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HQ W563602





September 4, 2007

OT:RR:CTF:VS W563602 GG

CATEGORY: VALUATION

Area Director, JFK Airport
U.S. Customs and Border Protection
Building No. 77, 2nd Floor
Jamaica, NY 11430

RE: Application for Further Review; Protest No. 4701-05-100228; Nissho-Iwai; Sale for Export; Bona Fide Sale; T.D. 96-87

Dear Sir:

This is our decision on the protest referenced above.

FACTS:

The subject protest involves a shipment of ladies’ footwear and leather handbags, entered on January 12, 2004 and liquidated on January 3, 2005. The importer of record was Vicini USA, Inc. (Vicini USA). Vicini USA is described as an “importing agent” of Vicini UK, Ltd. (Vicini UK). Vicini USA also takes orders from U.S. retailers on Vicini UK’s behalf.

With regard to the particular entry in question, various U.S. retailers placed orders with Vicini USA. Vicini USA relayed the purchase orders to Vicini UK, which in turn ordered the merchandise from an Italian manufacturer, Vicini SpA. All three Vicini companies are related.

Vicini UK is Vicini SpA’s exclusive distributor. Under the terms of a Distribution Agreement, dated July 2001, Vicini SpA produces and sells shoes to Vicini UK, which in turn sells them to customers at prices established by Vicini SpA. As compensation for its services, Vicini UK receives a discount of 25% on the final sales price.

Following production, the merchandise in question was shipped directly to the United States, where it was entered based on the value listed on the proforma invoice issued by Vicini UK to Vicini USA. The prices on the proforma invoice represent the prices charged to the ultimate customers less a 20% deduction for freight, brokerage and other non-dutiable charges. These prices include a 25% mark-up over Vicini UK’s acquisition price from Vicini SpA.

According to the Customs Protest and Summons Information Report (CBP Form 6445A), U.S. Customs and Border Protection (“CBP”) appraised the merchandise based on the “[s]ale between Vicini UK and Vicini USA.” Vicini filed a timely protest on April 1, 2005, claiming that appraisement should be based on the lower, “first sale” price Vicini UK pays to Vicini SpA.

ISSUE:

Whether the merchandise imported by Vicini USA may be appraised based on the prices paid by Vicini UK to the manufacturer, Vicini SpA.

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 is transaction value, which is defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain statutory additions. 19 U.S.C. § 1401a(b)(1). For the purpose of this protest we have assumed that transaction value is the appropriate basis of appraisement.

In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), and Synergy Sport International, Ltd. v. United States, the Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, reviewed the standard for determining transaction value when there is more than one sale which may be considered as being for exportation to the United States. Both cases involved a foreign manufacturer, a middleman, and a United States purchaser. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any nonmarket influences, and involving goods clearly destined for the United States.

In accordance with the Nissho Iwai and Synergy decisions and our own precedent, we presume that transaction value is based on the price paid by the importer. In further keeping with the courts’ holdings, we note that an importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. However, it will be the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length sale,” and that it was “a sale for export to the United States,” within the meaning of 19 U.S.C. § 1401a.

In Treasury Decision (T.D.) 96-87, dated January 2, 1997, CBP advised that the importer must provide a description of the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States. The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g. correspondence) that establishes how the parties deal with one another. The objective is to provide CBP with “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value.

Bona Fide Sales

Before it can be determined if the alleged factory sales to Vicini UK were at arm’s length and were clearly destined for the United States, it must first be established that they were bona fide sales. CBP recognizes the term “sale,” as described in J.L. Wood v. United States, 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be a transfer of property from one party to another for consideration. In ascertaining whether a bona fide sale has taken place between a purported buyer and seller of the imported merchandise, no single factor is determinative. Rather, the relationship is to be determined 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).

Several factors may indicate that a bona fide sale exists between the purported buyer and seller. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the purported 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. See HRL 545474, dated August 25, 1995, and HRL 545709, dated May 12, 1995.

In HRL 543708, dated April 21, 1988, we stated in regard to the transfer of title and the assumption of the risk of loss:

[A] determination of when title and risk of loss pass from the seller to the buyer in a particular transaction depends on whether the applicable contract is a “shipment” or “destination” contract... FOB point of shipment contracts are “shipment” contracts, while FOB place of destination contracts are “destination” contracts... Unless otherwise agreed by the parties, title and risk of loss pass from the seller to the buyer in “shipment” contracts when the merchandise is delivered to the carrier for shipment, and in “destination” contracts when the merchandise is delivered to the named destination.

The question as to whether the instant transactions are shipment contracts or destination contracts – or “arrival contracts”, as destination contracts are also known – accordingly depends on the shipment terms specified in the documentation.

The shipment term present on the invoices from Vicini SpA to Vicini UK – “DDP,” or delivered duty paid – indicates that the transactions were structured as destination contracts, with title and risk of loss passing to Vicini UK when the goods arrived at the U.S. retailers’ locations. However, the DDP term of sale was also used on the invoices issued by Vicini UK to the U.S. retailers, thus signaling that title and risk of loss passed to the U.S. retailers at destination. Identical terms of sale give rise to the possibility that a “flash sale” or “simultaneous passage of title” has occurred. This may indicate that the middleman never really had title and, as a result, no bona fide sale ever took place between the factory and the middleman. See HRL 548520, July 30, 2004; HRL 547697, July 27, 2001. Other factors would have to be present to demonstrate that, notwithstanding the identical sales terms, a bona fide sale exists.

The protestant does not address this issue directly, beyond stating that the documentation submitted with the protest supports the existence of a valid sale between Vicini SpA and Vicini UK. It also maintains that HRL 548239, dated June 5, 2003, presents a nearly identical situation and supports its position that the sales to Vicini UK were legitimate. We will address each of these points in turn.

The only transaction documents submitted that directly relate to the purported sale between Vicini SpA and Vicini UK are invoices issued by the former to the latter. No other transaction documentation of the kind that typically is generated during a sale, such as purchase orders or proof of payment, has been presented. This lack of documentation fails to satisfy the requirement in T.D. 96-87 that a party claiming valuation at a “first sale” price must present a complete paper trail of the transaction. Another document that might shed light on whether there was a bona fide sale is the previously referenced Distribution Agreement between Vicini SpA and Vicini UK. It too, however, is inconclusive on the issue of whether there was a sale involved in the entry in question, because Article 1 of the Distribution Agreement provides that the Manufacturer [Vicini SpA] “engages to sell and deliver the good to the Distributor [Vicini UK] or to third parties appointed by the Distributor” (emphasis added). This could be interpreted to mean that Vicini SpA is free to sell to third parties at Vicini UK’s direction, thus eliminating Vicini UK from the role of buyer.

HRL 548239, on which the Protestant relies, was a request for internal advice involving the importation of apparel. The facts were similar to those of Vicini in that they involved a purported sale between a manufacturer and a related, exclusive distributor. In HRL 548239, the distributor was the importer and received a 24% discount off the base price of the merchandise. CBP determined that there was a bona fide sale between the factory and the distributor. This determination was made based on the documents submitted, which included invoices and proof of payment, and on the fact that the distributor assumed title and risk of loss from the time the manufacturer transferred the apparel to the international freight carrier in Italy to the time it resold the merchandise to third parties from its New York warehouse. In that case, the terms of sale for the first sale were “FOB Torino or Florence, Italy,” and the terms upon resale from the importer’s warehouse were “ex-warehouse.” Vicini’s situation is distinguishable because, as discussed previously, there are no indications that Vicini UK ever assumed title and risk of loss. Also, the paper trail evidencing the transaction is incomplete. For these reasons, reliance on HRL 548239 is misplaced.

For the reasons described, i.e., questions remaining over passage of title and risk of loss, and lack of documentation, we are unable to determine that there was a bona fide sale between Vicini SpA and Vicini UK.

Arm’s Length Sale

The court in Nissho Iwai imposed the requirement that the transaction between the middleman and the factory be at “arm’s length” to serve as the basis for transaction value. In this regard, CBP stated in T.D. 96-87 that:

However, if the parties to the requested transaction are related, then it is necessary to provide Customs with information which demonstrates that transaction value may be based on the related party sale as provided in 19 U.S.C. 1401a(b)(2)(B) (i.e., that the circumstances of sale indicate that the relationship did not influence the price or that the transaction value closely approximates certain test values).

Vicini Spa and Vicini UK are related. However, the protestant has provided no information on this issue in its protest and application for further review. Although CBP in its “Customs Protest and Summons Information Report” observes that “CST 244 agrees that the commercial invoices from SpA and the UK and the UK and the customer have a legitimate 25% mark-up,” we find that this statement and the protestant’s silence do nothing to address the question as to whether one of the two related party tests has been satisfied. Accordingly, the protestant has failed to establish that the transaction between Vicini SpA and Vicini UK was at arm’s length. CBP has previously denied protests on the basis that insufficient evidence was submitted to demonstrate that the “first sale” between related parties was at arm’s length. See, e.g., HRL 544711, December 23, 1994.

Clearly Destined for the United States

To use a “first sale” price as the basis of appraisement under transaction value, the court in Nissho Iwai also required the goods to be “clearly destined for the United States” when sold by the factory to the middleman. On this point there is no disagreement: the evidence supports a determination that this requirement has been met. In particular, the invoices issued by Vicini SpA to Vicini UK all indicate the name and address of the ultimate U.S. retailer as the destination of the shoes and handbags. Also, the merchandise was shipped directly from Italy to the United States, with no intervening stopovers in intermediate countries. These factors combined present persuasive proof that the goods were clearly destined for the United States.

Although the protestant has satisfied one tier of the Nissho Iwai test, i.e., its goods were clearly destined for the United States, it has failed to submit any information concerning the other tier, i.e., whether the transactions between the related factory and middleman were at arm’s length. Furthermore, the available evidence does not establish that the transactions between Vicini SpA and Vicini UK were bona fide sales. The merchandise should be appraised based on the prices paid by the U.S. retailers, with adjustments made for certain non-dutiable charges such as international and domestic transportation costs, to the extent permitted by T.D. 00-20. Adjustments shall only be made if supported by sufficient documentation.

HOLDING:

The available evidence does not support appraisement based on the “first sale” prices paid by the middleman, Vicini UK, to its related manufacturer, Vicini SpA. The merchandise should be appraised based on the prices paid by the U.S. retailers, with adjustments made for certain non-dutiable charges such as international and domestic transportation costs, to the extent permitted by T.D. 00-20. Adjustments shall only be made if supported by sufficient documentation.

The protest should be DENIED. In accordance with the Protest/Petition Processing Handbook (CIS HB, June 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with
the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division

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