HQ 546070: Dutiability of "Interest" Payments; Application for Further review of Protest (1001-95-102212).

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 546070
                          April 25, 1996
RR:IT:VA 546070 er

CATEGORY:  Valuation


RE:  Dutiability of "Interest" Payments; Application for
     Further review of Protest (1001-95-102212).

Dear Sir:

     This is in response to your memorandum accompanying the
unsigned and undated protest (1001-95-102212) and memorandum
filed by counsel on behalf of their client, Sigma Corporation of
America ("Sigma").  The merchandise consists of lenses.  The
entries were liquidated on February 17, 1995.  No date was
provided for the entry of the merchandise.  The protest concerns
the dutiability of certain "interest" payments made by the
importer, Sigma, to various banking institutions.  We regret the
delay in responding.

     
FACTS:

     Sigma purchases photographic cameras and lenses from its
parent company in Japan.  According to counsel, effective January
1, 1987, Sigma began financing all purchases though its parent
company's banking contacts.  Credit terms are 150 days for air
shipments and 180 for ocean.  Interest charges are identified
separately from the CIF amount on the parent company invoices.  A
representative invoice, confirmation and terms of payment were
submitted.

     According to counsel, prior to the exportation of the
merchandise from Japan, the parent corporations sends, by fax, to
the importer an invoice for the goods shipped, with payment terms
stated on the invoice.  Payment is due 150 days after
presentation of the sight draft in the case of goods shipped by
air, and 180 days after presentation of the sight draft in the
case of goods shipped by sea.  The commercial invoice identifies
the amount owing for the merchandise and the amount owing for
interest.  The two amounts are separately identified.  Upon
exportation of the merchandise, the parent presents export
documents to its bank in Japan and is paid the CIF value of the
merchandise.  Either 150 or 180 days after presentment, as the
case may be, the importer remits to its bank an amount for the
goods and an amount for the interest.  The importer's bank then
remits to the parent's bank an amount of money to cover both the
purchase of the goods and the interest.  The interest payments
are kept by the parent's bank and are not remitted, either
directly or indirectly, to the seller.

     Around July 1995, Customs asked the importer for a copy of
its written financing arrangement.  The importer represented to
Customs that no separate written financing contract existed. 
Customs advanced the dutiable value of the merchandise by an
amount equal to the interest charges.  Additionally, you report
that the importer was the subject of an audit which revealed that
the interest amounts were not identified and booked separately
from purchases.

ISSUE:

     Whether the amounts characterized as "interest" payments are
included in the appraised value of the merchandise.

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 under the TAA is transaction
value, defined as "the price actually paid or payable for the
merchandise when sold for exportation to the United States," plus
certain additions.  19 U.S.C. 1401a(b)(1).  However, imported
merchandise will be appraised under transaction value only if the
buyer and seller are not related, or if related, the
circumstances of sale indicate that the relationship did not
influence the price actually paid or payable, or the transaction
value approximates certain test values.  19 U.S.C.
1401a(b)(2)(A)-(B).  In the instant case, the acceptability of
transaction value has not been established with respect to
merchandise imported from the related party.  Nevertheless, for
purposes of this decision we have assumed that transaction value
is the appropriate basis of appraisement.

     Interest charges are not considered part of transaction
value provided: the interest charges are identified separately
from the price actually paid or payable; the financing
arrangement was made in writing; the goods being appraised were
sold at the price declared as the price actually paid or payable;
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 prevailing rate for such
transactions in the country where the financing was provided. 
T.D. 85-111, 19 Cust. B. & Dec. 258.  These conditions apply
whether the financing is furnished by the seller, a bank or
another natural or legal person.  The term "interest," as used in
T.D. 85-111 encompasses only bona fide interest charges, and not
simply the notion of interest arising out of delayed payment. 
Statement of Clarification of T.D. 85-111, 54 Fed. Reg. 29, 973
(1989).  See also C.S.D. 91-10, 25 C.S.D. 285.  In order to be
considered bona fide interest expense, the payments must have
been booked as interest expense on the buyer's books in
accordance with generally accepted accounting principles.  

     Counsel for the importer challenges  Customs' decision to
include as part of the transaction value of the imported
merchandise, amounts paid by the importer to various banking
institutions as interest.  According to counsel, Customs'
decision was made based on the fact that a written financing
agreement did not exist between the parties at the time the
protested entries were made.  Counsel argues that the principle
that a "writing" or a "contract" need not necessarily be
construed from a single document has long been recognized by the
courts. 

     It is your position that the interest payments made by the
importer to a bank are indirect payments to the seller as they
are not part of an overall written financing arrangement.   
Accordingly, in appraising the merchandise you added the interest
amounts to the purchase price of the goods.  You reference the
subsequent discovery  during the course of an audit, that the
interest amounts were not identified and booked separately from
purchases on the importer's books as additional justification for
including the payments in the appraised value.

     The discovery that the interest payments are not recorded
separately from purchases on the importer's books, alone, is
determinative as to the dutiability of the interest payments.  
T.D. 85-111; Statement of Clarification of T.D. 85-111 and HRL
544580 dated March 1, 1991.  Accordingly, Customs has no
authority to conclude that the interest charges are bona fide;
accordingly,  such charges must be regarded as part of the price
actually paid or payable for the merchandise.  Having concluded
that the evidentiary requirements set for in T.D. 85-111 and the
Statement of Clarification have not been met, we note that while
we disagree with counsel's argument that documents other than an
actual written financing agreement may be considered as
satisfying the standard in T.D. 85-111, it is unnecessary to
address the merits of that argument.
   
HOLDING:

     Because the importer failed to record the interest payments
separately from purchases as such in its books, such payments are
not bona fide interest payments and, accordingly, comprise part
of the appraised value of the imported merchandise.  You are
directed to deny this protest in full.  In accordance with
Section 3A(11)(b) of Customs Directive 099 3550-065, dated August
4, 1993, Subject:  Revised Protest Directive, this decision
should be mailed by your office to 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 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, Lexis, Freedom of Information Act and other
public access channels.  
     
                                   Sincerely,



                                   Acting Director
                                   International Trade
                                   Compliance Division