HQ 547958 - Request for a Ruling concerning certain License Fees; Total Payment; Price Actually Paid or Payable. - United States International Trade Commision Rulings

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HQ 547958

July 23, 2001

RR:IT:VA 547958er

CATEGORY: VALUATION

Mr. Eric Atlshule
The Outdoor Recreation Group
1919 Vineburn Avenue
Los Angeles, CA 90032

RE: Request for a Ruling concerning certain License Fees; Total Payment; Price Actually Paid or Payable.

Dear Mr. Altshule:

This is in response to your request for a ruling dated March 13, 2001 which was sent to the Binding Rulings Clerk in New York, and was forwarded to this office for response. The request was received by this office on May 1, 2001.

FACTS:

In your request, you ask us to consider the dutiability of license fees in two factual scenarios. In the first scenario the buyer, The Outdoor Recreation Group, (“TORG”) pays the license fee to the United States licensor (Jordan or Haas) for the use of patterns on fabric manufactured by TORG in the United States. The fabric is sold by TORG to an Asian manufacturer at a price which includes the license fee and is shipped to Asia. The Asian manufacturer cuts and sews the fabric into a bag. The manufacturer then sells the finished bags to TORG at a price which includes the price of the fabric (license fee inclusive) sold by TORG to the manufacturer.

In the second factual scenario the Asian manufacturer contacts a licensed provider of the fabric in Asia and purchases the fabric at a price which includes the license fee. The license fee is paid to the United States licensors of the patterns, but it is unclear from the submission which party remits the payments. The manufacturer cuts and sews the fabric into a bag. The bags are sold to TORG at a price that includes the license fee.

No information was submitted regarding the relationship within the meaning of 19 U.S.C. 1401a(g), if any, between the parties to the transactions. For purposes of this decision we will assume that the parties to the transactions are not related.

ISSUE:

Whether the license payments at issue may be deducted from the price actually paid or payable?

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 basis 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. However, pursuant to section 402(b)(2)(A) of the TAA, transaction value is acceptable only in certain circumstances, e.g., where the buyer and seller are not related, or where related, the relationship does not influence the price actually paid or payable. As noted above, you have not advised us as to whether any parties to the transaction are related. For purposes of this decision, we will assume that no relationships exist.

Based on Generra Sportwear Co. v. United States, 905 F. 2d 377 (Fed. Cir. 1990), Customs presumes that all payments made by the buyer to the seller are part of the price actually paid or payable for imported merchandise. The term “price actually paid or payable” is defined as “the total payment (whether direct or indirect) made, or to be made, by the buyer to, or for the benefit of, the seller.” 19 U.S.C. 1401a(b)(4)(A).

In Generra, the Court of Appeals found that the term “total payment” is all-inclusive and that “as long as the quota payment was 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.” The court also stated:

Congress did not intend for the Customs Service to engage in extensive fact-finding to determine whether separate charges, all resulting in payments to the seller in connection with the purchase of imported merchandise, are for the merchandise or for something else. As we said in Moss Mfg. Co. v. United States, 896 F. 2d 535, 539 (Fed. Cir. 1990), the “straightforward approach [of section 1401a(b)] is no doubt intended to enhance the efficiency of Customs’ appraisal procedure; it would be frustrated were we to parse the statutory language in the manner, and require Customs to engage in the formidable fact-finding task, envisioned by [appellant].

Generra, 905 F.2d at 380 (brackets in original).

You do not dispute the fact that the license fees are included in the price actually paid or payable by the buyer. As described above, the license fee is built into the price actually paid or payable in both factual scenarios. In the first scenario TORG includes the license fee (paid to the third party licensors in the United States) in the price at which it sells its fabric to the foreign manufacturers. The foreign manufacturers in turn, include the license fee in the price actually paid or payable at which they sell the finished merchandise to TORG.

Likewise, in the second factual scenario the Asian manufacturer contacts a licensed provider of the fabric in Asia and purchases the fabric at a price which includes the license fee. Again, the manufacturer includes the license fee in the price actually paid or payable for the merchandise sold to TORG.

In both factual scenarios, the cost of the license fee is included in the negotiated price actually paid or payable for the imported merchandise. Nothing in the statute or regulations allows for a deduction for an amount representing the license fee where it is already included in the price. Because we have determined that the license fees are included in the price actually paid or payable, it is not necessary to also determine whether they could be regarded as dutiable additions to the price actually paid or payable, within the meaning of 19 U.S.C. 1401a(b)(1)(D). Accordingly, under the circumstances presented, the amounts representing the license fees may not be deducted from the price actually paid or payable for the imported merchandise.

HOLDING:

In each of the two factual scenarios contemplating the importation of merchandise into the United States, the license fees are included in the price actually paid or payable. No authority exits either in the statute (19 U.S.C. 1401a) or the regulations (19 CFR 152) governing the appraisement of imported merchandise to deduct amounts representative of the license fees when they are already included in the price actually paid or payable. Accordingly, the merchandise should be appraised based on the price actually paid or payable for the imported merchandise, with no deductions for the license fees.

Sincerely,

Virginia L. Brown
Chief, Value Branch

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