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HQ 111495


July 9, 1991

VES-4-01-CO:R:IT:C 111495 GEV

CATEGORY: CARRIER

Mark J. Buhler, Esq.
Holland & Knight
800 North Magnolia Avenue
P.O. Box 1526
Orlando, Florida 32802

RE: Foreign-flag Yacht; Foreign Corporate Ownership; Importation; Cruising license; HTSUSA; 46 U.S.C. App. 104

Dear Mr. Buhler:

This is in response to your letter dated January 31, 1991 (your ref: file no. 33776-1) requesting a clarification of our ruling letter 111434, dated January 3, 1991, regarding whether your client's foreign-flag yacht would be exempt from duty if and when it should visit the United States.

FACTS:

Mi Gaea Limited is a company incorporated in the Island of Jersey, Channel Islands, the majority of the stockholders of which are United States residents. This corporation proposes to temporarily enter its British-flag yacht, the MI GAEA, into the United States as part of a long shakedown cruise that would involve a voyage from Antibes, France, to South Florida, then on to the West Indies, and returning to Antibes several months later.

The Dutch-built vessel, completed in the spring of 1990, was built primarily for European service. It would remain in Florida for up to three or four months during which time it would be scheduled to have the first major inspection and servicing of its U.S.-built Caterpillar engines. Additionally, the builder of the vessel has a representative in Florida who could be helpful in resolving problems that may arise as a result of the ocean crossing, and there is a shipyard in South Florida that can perform warranty work on behalf of the builder. In addition to having repairs made and maintenance and warranty work done in Florida, the vessel's beneficial owners would like to be able to do some pleasure cruising in Florida. The owners would like to be able to have the vessel in Florida for up to three or four
months, including both repair time and pleasure cruising. After this time the vessel would depart for the West Indies to continue the shakedown cruise and would eventually return to its permanent berth at Antibes, France.

ISSUE:

Whether a foreign-flag yacht owned by a foreign corporation the majority of the stockholders of which are United States residents, may, while on a shakedown cruise beginning and ending in France, temporarily enter the United States for a period of three or four months for the purpose of obtaining repairs and pleasure cruising without being considered an importation which would result in the assessment of duty under the Harmonized Tariff Schedule of the United States Annotated.

LAW AND ANALYSIS:

According to Additional U.S. Note 1, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), vessels brought into the Customs territory of the United States by nonresidents thereof for their own use in pleasure cruising shall be admitted without formal Customs consumption entry or payment of duty.

As long as a yacht or pleasure boat is brought into the United States by a nonresident and is not offered for sale or charter to a U.S. resident, it is not dutiable. It is permissible to sell or charter such a vessel to a non-resident. If, however, the yacht is offered for sale or lease to a resident of the United States, a consumption entry must be filed and the applicable duty paid under Chapter 89, subheadings 8903.91.00 or 8903.92.00, HTSUSA, at a rate of 1.5 percent ad valorem.

In applying the above HTSUSA subheadings to corporate owners of pleasure vessels, we have ruled that a pleasure vessel owned by a foreign corporation, the stock of which is wholly owned by one or more residents of the United States is "owned by a resident of the United States," for purposes of paragraph 370, Tariff Act of 1930, as amended (the predecessor of Items 696.05 and 696.10, TSUS, which are the predecessors of HTSUSA 8903.91.00 and 8903.92.00) (see Treasury Decision 54680(14)).

Further in regard to a yacht owned and brought into the United States by a resident thereof, the Customs Court, in the case of Estate of Lev H. Prichard v. United States, 43 CCPA 85, C.A.D. 612 (1956), held that such a yacht, in the absence of clear evidence to the contrary, would be presumed to be brought into the United States for use here "permanently" so that it would be properly classifiable as imported merchandise and thus subject to the appropriate Customs duty.

It should be noted that the above presumption can be rebutted by satisfactory evidence that the yacht owner did not intend to bring the yacht into the United States permanently. In Astral Corp. v. United States, 72 Cust. Ct. 245, C.D. 4546 (1974), the court held that a yacht which came to the United States during the course of a shakedown cruise and received repairs while in the United States was not imported, within the meaning of General Headnote 1, TSUS (predecessor to General Note 1, HTSUSA) because it was not brought "permanently" into the United States. (see also T.D. 75-134)

The evidence which the court in the Astral case discussed concerning the issue of whether or not the yacht was brought "permanently" into the United States consisted, in part, of the following:

(1) Testimony that the yacht was on a shakedown cruise and the owner never intended that it brought into the United States permanently;

(2) Evidence of the repairs completed on the yacht while it was in the United States and testimony that those repairs could only have been completed in the United States;

(3) Testimony by the owner that he planned to move his interests to Europe and was buying a home there;

(4) Evidence of features in the yacht's design which were incorporated for use in the Mediterranean; and

(5) The fact that the yacht's shakedown cruise did terminate in the Mediterranean where, at the time the case was tried, the yacht was being readied for chartering.

In regard to the facts under consideration, the MI GAEA is owned by a foreign corporation whose stockholders are predominantly, though not entirely, United States residents. As such, the vessel is not considered to be "owned by a resident of the United States" pursuant to T.D. 54680(14), for purposes of the HTSUSA. Accordingly, since under the proposal the subject vessel would be considered to be brought into the Customs territory of the United States by nonresidents for their own pleasure cruising and temporary repairs, it would not be considered an importation and therefore could be admitted without filing a formal consumption entry and payment of duty.

Assuming, arguendo, the corporate stock in question was wholly owned by one or more United States residents, it appears that despite this United States resident ownership and the
consequent presumption of permanent use in the United States as established in Estate of Lev H. Prichard v. United States, supra., the circumstances of this proposal appear sufficient to rebut this presumption as discussed in Astral, supra. Specifically, the subject yacht is to be on a shakedown cruise originating from its home berth at Port Vauban, Antibes, France, and it is the expressed intent of the owners that it return to, and be permanently based at, said berth. Furthermore, it is stated that the yacht was designed for European service and that its U.S.-built Caterpillar engines could be easily serviced at a shipyard in South Florida. In addition, the vessel builder's representative located in Florida could address any problems that may have arisen during the shakedown cruise. Consequently, the subject vessel would not be considered to be brought "permanently" into the United States.

In addition to the above, we reiterate that section 4.94, Customs Regulations (19 CFR 4.94) concerns the issuance of cruising licenses which exempt foreign yachts from formal entry and clearance procedures (e.g., filing manifests, obtaining permits to proceed and exemptions from the payment of tonnage tax and entry and clearance fees) at United States ports. The determining factor as to whether a vessel is eligible for a cruising license is the documentation of the vessel, not the residency of its owner. Section 4.94 was promulgated pursuant to title 46, United States Code Appendix, section 104 (46 U.S.C. App. 104) which authorizes the issuance of cruising licenses to pleasure vessels of countries which extend reciprocal privileges to United States vessels. Great Britain is on the list of countries appearing in section 4.94(b) whose yachts may be issued cruising licenses. The length of the cruising license is usually dependent upon the description of the vessel's cruise within United States waters; however, pursuant to section 4.94(c) in the discretion of the customs district director it may remain in force for a period of up to one year from the date of its issuance.

HOLDING:

A foreign-flag yacht owned by a foreign corporation the majority of the stockholders of which are United States residents, may, while on a shakedown cruise beginning and ending in France, temporarily enter the United States for a period of three or four months for the purpose of obtaining repairs and pleasure cruising without being considered an importation which
would result in the assessment of duty under the Harmonized Tariff Schedule of the United States Annotated.

Sincerely,

B. James Fritz

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