storage at the port, transfer from storage to public wharves, and all other services incident to export. The invoice price of the merchandise at issue included charges and expenses incurred in transporting the vehicles from the plant to the port of exportation in Japan, storing the vehicles at the port, and loading them aboard the U.S. bound
vessel. There, Customs found that the parties to the transactions made a deliberate business decision not to import the articles pursuant to a through bill of lading. In addition, the importer did not establish the requisite impossibility contemplated by the Customs Regulation that allows, under very special circumstances, documentation for shipments made pursuant to terms other than those covered by a through bill of lading. Consequently, Customs held that the charges constituted foreign inland freight and storage charges that were properly included in the subject invoice price as part of the transaction value of the vehicles pursuant to section 152.103(a)(5)(ii), Customs Regulations. In making its determination, Customs considered HRL 544003, dated January 21, 1988, wherein Customs stated: [i]n reviewing your proposal, Customs is of the opinion that the language set forth in the last sentence of (iii) above is quite clear; that is, only where it is impossible to obtain a through bill of lading would other documentation be satisfactory. Neither degree of difficulty nor contingency of diversion has been set forth as a factor in this matter. See, also, HRL 543989, dated May 2, 1989. In HRL 543518, dated September 3, 1985, Customs held that the loading and stowing of merchandise onto a vessel destined for the United States constituted services incident to the international shipment of the merchandise within the meaning of section 402(b)(4)(A). In HRL, 545917, dated August l, 1996, Customs reaffirmed its position that charges incurred for services provided before (loading and stowing of merchandise on board for) exportation, such as redipacking, did not constitute international freight charges within the meaning of section 402(b)(4)(A). See, HRL 543501, issued May 2, 1985, where charges for storage and insurance paid to the seller before the international shipment commenced were not found to constitute costs for international shipment. Here, we note that the submitted Wallenius invoices do not clearly explain what services are performed for the charges listed. It appears that the fees at issue are for services before the loading and stowing of the merchandise. More important, the requisite through bill of lading has not been presented to Customs. As provided in section 152.103(a)(5) and as per a determination in HRL 544346, absent a through bill of lading, fees paid for foreign inland freight and other fees relating to storage at the port and other incidental services are dutiable. Consequently, we find that the consolidated charges and survey fees included in the subject invoice price are part of the transaction value of the vehicles pursuant to section 152.103(a)(5)(ii), Customs Regulations. HOLDING: Based on the facts presented, the consolidated charges and survey fees do not constitute costs incident to the international shipment of the merchandise to the United States. The consolidated charges and survey fees cannot be deducted from the transaction value of the merchandise. This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels. Sincerely, Thomas L. Lobred Acting Director International Trade Compliance Division