HQ 544970: Dutiability of interest charges paid to seller

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 544970
                        October 20, 1993
VAL CO:R:C:V 544970 ILK

CATEGORY: Valuation

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RE:  Dutiability of interest charges paid to seller

Dear ---------:

     This is in response to your letter of April 2, 1992
(hereinafter referred to as the "request").  On behalf of your
client ----------------------- (hereinafter referred to as the
"buyer") you request a ruling regarding the dutiability of
interest charges paid by the importer to a related foreign
manufacturer (hereinafter referred to as the "seller").  Your
request, and a letter dated September 3, 1992 ask that certain
information supplied with the request be kept privileged and 
confidential.  Based on your identification of information to be
kept privileged and confidential, and the reasons given therefore
in your letter dated September 3, 1992, we will treat the subject
information as confidential and privileged.  We regret the delay
in responding.

FACTS:

     The buyer a U.S. corporation is anticipating importing --- -
--------------------------------------------------------- and
related equipment components and parts which are made in [Europe] 
  by the seller.  In a telephone conversation with a member of my
staff, on July 17, 1992, you stated that the seller may actually
be any one of a number of related companies in Europe.

     The seller is offering the importer two methods of payment
for the merchandise.  The buyer may elect to pay the seller on a
monthly basis the accumulating inventory value of the merchandise
(a pay-as-you-go method).  Alternatively, the buyer may defer any
payment until shipment and then pay the full purchase price of
the merchandise all at once, plus a separate interest charge
(deferred method).  ------------------------------------- ------
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     You request a ruling as to whether the interest charge
incurred under the deferred payment method is dutiable or non-
dutiable, and take the position that the interest charge is non-
dutiable.

ISSUE:

     Whether an interest charge paid by the buyer to a seller is
part of the transaction value of the imported merchandise.

LAW AND ANALYSIS:

     For the purpose of this response, we are assuming that
transaction value is the appropriate basis of appraisement. 
Transaction value is defined in  402(b)(1) of the Tariff Act of
1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C.
1401a(b); TAA) as the "price actually paid or payable for the
merchandise" plus amounts for the five enumerated statutory
additions in  402(b)(1).  The parties are related, therefore
pursuant to  402(b)(2)(B) of the TAA, transaction value is
acceptable only if an examination of the circumstances of the
sale indicates that the relationship between the buyer and seller
did not influence the price actually paid or payable or if the
transaction value of identical or similar merchandise in sales to
unrelated buyers in the U.S. or the deductive or computed value
for identical or similar merchandise.  This ruling does not
address the acceptability of transaction value.   

     Customs has issued T.D. 85-111 dated July 17, 1985, which
states that interest payments, whether or not included in the
price actually paid or payable for imported merchandise, shall
not be regarded as part of the customs value provided that:

     (a) The charges are distinguished from the price of the
     goods;

     (b) The financing arrangement was made in writing;

     (c) Where required, the buyer can demonstrate that
     
     -Such goods are actually sold at the price declared as
     the price actually paid or payable, and
     
     -The claimed rate of interest does not exceed the level
     for such transactions prevailing in the country where,
     and when the financing was provided.

T.D. 85-111 is to apply whether the financing is provided by the
seller, a bank or another natural or legal person, and if
appropriate, where the merchandise is valued under a method other
than transaction value.

     Subsequently, on July 17, 1989, Customs published a
Statement of Clarification for T.D. 85-111 (54 FR 29973) (the
"Clarification").  In the Clarification, Customs stated that for
purposes of T.D. 85-111, "the term `interest' encompasses only
bona fide interest charges, not simply the notion of interest
arising out of delayed payment."  Customs further added that
"bona fide interest charges are those payments that are carried
on the importer's books as interest expenses in conformance with
generally accepted accounting principles."

     According to the request, ---------------------------- ----
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-------------------  Thus, from the information you have
provided, the criteria in paragraphs (a) and (b) are satisfied. 
Provided that the buyer can prove, if requested, that the price
actually paid or payable for identical or similar merchandise
sold without a financing arrangement closely approximates the
price declared for the merchandise being appraised, and the X%
monthly rate of interest does not exceed the level for such
transactions prevailing in the country where and when the
financing was provided, the criteria in paragraph (c) of T.D. 85-
111 are satisfied.  

     The request states that ----------------------------- -----
------------------------------------------- and a period charge
is a method of carrying interest expenses in conformance with
generally accepted accounting principles ("GAAP").  However, in
order to meet the criteria of the Clarification, although the
amount claimed as interest is --------------------------------- -
------------, it must be charged to an interest expense account,
in accordance with GAAP.  

HOLDING:

     The payments made by the buyer to the seller for the
interest charges are not part of the transaction value of the
imported merchandise, provided  the payment is charged to an
interest expense account, and that if required, the buyer can
prove that the subject merchandise is actually sold at the price
declared, and the claimed rate of interest does not exceed the
level for such transaction prevailing in the country where and
when the financing was provided.


                                   Sincerely,


                                   
                                   John Durant, Director,
                                   Commercial Rulings Division