HQ 544235: Request for Ruling on Dutiability of Purchasing Expenses

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                      HQ 544235
                                                        November 25, 1988

          CLA-2 CO:R:CV:V   544235 VLB

          CATEGORY: Valuation

          John B. Pellegrini, Esq.
          Ross & Hardies
          529 Fifth Avenue
          New York, New York  10017-4608

          RE:  Request for Ruling on Dutiability of Purchasing Expenses

          Dear Mr. Pellegrini:

               This is in response to your letter dated August 23, 1988
          requesting a ruling on a proposed arrangement between the
          Importer and the Contractor.

          FACTS:

               The Importer is proposing to purchase articles of footwear
          pursuant to two agreements with the Contractor.  The first
          contract entitled "Agreement on Long Term Production Cooperation"
          involves the manufacture and interchange of footwear, components
          and materials.

               The second contract is entitled "Service Agreement".  This
          agreement states that the Contractor shall be responsible for
          receiving and inspecting materials and components, insuring
          delivery to the correct assembly plant and various other
          administrative duties.  In consideration for rendering these
          services, the Contractor will receive a 10% commission based on
          the footwear purchase price.

          ISSUES:

               (1)  Whether transaction value is applicable in appraising
          the merchandise to be sold to the Importer by the Contractor.

               (2)  Whether the transaction value includes the amounts paid
          to the Contractor under the Service Agreement.





















                                        - 2 -

          LAW AND ANALYSIS:

               The first issue involves what appraisal method will be used
          to determine the value of the footwear for duty purposes.  The
          preferred method of appraisement is transaction value which is
          defined in the Tariff Act of 1930, as amended by the Trade
          Agreements Act of 1979 (TAA; 19 U.S.C. section 1401a(b)) as the
          "price actually paid or payable for the merchandise when sold for
          exportation to the United States . . . ."  From the information
          provided, it appears that the transaction value is the
          appropriate basis of appraisement.

               The second issue involves what costs will be included in the
          transaction value.  The term "price actually paid or payable" is
          defined in TAA section 402(b)(4)(A) as:

               . . . the total payment (whether direct or indirect, and
               exclusive of any charges, or expenses incurred for
               transportation, insurance, and related services incident to
               the international shipment of merchandise from the country
               of exportation to the place of importation in the United
               States) made, or to be made for imported merchandise by the
               buyer to, or for the benefit of, the seller. (emphasis
               added).

               You contend that the payments to the Contractor under the
          Service Agreement should not be considered part of the price paid
          for the merchandise.  You argue that the true nature of the
          arrangement will not involve the Contractor selling footwear to
          the Importer, but rather the Contractor will be selling services
          such as inspection of materials and components to the Importer.

               We are unable to agree with your conclusions.  The fact that
          the services are contracted for separately does not negate the
          relationship they have to the merchandise and the purchase of the
          footwear.  The payments are tied specifically to the invoice
          purchase price for specified merchandise.  In addition, you
          submitted a Memorandum of Understanding between the parties
          wherein they agreed that the Contractor's fees for their services
          are to be calculated into the quoted factory prices.  Therefore,
          it is impossible to separate the price paid for the merchandise
          from the price paid for the alleged unrelated services.

               The proposed arrangement differs from the transactions
          discussed in the Headquarters ruling cited as TAA No. 52.  In TAA
          No. 52 the contractor was paid for fabricating garments using
          fabric purchased by the contractor from supplies designated by















                                        - 3 -

          the importer.  The price negotiated between the importer and the
          seller was limited to only the fabricating services.  The cost of
          the fabric was a separate item on the purchase order and the
          invoice.  Under a separate service agreement, the contractor was
          compensated for delivery and inspection services based on a
          percentage of the fabric's cost.  The payments were made at
          periodic intervals unrelated to the sale of any specific
          merchandise.  In that case we held that the payments under the
          service contract were not part of the "price actually paid or
          payable".

               In the proposed arrangement, the payments under the Service
          Agreement are based on the purchase price and the invoices for
          specific merchandise.  Therefore, the commission would be part of
          the "price actually paid or payable" for specific identifiable
          footwear.  Thus, the commission payments would be part of the
          transaction value of the merchandise.

          HOLDING:

               (1)  Transaction value pursuant to section 402(b) of the TAA
          is proper in appraising the merchandise sold from the Contractor
          to the Importer based on the information you submitted for our
          review.

               (2)  The payments provided for in the Service Agreement are
          based on the purchase price of the merchandise and the invoice.
          The payments are therefore tied to specific merchandise and are
          part of the "price actually paid or payable" for the imported
          merchandise.  Thus, the commission payments will be included in
          the dutiable value of the merchandise.

                                        Sincerely,




                                        John Durant, Director
                                        Commercial Rulings Division
          






















          1 cc: CLA-2 CO:R:CV:V:VLB:MM:FNL 11/22/88
          1 cc port in Boston






























































                              John B. Pellegrini, Esq.
                              Ross & Hardies
                              529 Fifth Avenue
                              New York, NY 10017-4608