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HQ 546007

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September 21, 1995

VAL CO:R:C:V 546007 EK

CATEGORY: VALUATION

Matthew Chang
Assistant Vice President
Itochu International Trading
335 Madison Avenue
New York, N.Y. 10017

RE: Prospective Ruling Request; Post-Importation Charges

Dear Mr. Chang:

This is in response to your letter of May 16, 1995, in which you request a ruling regarding the dutiability of certain post-importation payments made to the related party seller of imported merchandise.

FACTS:

Itochu International Inc. purchases merchandise from its related party company in Japan, Itochu Corporation of Japan (hereinafter referred to as IJ), and resells it to U.S. customers. In addition to payment of an invoiced amount, your company makes additional payments to the seller for costs associated with the merchandise. You state that at the time of importation, it is generally not possible to estimate these costs, and Customs agreed that an annual disclosure summarizing such payments is reasonable. You indicate that Customs deemed all the payments to be part of the dutiable value, and additional duties are submitted with each annual disclosure.

You describe the types of payments as follows: (1) tooling costs, payments made to cover the cost of modification to various parts; (2) price adjustments, the price for imported parts is often based on a projected amount of parts to be purchased and occasionally, the number of parts falls short of these projections - an adjustment is assessed when the projected sales amount does not reach a specified volume; (3) exchange rate adjustments due to currency fluctuations.

In January, 1995, a portion of the business was assigned to your subsidiary firm in the U.S., Texmac, Inc. As a result, Texmac now purchases from IJ, and acts as importer of record. First, the Japanese manufacturer of the goods sells to IJ. The merchandise is then sold by IJ to Texmac in the United States, and Texmac sells to the ultimate U.S. purchaser.

The ultimate U.S. purchaser pays Texmac for the goods. The additional charges described above are paid by the final U.S. purchaser directly to IJ, the seller. Therefore, Texmac, the importer and buyer of the merchandise from IJ, pays IJ for the merchandise and the final U.S. purchaser pays IJ the additional charges described.

ISSUE:

Whether the additional charges paid by the ultimate U.S. purchaser to the seller of imported merchandise are part of the price actually paid or payable.

LAW AND ANALYSIS:

Transaction value, pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), is the preferred method of appraisement. Transaction value is defined as the "price actually paid or payable" for the merchandise when sold for exportation to the United States. The term "price actually paid or payable" is defined in section 402(b)(4)(A) 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". (Emphasis added).

For purposes of this ruling, we are assuming that the transaction value of the imported merchandise is determined by the sale between IJ and Texmac. It appears as if Texmac merely replaced Itochu Corporation, US, as the buyer and that Customs has not questioned whether this is a valid transaction value. We do not have enough information to determine whether this is in fact the sale which forms the basis of transaction value. We are assuming that the since the parties are related that the relationship does not influence the price actually paid or payable, and that transaction value is applicable in appraising the merchandise.

As indicated above, the "price actually paid or payable" is the total payment made by the buyer to, or for the benefit of, the seller. Although the ultimate U.S. purchaser is not the buyer of the merchandise with respect to the import transaction, the additional charges paid by the ultimate U.S. purchaser to IJ are part of the price actually paid or payable made by the buyer to the seller. We have ruled that payments made by the ultimate purchaser in the United States, through the importer, to the foreign manufacturer are part of the price actually paid or payable as indirect
payments. See, HQ Rulings 543574 dated March 24, 1986 and 543882 dated March 13, 1987, affirmed by 554999 dated January 5, 1989.

HOLDING:

The payments made by the ultimate U.S. purchaser to the seller of imported merchandise are indirect payments to the seller and are part of the price actually paid or payable for the imported merchandise. For purposes of this ruling request, we assume that your company will continue to monitor and confirm the additional payments made to the seller, and that the additional duties owed will be submitted with each disclosure. You indicate that the additional payments are disclosed and duty is paid on an annual basis. This is an issue which must be worked out with the concerned port office. It is at the discretion of the port director as to how often the additional payments should be disclosed.

Sincerely,

John Durant, Director

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