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HQ 546825

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February 20, 1998

RR:IT:VA 546825er
CATEGORY: VALUATION

Mr. Werner Kreissl, MBA
Ernst & Young
Chartered Accountants
1, Place Ville Marie
Bureau 2400
Montreal, Canada H3B 3M9

RE: Request for Ruling Concerning Multi-tiered Transaction; Sale for Exportation.

Dear Mr. Kreissl:

This is in response to your letters dated August 7 and November 21, 1997, submitted on behalf of your client, Golden Brand Clothing (Canada) Ltd., in which you request a ruling concerning the appraisement of certain merchandise imported into the U.S. pursuant to a multi-tiered transaction. By telephone conversation on January 21, 1998, you waived your request for confidentiality with the exception of pricing information. We regret the delay in responding.

FACTS:

Golden Brand Clothing (Canada) Ltd. (“Golden Brand”) is a Canadian company and a manufacturer of men’s suits, blazers and dress pants. Golden Brand also purchases and imports into Canada men’s sportswear, raincoats, outerwear and dress shirts. Most of these purchases are from Asian vendors. All products manufactured and imported are distributed exclusively at the retail level in Canada by Golden Brand’s sister company, Moores The Suit People (“Moores”).

With the goal of expanding sales in the U.S., Golden has set up a related retail company in the U.S., Moores the Suit People, U.S.A., Inc. (“Moores U.S.”). Moores U.S. will source the majority of its products from Golden Brand (goods either manufactured or purchased by Golden Brand) with some products being purchased by Moores U.S. from unrelated third parties. This ruling addresses the appraisement of merchandise imported into the U.S. which Golden Brand purchases from suppliers in third countries for resale to Moores U.S. Golden Brand’s suppliers are not related to either Golden Brand or Moores U.S. This ruling is limited to transactions covered by the submitted documentation.

You have asked for appraisement of the merchandise imported into the U.S. based on the transaction between Golden Brand and its unrelated suppliers. To this end you claim that Golden Brand and its suppliers carry out business at arm’s length and that at the time the merchandise is purchased by Golden Brand from its suppliers it is destined for the U.S. In support of your position you submitted a complete set of documents which demonstrate how the transactions are carried out and the roles of the parties. These documents include purchase order reports from Moores U.S. to Golden Brand, purchase orders from Golden Brand to its unrelated suppliers, invoices from the suppliers to Golden Brand and invoices from Golden Brand to Moores U.S. You also submitted copies of Certificates of Origin, bills of lading and packing lists.

The two suppliers named in the documents include Shinwon Corporation and Jao Trading Co. Ltd. You noted how the various documents submitted track each other with regard to reference numbers, quantities ordered, style, color, fabric, etc.

ISSUE:

Whether the merchandise may be appraised under transaction value based on the transaction between the foreign suppliers and Golden Brand, in Canada?

LAW AND ANALYSIS:

As you know, merchandise imported into the U.S. 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 is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States”, plus certain enumerated additions. For purposes of determining transaction value in appraising imported merchandise, a sale for exportation to the U.S. must take place at some unspecified time prior to the exportation of the goods. See, Headquarters Ruling Letter (“HRL”) 545434 dated May 31, 1994.

In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer’s price for establishing transaction value is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In reaffirming the McAfee standard, the court stated that in a three-tiered distribution system:

The manufacturer’s price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sale price... [T]hat determination can be made on a case-by-case basis.

Id. At 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18, Slip Op. 93-5 (Ct. Int’l Trade January 12, 1993).

As a general matter in situations of this type, Customs presumes that the price paid by the importer is the basis of transaction value. However, in order to rebut this presumption, the importer must in accordance with the court’s standard in Nissho, provide evidence which establishes that at the time the middleman purchased, or contracted to purchase, the imported merchandise the goods were “clearly destined for export to the United States” and that the manufacturer and middleman dealt with each other at “arm’s length.”

However, before a transaction may be examined to determine whether it satisfies the “arm’s length” and “clearly destined” Nissho standard, that transaction must necessarily meet the criteria of a bona fide sale. Under the facts in this situation, bona fide sales would have to exist first between the suppliers and Golden Brand and secondly between Golden Brand and Moores U.S. Customs recognizes the term "sale," as articulated in the case of J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be defined as: the transfer of property from one party to another for consideration. In determining whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968).

However, several factors may indicate whether a bona fide sale exists between a potential buyer and seller. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. For purposes of this decision, we assume bona fide sales occur in each of the two tiers of the transaction and that it is appropriate to proceed with a review of whether the lower sale qualifies as a basis of appraisement under the Nissho standard. Based on the submitted documents it appears that the transaction between Golden Brand and the supplier was a bona fide sale. We assume that evidence of payment is available and can be provided to Customs.

In the instant case, the importer is claiming that under Nissho, the transaction value for the imported merchandise should be based on the transaction between Golden Brand and the unrelated suppliers. Because the suppliers are unrelated to Golden Brand, we will assume that the transactions between the parties satisfy the “arm’s length” part of the Nissho test.

Turning to the other part of the two-part test in Nissho, in the transaction between the manufacturer and Golden Brand, the evidence must establish that the merchandise was clearly destined to the U.S. at the time it was sold to Golden Brand. In an Informed Compliance publication, “Bona Fide Sales and Sales for Exportation”, Vol 30/31 Cust. Bull. No. 52/1 (January 1997) and “Determination of Transaction Value in Multi-Tiered Transactions”, T.D. 96-87, 30/31 Cust. Bull 52/1, January 2, 1997, Customs described the types of documentation which
would establish that merchandise was clearly destined for the U.S. at the time it was sold to a party other than the importer.

In accordance with these documentation requirements, the importer has submitted documents which demonstrate how the transactions are structured. These documents include purchase order reports, purchase orders and invoices between the parties, certificates of origin, bills of lading and packing lists, all of which support the claim that at the time the merchandise was purchased by Golden Brand from the manufacturers, the merchandise was clearly destined for the U.S.

More specifically the purchase order reports from Moores U.S. to Golden Brand’s ordering division, as well as the corresponding purchase orders from Golden Brand to its suppliers track each other with regard to style, color, fabric and quantity ordered. Likewise, the invoices from the suppliers to Golden Brand reference Golden Brand’s purchase order numbers and price and correspond in terms of style , fabric, color, and quantity ordered to the purchase order reports and purchase orders from Moores U.S. and Golden Brand. The supplier’s invoice further reflects that the merchandise is destined for Moores U.S. in the U.S. Golden Brand’s invoice to Moores U.S. corresponds to Moores U.S.’s original purchase order terms. Additionally, the certificates of origin, bills of lading and packing lists reference Golden Brand’s purchase order number, style, fabric and quantity ordered and reflect that the merchandise is destined for Moores U.S. in the U.S. Additionally, the merchandise ordered by Golden Brand for sale to Moores U.S. is labeled for the U.S. market. Lastly, once Golden Brand receives the U.S. destined merchandise in Canada, it is placed in a bonded warehouse before shipment to the U.S. and at no time does it enter Canadian Customs territory. See, HRL 546069, August 1, 1996 (Goods in intermediate country’s bonded warehouse not clearly destined for the U.S. when possibility exists for diversion into commerce of intermediate country.)

Based on the described transactions and documentation submitted, it appears that the merchandise at issue may be appraised under transaction value based on the transactions between Golden Brand and its unrelated suppliers. However, we note that in the future the importer should be able to provide the actual purchase orders, versus the purchase order reports, between U.S. Moores and Golden Brand. These purchase orders should confirm that an order was placed by U.S. Moores for the subject merchandise before the order for the same merchandise is placed by Golden Brand with its foreign suppliers.

HOLDING:

Based on the evidence submitted, we find that the merchandise at issue (i.e., the merchandise covered by the submitted documents) is imported pursuant to a sale for exportation to the U.S. between Golden Brand and its suppliers, upon which transaction value may be based. This ruling will apply to other transactions between the parties only if, as described above, the existence of bona fide sales is established, and if similar documentation, including actual purchase orders and evidence of payment, are made available.

Sincerely,

Acting Director
International Trade Compliance Division

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