HQ 546166: Internal Advice Concerning Appraisement of Lamp Parts; Related Party Transactions; 19 U.S.C. 1401a(e); HRL 542315, TAA No. 25

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 546166

                         April 5, 1996

VAL RR:IT:VA 546166 LPF

CATEGORY: Valuation

Port Director
U.S. Customs Service
P.O. Box 3130
Laredo, TX 78044

RE:  Internal Advice Concerning Appraisement of Lamp Parts; Related   Party Transactions; 19 U.S.C. 1401a(e); HRL 542315, TAA No. 25

Dear Director:

     This is in response to a request for internal advice submitted by
General Electric Lighting (GEL) and received by our office on October
20, 1995.  The request concerns the appraisement of lamp parts imported
from Mexico.

FACTS:

     GEL imports various lighting products assembled in Mexico by
Lamparas GE SA de CV (Lamparas).  Lamparas is a wholly-owned subsidiary
of the General Electric Company (GE) while GEL is an operating component
of GE.  GEL submits that the pricing of the imported products was
established through a process of negotiation between GEL and Lamparas,
which serve as separate profit centers within GE.  GEL explains that the
transfer price between the parties was negotiated and established in a
manner which would ensure that Lamparas would recover its costs plus a
reasonable profit, determined to be a certain percentage over cost.

     GEL further states that when the merchandise is shipped from
Lamparas to GEL, it is invoiced an amount representing estimated
standard costs, established in accordance with generally accepted
accounting principles (GAAP), with the negotiated percentage added for
profit.  Invoices and wire transfers evincing such payment were
submitted.  We understand that the agreement between Lamparas and GEL
provides for periodic payments between the parties for variances that
may occur from the agreed upon transfer price.

     Although GEL opines that the merchandise should be appraised based
on transaction value, pursuant to 402(b) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C.
1401a, you submit that computed value (402(e)) is the appropriate
method of appraisement.

ISSUE:

     Whether the evidence submitted demonstrates that the price paid by
GEL to Lamparas was acceptable for establishing transaction value. 

LAW AND ANALYSIS:

      As you are aware, the preferred method of appraising merchandise
imported into the U.S. is transaction value pursuant to 402(b) of the
TAA.  However, imported merchandise is appraised under transaction value
only if the buyer and seller are not related, or if related, the
transaction value is deemed to be acceptable.  In this case, Lamparas,
the seller, and GEL, the buyer, are related pursuant to 402(g)(1)(G) of
the TAA.  Section 402(b)(2)(B) of the TAA provides that a transaction
value between related parties will be deemed acceptable if an
examination of the circumstances of sale indicates that the relationship
between the parties did not influence the price actually paid or payable
or where the transaction value closely approximated certain "test"
values.  

     Initially, we note that no previously accepted values, which could
serve as test values in the instant case, have been shown to exist. 
However, under the circumstances of sales approach, if the parties buy
and sell from one another as if they were unrelated, transaction value
will be considered acceptable.  Thus, if the price is determined in a
manner consistent with normal industry pricing practice, or with the way
the seller deals with unrelated buyers, the price actually paid or
payable will be deemed not to have been influenced by the relationship. 
Furthermore, the price will not be considered to have been influenced if
it is shown that the price is adequate to ensure recovery of all costs
plus a profit that is equivalent to the firm's overall profit realized
over a representative period of time in sales of merchandise of the same
class or kind.  Statement of Administrative Action (SAA), reprinted in
Customs Valuation under the Trade Agreements Act of 1979, Department of
the Treasury, U.S. Customs Service (October 1981) at 54; section
152.103(j)(2), Customs Regulations (19 CFR 152.103(j)(2)).

     In the present matter, it has not been demonstrated that the
circumstances of sale indicate that the relationship between the parties
did not influence the price.  Specifically, the evidence presented does
not sufficiently demonstrate that the price is determined consistent
with industry practice or with the way the seller deals with unrelated
buyers.  Furthermore, GEL's position that the transfer price ensures
that Lamparas would recover its costs plus a reasonable profit does not
satisfy the conditions of the costs plus profit factor as articulated in
the SAA.  We emphasize that the SAA provides that the price will not be
considered to have been influenced if it is shown that the price is
adequate to ensure recovery of all costs plus a profit that is
equivalent to the firm's overall profit realized over a representative
period of time in sales of merchandise of the same class or kind
(emphasis added).  No such comparison of the price to the firm's overall
profit has been provided for our review.

     Finally, we note contrary to the position advanced by GEL, that
the fact the transfer price was established in accordance with generally
accepted accounting principles (GAAP) does not serve as prima facie
evidence that the price constitutes an acceptable transaction value. 
Although Customs acknowledged in Headquarters Ruling Letter (HRL)
542315, TAA No. 25, issued May 13, 1981, that transfer prices
established in accordance with GAAP may provide a legitimate statutory
basis for establishing transaction value, Customs did recognize,
however, that a determination still must be made concerning the
acceptability of the related party price.  In other words, regardless as
to whether a transfer price ultimately is found to constitute an
acceptable transaction value, it should nevertheless have been prepared
in accordance with GAAP.

     Insofar as it is appropriate to proceed sequentially through the
subsequent provisions of section 402 of the TAA for an alternative
method of appraisement and no evidence has been submitted calling into
question appraisement under computed value (402(e)), we find it
appropriate, based on the facts provided, to appraise the subject
merchandise in this manner.
     
HOLDING:

     Based on the evidence submitted, it has not been demonstrated that
the price paid by GEL to Lamparas was acceptable for establishing
transaction value.  It is appropriate, based on the facts provided, to
appraise the subject merchandise under computed value (402(e)).
 
     This decision should be mailed by your office to the party
requesting internal advice no later than sixty days from the date of
this letter.  On that date the Office of Regulations and Rulings will
take steps to make the decision available to Customs personnel via the
Customs Rulings Module in ACS and the public via the Diskette
Subscription Service, Freedom of Information Act, and other public
access channels.


                              Sincerely,




                              Acting Director,
                              International Trade Compliance                                     Division