HQ 545094: Application for further review of Protest 2904-92-100157;interest charges; identified separately from the price actuallypaid or payable; T.D. 85-111.

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 545094

                          April 1, 1993



VAL CO:R:C:V 545094 CRS

CATEGORY:  Valuation

District Director
U.S. Customs Service
Federal Building, Room 198
511 N.W. Broadway
Portland, OR 97209

RE:  Application for further review of Protest 2904-92-100157;
interest charges; identified separately from the price actually
paid or payable; T.D. 85-111.

Dear Sir:

     This is in response to your memorandum of August 31, 1992,
under cover of which you forwarded Protest number 2904-92-100157
dated August 12, 1992, filed by George S. Bush & Co., Inc. on
behalf of the protestant.  Protestant's request for confidential
treatment pursuant to section 177.8(a)(3), Customs Regulations
(19 CFR   177.8(a)(3)) has been granted.

FACTS:

     Protestant, the U.S. subsidiary of a Japanese corporation
(seller), is an importer of industrial machinery which it buys
from its parent.  Protestant generally pays intercompany invoices
for these purchases within 360 days.  In view of this, protestant
and seller entered into a financing agreement pursuant to which
seller charges protestant interest on the invoiced prices of
imported merchandise.

     The agreement provides that protestant will pay seller an
amount equal to five percent (calculated on a 360 day basis) of
the c.i.f. price of the imported merchandise as the financing
cost of said merchandise.  Invoices will show the total c.i.f.
amount, inclusive of interest, from which five percent interest
will be deducted in order to arrive at the total net c.i.f.
amount.  From this figure will be deducted IRS withholding tax of
10 percent, yielding the net invoice value.  The net invoice
value represents the amount due and payable to the seller.

     Amounts for interest expense under the financing agreement
are reflected as deferred interest on protestant's books.  Copies
of protestant's general ledger journal entries relating to the
interest expense in question were included as Exhibit D of
protestant's submission dated July 24, 1992.

ISSUE:

     The issue presented is whether protestant's deductions from
invoice price are non-dutiable interest charges under transaction
value.

LAW AND ANALYSIS:

     Merchandise imported into the United States is appraised in
accordance with the provisions of 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, defined as "the price actually paid or payable
for merchandise when sold for exportation to the United States."

     The term "price actually paid or payable" is defined in
section 402(b)(4)(A) of the TAA as:

     [T]he total payment (whether direct or indirect, and
     exclusive of any costs, charges, or expenses incurred
     for transportation, insurance and related services
     incident to the international shipment of the
     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.

19 U.S.C.   1401a(b)(4)(A).

     In T.D. 85-111, this office set forth the criteria under
which interest charges under a financing arrangement entered into
by the buyer would be considered not to form part of the customs
value of imported merchandise.  T.D. 85-111 provided in pertinent
part that interest payments, whether or not included in the price
actually paid or payable for imported merchandise, are considered
not to form part of dutiable value provided:

     A.  The interest charges are identified separately from
     the price actually paid or payable for the goods;

     B.  The financing arrangement in question was made in
     writing;

     C.  Where required by Customs, the buyer can
     demonstrate that

          - The goods undergoing appraisement 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 transaction prevailing in the
          country where, and at the time, when the financing
          was provided.

See also the Statement of Clarification of T.D. 85-111, 23 Cust.
B. & Dec. (July 26, 1989), which provides that bona fide interest
payments under T.D. 85-11 are those which are carried on the
importer's books in conformity with generally accepted accounting
principles (GAAP).

     You contend that the interest charges protestant claims are
non-dutiable should be considered part of customs value since, as
presented on the invoices, they do not comply with the first
criterion of T.D. 85-111, viz., that such charges be identified
separately identified from the price actually paid or payable.

     However, T.D. 85-111 requires simply that charges be
distinguished from the price actually paid or payable for
imported merchandise.  Protestant has distinguished its interest
payments, made pursuant to a written financing agreement, from
the price actually paid or payable.  A sample invoice attached to
the instant protest shows a c.i.f. price, inclusive of interest,
from which interest of five percent is deducted in order to
arrive at a c.i.f. price, net of interest.

     Moreover, we note that T.D. 85-111 specifically provides
that if the three criteria it sets forth are met, interest
payments, "whether or not included in the price actually paid or
payable for merchandise, should not be part of the dutiable
value."  Here, the charges are distinguishable from the price
actually paid or payable and there is a written financing
agreement.  Furthermore, the interest rate does not appear to be
excessive, nor is there any indication that the protested
merchandise was sold at a price other than that declared as the
price actually paid or payable.

     In addition, protestant has submitted documentation that
confirms that the interest payments made pursuant to the
financing agreement with its Japanese parent are indeed bona fide
interest payments in conformity with GAAP.  Specifically,
protestant provided copies of journal entries to its general
ledger which show that amounts for the interest payments in
question were debited to protestant's deferred interest account.

     Accordingly, having met the conditions imposed by T.D. 85-
111 and the clarification of T.D. 85-111, protestant's interest
charges are not dutiable, irrespective of whether or not they are
included in the price actually paid or payable.

HOLDING:

     You are instructed to allow the protest in full.  A copy of
this decision should be attached to the Form 19 Notice of Action.

                         Sincerely,





                         John Durant, Director