HQ 545387 - Application for further review of Protest No. 4909-93-100029; commissions; price actually paid or payable; royalties; proceeds - United States International Trade Commision Rulings

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HQ 545387

February 27, 1995

VAL CO:R:C:V 545387 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
1, La Puntilla Street
San Juan, PR 00901

RE: Application for further review of Protest No. 4909-93-100029; commissions; price actually paid or payable; royalties; proceeds

Dear Sir:

This is in reply to an application for further review of the above-referenced protest, dated February 26, 1993, filed on behalf of Motorambar, Inc., ("Motorambar") by counsel McConnell, Torres, Kelley, Sifre, Griggs & Ruiz Suria. In connection with this matter we have also reviewed a copy of a draft audit report (No. 412-91-FRO-003) on Motorambar covering entries filed during the period January 1, 1988, through December 31, 1990. We regret the delay in responding.

FACTS:

Motorambar, a Puerto Rico corporation, is an importer and exclusive distributor of Nissan cars, trucks and vans in Puerto Rico and the U.S. Virgin Islands. Motorambar has entered into a requirements contract with a related company, Dai-Ichi Trading Corporation, Ltd. ("Dai-Ichi"), a Bahamas corporation, for the purchase of Nissan automobiles, trucks and vans. The contract, dated April 1, 1988, provides that the parties are independent contractors and that their relationship is that of buyer and seller. According to the contract, Dai-Ichi has authority to purchase Nissan vehicles from Nissan Motors, Japan, as well as from Nissan Mexicana, Nissan USA and other manufacturers; however, the instant protest only concerns vehicles manufactured by Nissan Motors in Japan and Mexico. None of the entries covered by this protest concern vehicles imported into the Virgin Islands.

Pursuant to the terms of the contract, payment for vehicles manufactured by Nissan Japan and purchased from Dai-Ichi is made by bank transfer from Motorambar to Dai-Ichi's account with Scotiabank, New York. Dai-Ichi, in turn, issues a letter of credit in favor of Nissan. See also, Contract dated April 1, 1988, Appendix A. The price paid by Motorambar is $150 greater than the ex-factory price paid to Nissan by Dai-Ichi. Counsel states that the differential represents a commission paid to Dai-Ichi as compensation for its services in connection with the purchase of Nissan vehicles, and that this amount represents Dai-Ichi's sole profit in the transaction. Furthermore, counsel contends that the commissions paid to Dai-Ichi are non-dutiable buying commissions; however, you contend that they are part of the price actually paid or payable for the imported merchandise.

Motorambar acquired the exclusive right to distribute and sell Nissan vehicles in Puerto Rico and the U.S. Virgin Islands pursuant to a license agreement with Santo Domingo Motors Company, Inc. (the licensor), dated January 1, 1986. In return for this right, Motorambar agreed to pay the licensor a royalty equal to 1.5 percent of its annual net sales of Nissan vehicles. Motorambar, Dai-Ichi and the licensor are related companies.

ISSUES:

The issues presented are: (1) whether the commissions paid by Motorambar are part of the price actually paid or payable; and (2) whether the royalty paid by Motorambar under the license agreement is included in the transaction value of the imported merchandise.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised 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 preferred method of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions. 19 U.S.C. ? 1401a(b)(1). However, imported merchandise will be appraised under transaction value only if there are no unacceptable restrictions, conditions or distributions as set forth in section 402(b)(2) of the TAA. In addition, transaction value is acceptable only if the buyer and seller are not related, or if related, the circumstances of sale indicate that the relationship did not influence the price actually paid or payable, or the transaction value approximates certain test values. 19 U.S.C. ? 1401a(b)(2)(A)-(B). In the instant case, the acceptability of transaction value has not been established. Nevertheless, for purposes of this decision only we have assumed that transaction value is the appropriate basis of appraisement.

Counsel for protestant maintains that Dai-Ichi acts as agent for Motorambar, and that the commission paid to Dai-Ichi is a bona fide buying commission which should not be included in the transaction value of the imported merchandise. Nevertheless, the contract between Dai-Ichi and Motorambar provides:

7. Independent Contractors. In performing under this agreement Dai-Ichi and Motorambar shall be acting as independent contractors and their relationship shall be exclusively of seller-purchaser. Neither Dai-Ichi nor Motorambar shall have authority to act as agent for, or in any other manner contractually bind, the other.

Thus the contract states unambiguously that the relationship between Motorambar and Dai-Ichi is not that of principal and agent.

As noted above, transaction value is defined as the price actually paid or payable for imported merchandise when sold for exportation to the United States. The term "price actually paid or payable" is defined as the "total payment (whether direct or indirect . . .) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C. ? 1401a(b)(4)(A). In Generra Sportswear Company v. United States, 905 F.2d 377 (Ct. Int'l Trade 1990), the court stated that so long as a payment is made "to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods." Id. at 380. In accordance with section 7 of the contract, the relationship between Dai-Ichi and Motorambar is that of seller and buyer. Consequently, under Generra, it is our position that the commissions paid to Dai-Ichi are part of the price actually paid or payable for the imported merchandise.

In regard to the royalty payments made under the license agreement, the TAA enumerates five additions to the price actually paid or payable. These include: royalties or license fees related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of sale; and the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller. 19 U.S.C. ? 1401a(b)(1)(D)-(E). In this instance, the license agreement between Motorambar and the licensor, Santo Domingo Motors, provides that in exchange for the right to distribute and sell Nissan vehicles in Puerto Rico and the U.S. Virgin Islands, Motorambar will pay the licensor a royalty equal to 1.5 percent of Motorambar's annual net sales of vehicles. Counsel maintains that the payments made by Motorambar to the licensor pursuant to the terms of the license agreement should not be included in the transaction value of the protested merchandise. Both Motorambar, the buyer, and Santo Domingo, the licensor, are related to Dai-Ichi, the seller of the imported merchandise.

As noted above, under section 402(b)(1)(D) of the TAA, royalty payments that the buyer is required to pay will be added to the price actually paid or payable if they are a condition of the sale of the merchandise to the U.S. No evidence has been presented to show that the payments were not a condition of sale. Furthermore, under section 402(b)(1)(E) of the TAA, the proceeds of any resale, disposal or use that accrue, directly or indirectly, to the seller, are an addition to the price actually paid or payable. Here, the fee is paid to the licensor rather than to Dai-Ichi, the seller of the merchandise. However, based on information supplied by the Regulatory Audit Division, San Juan, we understand that the seller, Dai-Ichi, the licensor, Santo Domingo, and the buyer, Motorambar, are all related parties as defined by section 402(g) of the TAA. Thus, while the payments at issue are not made directly to the seller but to a related party, it is our position that they accrue indirectly to the seller. Accordingly, it is our position that the payments at issue constitute additions to the price actually paid or payable under sections 402(b)(1)(D) or 402(b)(1)(E) of the TAA.

Finally, under Generra, any payment made to the seller in exchange for merchandise sold for export to the U.S. may be included in transaction value, even if the payment represents something other than the per se value of the goods. Id., 905 F.2d 377, 380. The payments at issue are made by Motorambar to Santo Domingo, a party related to the seller and, therefore, constitute indirect payments to the seller. E.g., Headquarters Ruling Letter (HRL) 544694 dated February 14, 1995; HRL 542984 dated April 8, 1983. Consequently, under Generra, the payments also may be considered part of the price actually paid or payable for the imported merchandise. However, irrespective of whether the payments are part of the price actually paid or payable, or an addition thereto, it is our position that they are included in the transaction value of the imported merchandise.

HOLDING:

Pursuant to the foregoing the protest should be denied in full. The commissions paid to Dai-Ichi are part of the price actually paid or payable for the protested merchandise. The payments made to Santo Domingo Motors pursuant to the terms of the license agreement are included in transaction value under section 402(b)(1) of the TAA.

In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entries in accordance with this decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the letter the Office of Regulations & Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS, and to the public vis the Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

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