HQ 546007: Prospective Ruling Request; Post-Importation Charges

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 546007 

                        September 21, 1995

VAL CO:R:C:V  546007 EK

CATEGORY:  Valuation

Matthew Chang
Assistant Vice President
Itochu International Trading
335 Madison Avenue
New York, N.Y.  10017

RE:  Prospective Ruling Request; Post-Importation Charges

Dear Mr. Chang:

     This is in response to your letter of May 16, 1995, in which
you request a ruling regarding the dutiability of certain post-importation payments made to the related party seller of imported
merchandise.  

FACTS:

     Itochu International Inc. purchases merchandise from its
related party company in Japan, Itochu Corporation of Japan
(hereinafter referred to as IJ), and resells it to U.S.
customers.  In addition to payment of an invoiced amount, your
company makes additional payments to the seller for costs
associated with the merchandise.  You state that at the time of
importation, it is generally not possible to estimate these
costs, and Customs agreed that an annual disclosure summarizing
such payments is reasonable.  You indicate that Customs deemed
all the payments to be part of the dutiable value, and additional
duties are submitted with each annual disclosure.  

     You describe the types of payments as follows:  (1)  tooling
costs, payments made to cover the cost of modification to various
parts;  (2)  price adjustments, the price for imported parts is
often based on a projected amount of parts to be purchased and
occasionally, the number of parts falls short of these
projections - an adjustment is assessed when the projected sales
amount does not reach a specified volume;  (3) exchange rate
adjustments due to currency fluctuations.  




                              - 2 -

     In January, 1995, a portion of the business was assigned to
your subsidiary firm in the U.S., Texmac, Inc.  As a result,
Texmac now purchases from IJ, and acts as importer of record. 
First, the Japanese manufacturer of the goods sells to IJ.  The
merchandise is then sold by IJ to Texmac in the United States,
and Texmac sells to the ultimate U.S. purchaser.   
 
     The ultimate U.S. purchaser pays Texmac for the goods.  The
additional charges described above are paid by the final U.S.
purchaser directly to IJ, the seller.  Therefore, Texmac, the
importer and buyer of the merchandise from IJ, pays IJ for the
merchandise and the final U.S. purchaser pays IJ the additional
charges described.  

ISSUE:
     
     Whether the additional charges paid by the ultimate U.S.
purchaser to the seller of imported merchandise are part of the
price actually paid or payable.  

LAW AND ANALYSIS:

     Transaction value, pursuant to section 402(b) of the Tariff
Act of 1930, as amended by the Trade Agreements Act of 1979
(TAA), is the preferred method of appraisement.  Transaction
value is defined as the "price actually paid or payable" for the
merchandise when sold for exportation to the United States.  The
term "price actually paid or payable" is defined in section
402(b)(4)(A) as the " . . . total payment (whether direct or
indirect, . . . ) made, or to be made, for imported merchandise
by the buyer to, or for the benefit of, the seller".  (Emphasis
added).  

     For purposes of this ruling, we are assuming that the
transaction value of the imported merchandise is determined by
the sale between IJ and Texmac.  It appears as if Texmac merely
replaced Itochu Corporation, US, as the buyer and that Customs
has not questioned whether this is a valid transaction value.  We
do not have enough information to determine whether this is in
fact the sale which forms the basis of transaction value.  We are
assuming that the since the parties are related that the
relationship does not influence the price actually paid or
payable, and that transaction value is applicable in appraising
the merchandise.   

     As indicated above, the "price actually paid or payable" is
the total payment made by the buyer to, or for the benefit of,
the seller.  Although the ultimate U.S. purchaser is not the
buyer of the merchandise with respect to the import transaction,
the additional charges paid by the ultimate U.S. purchaser to IJ
are part of the price actually paid or payable made by the buyer
to the seller.  We have ruled that payments made by the ultimate
purchaser in the United States, through the importer, to the
foreign manufacturer are part of the price actually paid or
payable as indirect 


                              - 3 -

payments.  See, HQ Rulings 543574 dated March 24, 1986 and 543882
dated March 13, 1987, affirmed by 554999 dated January 5, 1989.  

HOLDING:

     The payments made by the ultimate U.S. purchaser to the
seller of imported merchandise are indirect payments to the
seller and are part of the price actually paid or payable for the
imported merchandise.  For purposes of this ruling request, we
assume that your company will continue to monitor and confirm the
additional payments made to the seller, and that the additional
duties owed will be submitted with each disclosure.  You indicate
that the additional payments are disclosed and duty is paid on an
annual basis.  This is an issue which must be worked out with the
concerned port office.  It is at the discretion of the port
director as to how often the additional payments should be
disclosed.             

                              Sincerely,




                              John Durant, Director
                              Commercial Rulings Division