Bona Fide Sales & Sales for Exportation to the United States

Published CBP guidance; operative status and applicability must be assessed from the retained publisher edition.

What Every Member of the
Trade Community Should Know About:

BONA FIDE SALES
&
SALES FOR EXPORTATION

TO THE UNITED STATES

AN INFORMED COMPLIANCE PUBLICATION
AUGUST 2005

ii

NOTICE:

This publication is intended to provide guidance and information to the trade community. It
reflects the position on or interpretation of the applicable laws or regulations by U.S.
Customs and Border Protection (CBP) as of the date of publication, which is shown on the
front cover. It does not in any way replace or supersede those laws or regulations. Only the
latest official version of the laws or regulations is authoritative.

Publication History

First Issued: November 1996
Revised: January 2000
Revised: July 2005

PRINTING NOTE:

This publication was designed for electronic distribution via the CBP website
(http://www.cbp.gov/) and is being distributed in a variety of formats. It was originally set up
in Microsoft Word97
®
. Pagination and margins in downloaded versions may vary depending
upon which word processor or printer you use. If you wish to maintain the original settings,
you may wish to download the .pdf version, which can then be printed using the freely
available Adobe Acrobat Reader
®
.

iii
PREFACE

On December 8, 1993, Title VI of the North American Free Trade Agreement Implementation
Act (Pub. L. 103-182, 107 Stat. 2057), also known as the Customs Modernization or “Mod” Act,
became effective. The provisions in the Mod Act amended many sections of the Tariff Act of
1930 and related laws.

Two new concepts that emerge from the Mod Act are “informed compliance” and “shared
responsibility,” which are premised on the idea that in order to maximize voluntary compliance
with the laws and regulations of U.S. Customs and Border Protection (CBP), the trade
community needs to be clearly and completely informed of its legal obligations. Accordingly, the
Mod Act imposed an obligation on the CBP to provide the public with improved information
concerning the trade community's rights and responsibilities under customs regulations and
related laws. In addition, both the trade community and the CBP share responsibility for
carrying out these requirements. For example, under Section 484 of the Tariff Act, as amended
(19 U.S.C. § 1484), the importer of record is responsible for using reasonable care to enter,
classify and determine the value of imported merchandise and to provide any other information
necessary to enable the CBP to assess duties properly, collect accurate statistics, and
determine whether other applicable legal requirements, if any, have been met. The CBP is then
responsible for fixing the final classification and value of the merchandise. The failure of an
importer of record to exercise reasonable care could delay release of the merchandise and, in
some cases, could result in the imposition of penalties.

The Office of Regulations and Rulings has been given a major role in meeting the informed
compliance responsibilities of the CBP. In order to provide information to the public, the CBP
has issued a series of informed compliance publications on new or revised requirements,
regulations or procedures, and a variety of classification and valuation issues.

The Value Branch of the Office of Regulations and Rulings has prepared this publication on
“Bona Fide Sales and Sales for Exportation to the United States.” We sincerely hope that this
material, together with seminars and increased access to administrative rulings of the CBP, will
help the trade community to improve voluntary compliance with customs regulations and laws
and to understand the relevant administrative processes.

The material in this publication is provided for general information purposes only. As many
complicated factors can be involved in customs issues, an importer may wish to obtain an
advance or pre-importation ruling under the CBP regulations (19 CFR Part 177) or to obtain
advice from an expert who specializes in customs matters, for example, a licensed customs
broker, attorney or consultant.

Comments and suggestions are welcomed and should be addressed to the Assistant
Commissioner at the Office of Regulations and Rulings, U.S. Customs and Border Protection,
1300 Pennsylvania Avenue, NW, (Mint Annex), Washington, D.C. 20229.

Michael T. Schmitz
Assistant Commissioner
Office of Regulations and Rulings

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v
TABLE OF CONTENTS

INTRODUCTION........................................................................................................................................... 1
QUESTIONS AND ANSWERS..................................................................................................................... 1
1. H
OW IS IMPORTED MERCHANDISE APPRAISED? ........................................................................................ 1
2. W
HAT IS TRANSACTION VALUE? .............................................................................................................. 1
3. WHAT IS THE PRICE ACTUALLY PAID OR PAYABLE? ................................................................................... 2
4. WHAT IS THE RELEVANCE OF A “BONA FIDE SALE” AND A “SALE FOR EXPORTATION TO THE UNITED STATES”?
.................................................................................................................................................................. 2
5. W
HAT IS A “SALE”? ................................................................................................................................. 2
6. W
HAT IS “CONSIDERATION”? ................................................................................................................... 2
7. WHAT FACTORS ARE DETERMINATIVE OF A BONA FIDE SALE? .................................................................... 3
8. WHAT FACTORS INDICATE WHETHER PROPERTY OR OWNERSHIP IN PROPERTY WAS TRANSFERRED? .......... 3
9. W
HAT ROLE DOES POSSESSION PLAY IN DETERMINING WHETHER PROPERTY OR OWNERSHIP IN PROPERTY
WAS TRANSFERRED
? ................................................................................................................................... 3
10. WHAT SIGNIFICANCE IS AFFORDED TO SHIPPING OR TRADE TERMS? ........................................................ 4
11. W
HEN DOES A “SIMULTANEOUS PASSAGE OF TITLE” OCCUR AND WHAT DOES IT INDICATE ABOUT THE
TRANSFER OF TITLE
? ................................................................................................................................... 4
12. WHAT OTHER FACTORS INDICATE THAT A BONA FIDE SALE HAS OCCURRED?............................................ 5
13. W
HAT EVIDENCE OR DOCUMENTATION, OTHER THAN SHIPPING OR TRADE TERMS, INDICATES WHETHER A
BONA FIDE SALE HAS OCCURRED
? ................................................................................................................ 5
14. WHEN DOES AN INQUIRY CONCERNING A SALE OF MERCHANDISE FOR EXPORTATION TO THE UNITED
STATES BECOME RELEVANT? ....................................................................................................................... 6
15. IF MORE THAN ONE BONA FIDE SALE HAS OCCURRED IN A MULTI-TIERED TRANSACTION, HOW IS THE
TRANSACTION VALUE OF THE IMPORTED MERCHANDISE TO BE DETERMINED
?.................................................. 6
16. W
HEN DOES A PARTY SERVE AS A MIDDLEMAN IN A MULTI-TIERED TRANSACTION?.................................... 7
17. WHEN IS A FOREIGN MANUFACTURER'S PRICE ACCEPTABLE IN ACCORDANCE WITH THE DECISION IN NISSHO
IWAI?.......................................................................................................................................................... 7
18. W
HAT IS THE RELEVANCE OF WHETHER A SALE IS CONDUCTED AT “ARM'S LENGTH” AND IS “CLEARLY
DESTINED FOR EXPORTATION TO THE
UNITED STATES”?................................................................................ 8
19. WHEN IS A SALE CONSIDERED TO HAVE BEEN CONDUCTED AT “ARM'S LENGTH”? ...................................... 8
20. W
HEN IS MERCHANDISE CLEARLY DESTINED FOR EXPORTATION TO THE UNITED STATES IN A MULTI-TIERED
TRANSACTION
? ........................................................................................................................................... 8
21. W
HAT EVIDENCE IS NEEDED TO ESTABLISH THAT MERCHANDISE IS CLEARLY DESTINED FOR EXPORTATION
TO THE
UNITED STATES IN A MULTI-TIERED TRANSACTION? ........................................................................... 9
22. WHAT DOCUMENTATION AND INFORMATION IS NEEDED TO SUPPORT A DETERMINATION THAT TRANSACTION
VALUE SHOULD BE PROPERLY BASED ON A SALE TO WHICH THE IMPORTER IS NOT THE BUYER
?........................ 9
23. H
OW DOES AN IMPORTER EXERCISE REASONABLE CARE WHEN DECLARING A VALUE BASED ON A
TRANSACTION TO WHICH IT IS NOT THE BUYER
?........................................................................................... 10
DETERMINING TRANSACTION VALUE IN MULTI-TIERED TRANSACTIONS ..................................... 11
ADDITIONAL INFORMATION.................................................................................................................... 14
T
HE INTERNET.......................................................................................................................................... 14
C
USTOMS REGULATIONS........................................................................................................................... 14
C
USTOMS BULLETIN.................................................................................................................................. 14
IMPORTING INTO THE UNITED STATES........................................................................................................ 15
I
NFORMED COMPLIANCE PUBLICATIONS..................................................................................................... 15
V
ALUE PUBLICATIONS................................................................................................................................ 16
“Y
OUR COMMENTS ARE IMPORTANT”.......................................................................................................... 17

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Bona Fide Sales and Sales For Exportation to the United States
August 2005
INTRODUCTION

When goods are imported into the customs territory of the United States (the fifty states,
the District of Columbia and Puerto Rico), they are subject to certain formalities
involving the U.S. Bureau of Customs and Border Protection (“CBP”) of the U.S.
Department of Homeland Security. In almost all cases, the goods are required to be
“entered,” that is, declared to the CBP, and are subject to detention and examination by
CBP officers to insure compliance with all laws and regulations enforced and
administered by the CBP. As part of the entry process, goods must be classified in the
Harmonized Tariff Schedule of the United States and their customs value must be
determined.

Pursuant to the Customs Modernization Act, it is the responsibility of the importer of
record to use “reasonable care” to enter, classify and value the goods and provide any
other information necessary to enable the CBP to assess the correct duties, collect
accurate statistics, and determine whether all other applicable legal requirements have
been satisfied.

Under the authority of 19 U.S.C. § 1500(a), it is CBP’s responsibility to fix the final
appraisement of merchandise in accordance with 19 U.S.C. § 1401a (as well as to fix
the final classification and rate of duty applicable to the merchandise). This occurs after
the importer of record, using reasonable care, has filed the declared value of the
merchandise with the CBP. General customs valuation requirements are discussed in a
CBP informed compliance publication entitled “What Every Member of the Trade
Community Should Know About: Customs Value,” which is available from the CBP
website: <
www.cbp.gov>. The instant CBP informed compliance publication
concentrates on ascertaining whether there has been a bona fide sale of merchandise
for exportation to the United States for purposes of applying the transaction value
method of appraisement.

QUESTIONS AND ANSWERS

1. How is imported merchandise appraised?

All merchandise imported into the United States is subject to valuation or appraisement.
The Trade Agreements Act of 1979, codified at 19 U.S.C. § 1401a, sets forth a
hierarchy of methods for the appraisement of imported merchandise.

2. What is transaction value?

Under the Trade Agreements Act of 1979, the transaction value of imported

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Bona Fide Sales and Sales For Exportation to the United States
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merchandise is the primary or preferred method for determining the value of imported
merchandise. Generally, transaction value is the price actually paid or payable for
merchandise when sold for exportation to the United States, plus certain statutorily
enumerated additions. Unless there is a bona fide sale of the merchandise for
exportation to the United States, the transaction value method cannot be used. An
alternative method of appraisement must then be used.

3. What is the price actually paid or payable?

The price actually paid or payable for imported merchandise is the total payment,
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.

4. What is the relevance of a “bona fide sale” and a “sale for
exportation to the United States”?

By definition, transaction value requires that a sale of merchandise for exportation to the
United States occur. This concept has two parts: (1) “bona fide” or “good faith” sales
and (2) sales of merchandise for exportation to the United States. If it is shown that
both (1) a bona fide sale and (2) a sale for exportation of the merchandise to the United
States occurred, this component of transaction value is satisfied.

5. What is a “sale”?

A “sale” is the transfer of property from one party to another party for consideration.

6. What is “consideration”?

With regard to sales transactions, consideration means payment from one party to
another for the imported merchandise. Evidence that would establish that consideration
has passed from one party to another party includes evidence of payment by check,
bank transfer, or payment by any other commercially acceptable manner. It also is
necessary to demonstrate that payment was made for the imported merchandise in
question. General transfers of money from one corporate entity to another that cannot
be linked to a specific import transaction are
not sufficient to show passage of
consideration between the parties with respect to that import transaction.

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Bona Fide Sales and Sales For Exportation to the United States
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7. What factors are determinative of a bona fide sale?

Although several factors may indicate whether a bona fide sale has taken place
between a potential buyer and seller of imported merchandise, no single factor is
determinative. Rather, the relationship of the parties involved in the transaction is to be
evaluated by an overall view of the entire situation, with the result in each case
governed by the facts and circumstances of the individual case—and not by the labels
that the parties may attach to the relationship.

8. What factors indicate whether property or ownership in property
was transferred?

In determining whether property or ownership in property has been transferred from a
potential seller to a potential buyer, CBP considers whether the potential buyer has
assumed the risk of loss for the imported merchandise (i.e., the potential buyer was
liable for the imported merchandise if lost or damaged during shipment) and acquired
title to the imported merchandise (i.e., the potential buyer legally possesses or owns the
imported merchandise). In addition, CBP may examine whether the potential buyer
paid for the merchandise (i.e., consideration passed between the potential buyer and
seller for the imported merchandise).

Transactions involving goods that are shipped on consignment do not constitute bona
fide sales because the goods are not the subject of a sale. Therefore, the transaction
value method of appraisement cannot be used to appraise goods shipped to the United
States on consignment. Other examples where imported goods are not considered to
be the subject of a sale include gifts, samples and promotional items furnished free of
charge; goods imported under a leasing contract; and goods that were loaned. The
transaction value method cannot be used to appraise such goods. Therefore, an
alternative method of appraisement must be used in such situations.

9. What role does possession play in determining whether property
or ownership in property was transferred?

Although the possession of merchandise serves as a strong indication that the
merchandise or ownership in the merchandise has been transferred from a potential
seller to a potential buyer, it is not dispositive when considering whether such a transfer
occurred. CBP still may find that the potential buyer assumed the risk of loss for and/or
acquired title in the merchandise although the potential buyer never had actual or
physical possession of the merchandise.

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Bona Fide Sales and Sales For Exportation to the United States
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10. What significance is afforded to shipping or trade terms?

In situations where no other pertinent evidence has been made available, CBP may
reach its determination concerning whether a bona fide sale occurred based on the
terms of sale (e.g., FOB or CIF), indicating when title and risk of loss were transferred.
Otherwise, the terms of sale will be considered as part of the overall view of the entire
situation in conjunction with all other relevant evidence. CBP primarily will consider as
controlling the terms of sale provided on the invoices and written contracts or
agreements regarding the sale of the merchandise. The meaning of all such shipping or
trade terms will be construed consistent with the “Uniform Commercial Code” and
“Incoterms 2000” (the official International Chamber of Commerce rules for the
interpretation of trade terms), unless the transacting parties demonstrate through
contracts, other legally enforceable agreements, or course of dealing, that they have
afforded different meanings to the terms.

11. When does a “simultaneous passage of title” occur and what
does it indicate about the transfer of title?

Particularly in situations where merchandise is shipped directly from the seller to the
ultimate U.S. consignee, as opposed to being shipped from the seller to an intermediary
(or middleman) and then to the ultimate U.S. consignee, the terms of sale may indicate
that a “simultaneous passage of title” has occurred. In other words, based on the
shipping terms, title and risk of loss pass from the seller to the intermediary, then
immediately thereafter from the intermediary to the ultimate U.S. consignee.
Consequently, the intermediary is considered to hold title only momentarily, if ever, and
not to have borne the risk of loss according to the terms of sale. In such an instance
and based solely on the shipping terms, a bona fide sale would not appear to have
occurred between the seller and intermediary. In determining whether a bona fide sale
occurred, however, CBP will consider other pertinent evidence or documentation if
made available by the parties to the transactions.

EXAMPLE:

Invoices and contracts between the parties provide for the FOB point of
shipment of goods between a seller in country X and an intermediary in country
Y and for FOB point of shipment between the intermediary and ultimate
consignee in the United States. The submitted documents also indicate the
goods were shipped directly from country X to the United States.

Unless otherwise agreed to by the parties, title and risk of loss will be
considered to pass from the seller to the intermediary when the
merchandise was delivered to the carrier for shipment, then immediately
thereafter from the intermediary to the ultimate consignee in the United
States. Hence, based on the shipping terms, a bona fide sale would not
appear to have occurred between the seller and intermediary, but rather

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would appear to have occurred between the seller and ultimate consignee
in the United States, with the intermediary potentially serving as an agent
(most likely for the seller). If available, however, it would be appropriate to
consider other pertinent evidence or documentation concerning the bona
fides of the sale.

12. What other factors indicate that a bona fide sale has occurred?

In determining whether a bona fide sale has occurred, CBP also will consider whether,
in general, the roles of the parties and circumstances of the transaction indicate that the
parties were functioning as buyer and seller. Whereas it is characteristic of a buyer-
seller relationship for the parties to maintain an independence in their dealings, in a
principal-agent relationship the former will control the actions of the latter. Specifically,
CBP considers as evidence of a valid buyer-seller relationship whether the potential
buyer:

(a) provided (or could provide) instructions to the seller;

(b) was free to sell the imported merchandise at any price it desired;

(c) selected (or could select) its own customers without consulting the seller;
and

(d) could order the imported merchandise and have it delivered for its own
inventory (as opposed to the seller delivering the merchandise directly to an
ultimate U.S. consignee).

The fact that a potential buyer cannot assume the above tasks is an indication that the
party is serving as an agent (i.e., selling or buying agent) rather than as an independent
buyer. For further information concerning principal-agent relationships, see the CBP
informed compliance publication entitled “What Every Member of the Trade Community
Should Know About: Buying and Selling Commissions,” which is available on the CBP
web site: <
www.cbp.gov>.

13. What evidence or documentation, other than shipping or trade
terms, indicates whether a bona fide sale has occurred?

Contracts, distribution and other similar agreements, invoices, purchase orders, bills of
lading, proof of payment, correspondence between the parties, and company reports or
brochures all may serve as evidence that a party possesses title in and assumed the
risk of loss for the imported merchandise and functions as a buyer or a seller, thus
indicating that a bona fide sale has occurred with respect to the transaction under
consideration. Such documentation should be consistent in its entirety and with the
transaction in general (i.e., consistent prices, dates, parties and merchandise). Further,

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the documentation and language included therein should reveal the substance of the
transaction, including the obligations and roles of each of the parties. While formal
sales contracts and other types of memorialized agreements (such as distribution or
production agreements) generally are most revealing in this regard, other
documentation (such as purchase orders, invoices, and proof of payment) evincing or
establishing the structure of the transaction are crucial, especially in the absence of any
written agreements. The terminology used in such agreements and documentation (i.e.,
“buyer,” “seller,” “principal,” or “agent”), although indicative, is not dispositive of the role
played by each of the parties in the transactions under consideration.

14. When does an inquiry concerning a sale of merchandise for
exportation to the United States become relevant?

As indicated above, once it has been established that a bona fide sale of merchandise
has occurred, the law requires that the sale of the merchandise be for exportation to the
United States in order to appraise the merchandise under the transaction value method.

15. If more than one bona fide sale has occurred in a multi-tiered
transaction, how is the transaction value of the imported merchandise
to be determined?

There is a presumption that transaction value is based on the price actually paid or
payable by the importer for the imported merchandise under consideration. The burden
is on an importer to rebut this presumption. Therefore, in situations where more than
one sale has occurred involving the imported merchandise and the importer wants to
base transaction value on the price actually paid or payable in a sale to which it is not
the buyer (e.g., the price paid for the merchandise in a sale between the foreign
manufacturer and a foreign middleman), the importer must be able to establish by
documentary evidence that such a sale is a sale for exportation to the United States.
This documentary evidence must satisfy the requirements set forth in Nissho Iwai
American Corporation v. United States, 16 CIT 86, 786 F. Supp. 1002 (1992) rev'd 982
F.2d 505 (Fed. Cir. 1992) and in General Notice (T.D. 96-87),
Determining Transaction
Value in Multi-Tiered Transactions, VoI. 30/31, Customs Bulletin No. 52/1 (January 2,
1997). (See copy below.) Without such evidence, the importer has not overcome its
burden to rebut the presumption discussed above, and CBP will base the transaction
value for the imported merchandise on the price actually paid or payable for the
merchandise by the U.S. importer (rather than on the manufacturer’s price to the
middleman or the first-sale price).

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16. When does a party serve as a middleman in a multi-tiered
transaction?

When at least two bona fide sales have occurred and the same party serves as a buyer
(usually buying the imported merchandise from a foreign manufacturer) as well as a
seller (usually selling the imported merchandise purchased from a foreign manufacturer
to a U.S. importer or consignee) in a multi-tiered transaction, that party is considered to
be a middleman. Depending on the manner in which such a multi-tiered transaction is
structured, the importer of record, consignee, or any other type of buyer or seller, even if
in the United States, may be a middleman. Where a multi-tiered transaction consists of
more than two sales, generally there will be several middlemen.

17. When is a foreign manufacturer's price acceptable in accordance
with the decision in Nissho Iwai?

The Nissho Iwai case addressed the question of how to determine transaction value in a
multi-tiered transaction. In that case, the New York City Metro Transit Authority (MTA)
contracted to purchase subway cars from Nissho Iwai American Corporation (Nissho
America). The price in the contract between the MTA and Nissho America represented
the highest price from among the various prices involved in the sale and exportation of
the subway cars to the United States. Kawasaki Industries of Japan (Kawasaki) and
Nissho Iwai Corporation of Japan (Nissho Japan) participated in negotiations and in a
bid proposal with the MTA. Nissho Japan purchased cars from Kawasaki, who was the
primary Japanese manufacturer of the cars. Pursuant to the master contract, Kawasaki
provided a warranty of performance to the MTA and Nissho America. As permitted by
the contract, Nissho America assigned its contract rights to Nissho Japan. The issue
before the courts was whether the transaction value of the subway cars was properly
based on the Kawasaki-Nissho Japan sales price (i.e., the foreign manufacturer’s price)
or on the MTA-Nissho America price reflected in the master contract (i.e., the
middleman’s price).

The U.S. Court of Appeals for the Federal Circuit, in reversing the decision of the U.S.
Court of International Trade, held that the foreign manufacturer's price was a valid
transaction value as long as the transaction between the foreign manufacturer and the
middleman was a sale negotiated at “arm's length” that was free from any non-market
influences that could affect the legitimacy of the sales price and involved goods clearly
destined for exportation to the United States. This presupposes that a bona fide sale
occurred and that the use of transaction value is not otherwise precluded by the U.S.
valuation law (e.g., there are no restrictions on the disposition or use of the
merchandise; there are no conditions or considerations for which a value cannot be
determined; or there is insufficient information concerning an enumerated statutory
addition to the price actually paid or payable). Based on the evidence presented in
Nissho Iwai, the court found that the transaction value of the subway cars was properly
based on the Kawasaki-Nissho Japan sales price (i.e., the price of the sale of the
imported merchandise from the foreign manufacturer to the middleman or the first-sale

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price).

18. What is the relevance of whether a sale is conducted at “arm's
length” and is “clearly destined for exportation to the United States”?

If a sale was not conducted at “arm's length” or the merchandise that was the subject of
the sale was not “clearly destined for exportation to the United States,” that sale cannot
serve as the basis for transaction value.

19. When is a sale considered to have been conducted at “arm's
length”?

In general, CBP will consider a sale between unrelated parties to have been conducted
at “arm's length.” If the parties are related, however, a sale will be considered to have
been conducted at “arm's length” only (1) if an examination of the circumstances of the
sale of the imported merchandise indicates that the relationship between the buyer and
seller did not influence the price actually paid or payable or (2) if the transaction value
closely approximates a test value. For further information, see “Transfer Pricing;
Related Party Transactions,” 58 FR 5445 (January 21, 1993). See also 19 U.S.C. §
1401a(b)(2)(B) and 19 CFR § 152.103(j)(2). Also, for a list of persons who are
considered related for purposes of related-party transactions, see 19 U.S.C. §
1401a(g)(1) and 19 CFR § 152.102(g).

20. When is merchandise clearly destined for exportation to the
United States in a multi-tiered transaction?

Although such a determination can only be made on a case-by-case basis, CBP will
consider that merchandise is clearly destined for exportation to the United States in a
multi-tiered transaction when the evidence establishes that at the time the middleman
purchased or contracted to purchase the imported merchandise from the foreign
manufacturer, the only possible destination for the merchandise was the United States
(i.e., at the time of sale, the imported merchandise was irrevocably destined for the
United States).

It must be evident throughout the entire transaction that the merchandise is clearly
destined for exportation to the United States. It is not sufficient, for example, to show
after the merchandise was ordered and manufactured, at the time of shipment, near the
end of the transaction, that it will be or was going to the United States. For instance,
evidence that boxes for imported merchandise (e.g., table lamps) were addressed to the
United States when delivered to a carrier is insufficient by itself to establish that the
lamps were clearly destined for exportation to the United States. On the other hand,
evidence that a U.S. retailer/importer had contracted for table lamps with a middleman

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who, in turn, had contracted with a foreign manufacture for table lamps that were
manufactured to conform to U.S. electrical requirements and the U.S. retailer’s design
specifications (e.g., shape, materials, colors); bore the U.S. retailer’s labels, logos,
unique stock numbers and bar codes; and were shipped directly from the country of
manufacturer to the United States (thereby eliminating the possibility of diversion of the
merchandise to another country) would show that the imported table lamps were clearly
destined for exportation to the United States at the time the middleman purchased or
contracted to purchase the lamps from the foreign manufacturer.

21. What evidence is needed to establish that merchandise is clearly
destined for exportation to the United States in a multi-tiered
transaction?

In order to establish that merchandise is clearly destined for exportation to the United
States in a multi-tiered transaction, there must be a complete paper trail relating to the
imported merchandise that shows the structure of the entire multi-tiered transaction.
This would include invoices, sales contracts, purchase orders, proof of payment,
shipping contracts or other documentation for each individual transaction involved in the
multi-tiered transaction with consistent prices, dates, parties and merchandise. Other
evidence would include manufacture, design, and other unique specifications or
characteristics of the merchandise (often manifest in samples) made in conformity with
the U.S. buyer's or importer’s standards; labels, logos, stock numbers, bar codes and
other unique marks; and markings, visas, warranties or other types of certification or
characteristics required for the entry into and sale or operation of the imported
merchandise in the United States. All this evidence must show that the only possible
destination for the imported merchandise was the United States at the time the
middleman purchased or contracted to purchase the merchandise from the foreign
manufacturer.

22. What documentation and information is needed to support a
determination that transaction value should be properly based on a
sale to which the importer is not the buyer?

T.D. 96-87 sets forth the documentation and information needed to support a
determination that transaction value should be based on a sale not involving the U.S.
importer in a multi-tiered transaction. It requires an importer to provide (1) a detailed
description of the roles of each of the parties involved in the multi-tiered transaction and
(2) a complete paper trail relating to the imported merchandise that shows the structure
of the entire multi-tiered transaction. Specifically, T.D. 96-87 requires an importer to
have documentary evidence that establishes (1) that the alleged sale of the imported
merchandise was a bona fide sale (see question 13 above); (2) that the merchandise
was clearly destined for exportation to the United States (see question 21 above); and
(3) that the alleged sale between the middleman and foreign manufacturer was at arm’s

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length (see question 19 above). Moreover, in order to determine whether a particular
transaction may be the basis for transaction value, T.D. 96-87 also requires an importer
to submit sufficient information with respect to the amounts, if any, of the statutory
additions set forth in 19 U.S.C. § 1401a(b)(1) (i.e., packing costs, selling commissions,
assists, royalty or license fees and proceeds of any subsequent sale).

NOTE: When seeking an advance ruling, requesting internal advice or filing a protest,
the above-mentioned documentation must be submitted with the advance ruling
request, internal advice request or protest.

23. How does an importer exercise reasonable care when declaring a
value based on a transaction to which it is not the buyer?

Under 19 U.S.C. § 1484, as amended, an importer shall, using reasonable care,
complete an entry by filing with the CBP the declared value, classification and rate of
duty applicable to the merchandise, and such other documentation or, pursuant to an
electronic data interchange system, such other information as is necessary to enable
the CBP to, among other things, properly assess duties on the merchandise. This
would include sufficient information to enable the CBP to determine in a multi-tiered
transaction which of the various sales is the sale of the merchandise for exportation to
the United States upon which transaction value should be properly based. Accordingly,
before an importer declares a transaction value based on a transaction to which it is not
the buyer, the importer should be sure that such a transaction satisfies the criteria
discussed above and be prepared to submit supporting evidence as described T.D. 96-
87, upon request by CBP.

An importer who declares a value to CBP without the necessary supporting
documentation would not be exercising reasonable care and may be subject to a
penalty or other enforcement compliance action.

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DETERMINING TRANSACTION VALUE IN MULTI-TIERED TRANSACTIONS

T.D. 96-87

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: General notice.

SUMMARY: The primary method of appraising imported merchandise is transaction value.
Transaction value is the price actually paid or payable for imported merchandise when sold for
exportation to the United States plus certain statutory additions. This notice clarifies some of the
issues that arise in multi-tiered transactions in determining which is the sale for exportation to
the United States for the purpose of determining transaction value. It also sets forth the
documentation and information needed to support a ruling request that transaction value should
be based on a sale involving a middleman and the manufacturer or other seller rather than on
the sale in which the importer is a party.

DATES: All future ruling requests that in a multi-tiered arrangement transaction value is properly
based on a sale not involving the importer must be supported by the evidence discussed in this
notice.

FOR FURTHER INFORMATION CONTACT: o o o

SUPPLEMENTARY INFORMATION:
The primary method of appraising imported merchandise is transaction value. Section
402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19
U.S.C. § 1401a), provides that the transaction value of imported merchandise is the price
actually paid or payable for the merchandise when sold for exportation to the United States,
plus specified additions. Thus, in order for imported merchandise to be appraised under
transaction value it must be the subject of a bona fide sale between the buyer and seller and it
must be a sale for exportation to the United States.
In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court of
Appeals for the Federal Circuit reviewed the standard for determining transaction value in a
three-tiered distribution system involving a middleman. The Court indicated that a
manufacturer's price for establishing transaction value is valid so long as the transaction
between the manufacturer and the middleman falls within the statutory provision for valuation. In
this regard, the Court stated that in a three-tiered distribution system:

The manufacturer's price constitutes a viable transaction value when the goods are
clearly destined for export to the United States and when the manufacturer and the
middleman deal with each other at arm's length, in the absence of any non-market
influence that affect the legitimacy of the sale price * * * [T]hat determination can be
made on a case-by-case basis.

Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. ___, Slip OP.
93-5 (Ct. Int'l. Trade January 12, 1993).
After Nissho Iwai, Customs has received numerous ruling requests that transaction value is
properly based on a sale which does not involve the importer, but rather a middleman and the

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manufacturer or other seller. In our rulings, we have stated that in fixing the appraisement of
imported merchandise, Customs presumes that the price paid by the importer is the basis of
transaction value and the burden is on the importer to rebut this presumption. In order to rebut
this presumption, in accordance with the Nissho Iwai standard, the importer must prove that at
the time the middleman purchased, or contracted to purchase, the goods were "clearly destined
for export to the United States" and the manufacturer (or other seller) and middleman dealt with
each other at "arm's length." In reaching a decision, Customs must ascertain whether the
transaction in question falls within the statutory provision for valuation, i.e., that it is a sale, that it
is a sale for exportation to the United States in accordance with the standard set forth above,
and that the parties dealt with each at "arm's length."
1
As stated in Nissho Iwai, these questions
are determined case-by-case based on the evidence presented.
In order for an importer to rebut the presumption discussed above, certain information and
documentation must be provided. Specifically, the requestor must describe in detail the roles of
all the various parties and furnish relevant documents pertaining to each transaction that was
involved in the exportation of the merchandise to the United States. If there is more than one
possible sale for exportation, information and documentation about each of them should be
provided.
2
Relevant documents include, purchase orders, invoices, proof of payment, contracts
and any additional documents (e.g. correspondence) which demonstrate how the parties dealt
with one another and which support the claim that the merchandise was clearly destined to the
United States. If any of these documents do not exist, or exist but are not available, the ruling
request should so provide. What we are looking for is a complete paper trail of the imported
merchandise showing the structure of the entire transaction.
3
If the request covers many
importations, it is acceptable to submit documents pertaining to some of the importations
provided complete sets of documents are furnished, the underlying circumstances are the
same, and the documents are representative of the documents used in all the transactions. Any
differences should be explained.
In addition, to establish whether the transaction is "at arm's length" the ruling request must
state the relationship, if any, of the parties. In general, Customs will consider a sale between
unrelated parties to have been conducted at "arm's length." If the parties to the requested
transaction are not related as defined in 19 U.S.C. 1401a(g), then a statement to that effect
should be made. However, if the parties to the requested transaction are related, then it is

1
Detailed information regarding bona fide sales and sales for exportation is contained in the Informed
Compliance Publication, What Every Member of the Trade Community Should Know About: Bona Fide
Sales and Sales for Exportation, November, 1996.

2
For example, if the importer is trying to prove that a transaction between a middleman and the
manufacturer is a viable transaction vale, it should describe the role of all the parties (i.e., the importer,
the middleman and the manufacturer) and furnish evidence regarding both the alleged sale between the
importer and the middleman and the alleged sale between the middleman and the manufacturer. The
evidence must show that the middleman purchased the goods from the manufacturer and that the goods
were clearly destined to the United States.

3
An example of a complete paper trail is documentation which shows that: 1) the importer ordered 100
Style A hair driers at $6 each from the middleman on January 5, 1996 listing the required specifications;
2) the middleman ordered 100 Style A hair driers at $5 each from the manufacturer listing the importer's
specifications on January 10, 1996; 3) the manufacturer shipped 100 Style A hair driers to the importer on
February 10, 1996; the packing list shows that these goods are made to the importer's specifications; 4)
on February 12, 1996, the middleman billed the importer $600 for 100 style A hair driers and the importer
paid this amount by check; and 5) on February 13, 1996, the manufacturer billed the middleman $500 for
100 style A hair driers and the middleman paid this amount by check.

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Bona Fide Sales and Sales For Exportation to the United States
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necessary to provide Customs with information which demonstrates that transaction value may
be based on the related party sale as provided in 19 U.S.C. 1401a(b)(2)(B). (i.e., that the
circumstances of sale indicate that the relationship did not influence the price or that the
transaction value closely approximates certain test values). For further information regarding
related party transactions, see Transfer Pricing; Related Party Transactions, 58 Fed. Reg. 5445,
January 21, 1993.
Also, in order for a particular transaction to be a viable transaction value there must be
sufficient information available with respect to the amounts, if any, of the statutory additions set
forth in 19 U.S.C. 1401a(b)(1) (i.e., packing costs, selling commissions, assists, royalty or
license fees, and proceeds of any subsequent sale). The statute provides that if sufficient
information is not available, for any reason, with respect to any of these amounts, the
transaction value of the imported merchandise concerned shall be treated as one that cannot be
determined. Therefore, in order to determine whether a particular transaction may be the basis
for transaction value, the requestor must provide Customs with sufficient information regarding
the amounts, if any, of the statutory additions set forth in 19 U.S.C. 1401a(b)(1). For example, if
the importer claims that transaction value should be based on the sale between the middleman
and the manufacturer, the importer must inform Customs whether the middleman provided any
assists to the manufacturer and if so, the value of the assists and how the value was
determined. If the importer does not have this information, transaction value cannot be based on
this sale.
Finally, Customs decisions will be based on the evidence presented when the ruling request
is submitted. Although we would not be precluded from asking for additional information, this will
not be done routinely. If insufficient evidence is provided, the claim will be denied.
In summary, the public should be aware that Customs presumes that transaction value is
based on the price paid by the importer and in order to rebut this presumption and prove that
transaction value should be based on some other price, complete details of all the relevant
transactions and documentation (including purchase orders, invoices, evidence of payment,
contracts and other relevant documents) must be provided, including the relationship of the
parties and sufficient information regarding the statutory additions. Customs rulings will be
based on the evidence submitted with the request.
Dated: December 13, 1996.

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ADDITIONAL INFORMATION

The Internet

The home page of U.S. Customs and Border Protection on the Internet’s World Wide
Web, provides the trade community with current, relevant information regarding CBP
operations and items of special interest. The site posts information -- which includes
proposed regulations, news releases, publications and notices, etc. -- that can be
searched, read on-line, printed or downloaded to your personal computer. The web site
was established as a trade-friendly mechanism to assist the importing and exporting
community. The web site also links to the home pages of many other agencies whose
importing or exporting regulations that U.S. Customs and Border Protection helps to
enforce. The web site also contains a wealth of information of interest to a broader
public than the trade community. For instance, on June 20, 2001, CBP launched the
“Know Before You Go” publication and traveler awareness campaign designed to help
educate international travelers.

The web address of U.S. Customs and Border Protection is http://www.cbp.gov

Customs Regulations

The current edition of Customs Regulations of the United States is a loose-leaf,
subscription publication available from the Superintendent of Documents, U.S.
Government Printing Office, Washington, DC 20402; telephone (202) 512-1800. A
bound, 2003 edition of Title 19, Code of Federal Regulations, which incorporates all
changes to the Regulations as of April 1, 2003, is also available for sale from the same
address. All proposed and final regulations are published in the Federal Register, which
is published daily by the Office of the Federal Register, National Archives and Records
Administration, and distributed by the Superintendent of Documents. Information about
on-line access to the Federal Register may be obtained by calling (202) 512-1530
between 7 a.m. and 5 p.m. Eastern time. These notices are also published in the
weekly Customs Bulletin described below.

Customs Bulletin

The Customs Bulletin and Decisions (“Customs Bulletin”) is a weekly publication that
contains decisions, rulings, regulatory proposals, notices and other information of
interest to the trade community. It also contains decisions issued by the U.S. Court of
International Trade, as well as customs-related decisions of the U.S. Court of Appeals
for the Federal Circuit. Each year, the Government Printing Office publishes bound
volumes of the Customs Bulletin. Subscriptions may be purchased from the
Superintendent of Documents at the address and phone number listed above.

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Bona Fide Sales and Sales For Exportation to the United States
August 2005
Importing Into the United States

This publication provides an overview of the importing process and contains general
information about import requirements. The February 2002 edition of Importing Into the
United States contains much new and revised material brought about pursuant to the
Customs Modernization Act (“Mod Act”). The Mod Act has fundamentally altered the
relationship between importers and U.S. Customs and Border Protection by shifting to
the importer the legal responsibility for declaring the value, classification, and rate of
duty applicable to entered merchandise.

The February 2002 edition contains a section entitled "Informed Compliance." A key
component of informed compliance is the shared responsibility between U.S. Customs
and Border Protection and the import community, wherein CBP communicates its
requirements to the importer, and the importer, in turn, uses reasonable care to assure
that CBP is provided accurate and timely data pertaining to his or her importation.

Single copies may be obtained from local offices of U.S. Customs and Border
Protection, or from the Office of Public Affairs, U.S. Customs and Border Protection,
1300 Pennsylvania Avenue NW, Washington, DC 20229. An on-line version is
available at the CBP web site. Importing Into the United States is also available for
sale, in single copies or bulk orders, from the Superintendent of Documents by calling
(202) 512-1800, or by mail from the Superintendent of Documents, Government Printing
Office, P.O. Box 371954, Pittsburgh, PA 15250-7054.

Informed Compliance Publications

U.S. Customs and Border Protection has prepared a number of Informed Compliance
publications in the “What Every Member of the Trade Community Should Know
About:...” series. Check the Internet web site http://www.cbp.gov for current
publications.

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Bona Fide Sales and Sales For Exportation to the United States
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Value Publications

Customs Valuation under the Trade Agreements Act of 1979 is a 96-page book
containing a detailed narrative description of the customs valuation system, the customs
valuation title of the Trade Agreements Act (§402 of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (19 U.S.C. §1401a)), the Statement of
Administrative Action which was sent to the U.S. Congress in conjunction with the TAA,
regulations (19 C.F.R. §§152.000-152.108) implementing the valuation system (a few
sections of the regulations have been amended subsequent to the publication of the
book) and questions and answers concerning the valuation system. A copy may be
obtained from U.S. Customs and Border Protection, Office of Regulations and Rulings,
Value Branch, 1300 Pennsylvania Avenue, NW, (Mint Annex), Washington, D.C. 20229.

Customs Valuation Encyclopedia (with updates) is comprised of relevant statutory
provisions, CBP Regulations implementing the statute, portions of the Customs
Valuation Code, judicial precedent, and administrative rulings involving application of
valuation law. A copy may be purchased for a nominal charge from the Superintendent
of Documents, Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-
7054. This publication is also available on the Internet web site of U.S. Customs and
Border Protection.

The information provided in this publication is for general information
purposes only. Recognizing that many complicated factors may be
involved in customs issues, an importer may wish to obtain a ruling under
CBP Regulations, 19 C.F.R. Part 177, or obtain advice from an expert
(such as a licensed Customs Broker, attorney or consultant) who
specializes in customs matters. Reliance solely on the general
information in this pamphlet may not be considered reasonable care.

Additional information may also be obtained from U.S. Customs and Border Protection
ports of entry. Please consult your telephone directory for an office near you. The
listing will be found under U.S. Government, Department of Homeland Security.

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Bona Fide Sales and Sales For Exportation to the United States
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“Your Comments are Important”

The Small Business and Regulatory Enforcement Ombudsman and 10 regional
Fairness Boards were established to receive comments from small businesses about
Federal agency enforcement activities and rate each agency’s responsiveness to small
business. If you wish to comment on the enforcement actions of U.S. Customs and
Border Protection, call 1-888-REG-FAIR (1-888-734-3247).

REPORT SMUGGLING 1-800-BE-ALERT OR 1-800-NO-DROGA

Visit our Internet web site: http://www.cbp.gov

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