Modification of HRL 546798; Porsche Cars North America, Inc.; VAT refund

HQ W547686 May 31, 2000 RR:IT:VA W547686 KCC CATEGORY : Valuation Mr. Carl D. Cammarata George R. Tuttle, PC Three Embarcadero Center, Suite 1160 San Francisco, CA 94111 RE: Modification of HRL 546798; Porsche Cars North America, Inc.; VAT refund Dear Mr. Cammarata : This decision concerns Headquarters Ruling Letter (HRL) 546798 dated July 31, 1998, issued to you on behalf of Porsche Cars North America, Inc. ("PCNA"). In HRL 547698, we determined that a refundable security deposit with respect to the importation of motor vehicles into the United States was not included within transaction value. Although not an issue presented, HRL 547698 also stated that a sale for exportation to the United States occurred pursuant to the American Tourist Delivery Program when the vehicles were imported within six months of delivery. We have-reviewed HRL 547698 and determined that it should be as follows. Pursuant to §625(c), Tariff Act of 1930, as amended (19 U.S.C. §1625(c)) , notice of the proposed modification of HRL 546798 was published on April 26, 2000 , in the Customs Bulletin, Volume 34, Number 17. No comments were received in response to the notice. FACTS: You stated that PCNA is an importer and authorized distributor of motor vehicles for resale in the United States. PCNA participates in a program called the "American Tourist Delivery Program" ("Program"). The Program allows a U.S. customer, who is planning to travel as a tourist in Germany, to place an order with a PCNA dealer for automobile delivery at the Porsche factory. The customer can then use the vehicle while in Europe, prior to shipping it to the U. S. The program is designed for personal use of the vehicles only, it is not designed for commercial resale purposes. When a customer purchases a car through the Program, he or she must sign the Tourist Delivery Program "car order form." This form, submitted by counsel, indicates the specifications for the car, vehicle insurance and registration applications, requested date of delivery and acknowledgment of release. The price of the car and other charges are listed on the form. You also submitted the February 1998, Tourist Delivery Procedures Manual, which outlines the purchase process. According to you, when an order is placed, the dealership will collect a refundable deposit to cover the cost of the German "Value Added Tax." ("VAT"). I n accordance with the Tourist Delivery Procedures Manual (February 1998), this tax is to be listed separately on the invoice as the VAT. This tax is levied on the automobile in the event that it is not exported to the United States. When the car is exported from Germany to Canada or the United States, the deposit, plus interest, is refunded to the customer. However, if the car is not exported to the United States or Canada, within six months of the date of delivery, the deposit is forfeited, and paid over to the German governmental authorities as the VAT. You indicate that when the U.S. customer takes delivery of the automobile in Germany, the VAT is not due to the German government, since the vehicle is sold for exportation to the United States and intended to be used temporarily in Europe before exportation. However, if the tourist changes his or her mind and decides to keep or resell the vehicle in Germany, the VAT becomes due. If this occurs, the German tax authorities will collect the VAT from the German manufacturer. The manufacturer passes the expense onto PCNA, who, in turn, uses the customer's security deposit to satisfy its expense. When the customer exports the vehicle from Germany, the act of exportation both alleviates the German requirement of the VAT and satisfies the PCNA condition precedent for the refund of the deposit (plus interest). However, until PCNA is notified by the Pre Delivery Inspection Center that the car has arrived in the United States, the refund, with interest, will not be issued. In addition, if the customer fails to properly export the tourist vehicle to the U.S. or Canada, the deposit will be forfeited. ISSUE: Whether the refundable security deposit should be included in the transaction value of the imported vehicles. LAW AND ANALYSIS : The preferred method of appraisement is transaction value. Transaction Value is defined in §402, Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("TAA": 19 U.S.C. §1401a), as the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts for items specifically enumerated in §402(b)(1) of the TAA. The term "price actually paid or payable" is defined in §402(b)(4)(A) 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 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. In Caterpillar, Inc. v. United States, 20 C.l.T. 1169, 941 F. Supp. 1241 (CIT 1996), Caterpillar, Inc., purchased truck components from a British company. The merchandise was not exported immediately following payments, but remained in the seller's inventory for up to five months. The British government assessed a VAT upon the sale of the merchandise. The invoice from the seller to Caterpillar, Inc., included an amount for the merchandise and a separate amount for the VAT. Subsequently, Caterpillar, Inc., received full refunds directly from the British government of all the VAT payments. In that case the Court held that the VAT sums, remitted to and the subsequently refunded by the British government, were not to be included in the transaction value of the imported merchandise. We agree with your conclusion that the security deposit should not be included in the transaction value of the imported vehicles. The amount deposited will be refundable to the customer upon the arrival of the vehicle into the United States. In addition, the VAT amount is to be separately stated on the invoice per the Tourist Delivery Procedures Manual (February 1998). Further, the VAT deposit will be paid to the German government only if the vehicle is not imported into the United States within six months. HOLDING: Assuming transaction value is the appropriate method of appraisement and based on the evidence available, the refundable security deposit or a VAT should not be included in the transaction value of the imported vehicle. HRL 546798 dated July 31, 1998, is modified as set forth above. Sincerely, Sandra Bell, Director International Trade Compliance Division