H301145

 HQ H301145 January 10, 2025 OT:RR:CTF:VS H301145 RSD CATEGORY: Valuation Assistant Director Enforcement Industrial and Manufacturing Materials Center for Excellence and Expertise U.S. Customs & Border Protection 2813 Business Park Drive Suite “I” Memphis, Tennessee 38118 RE: Internal Advice; Dutiability of Post-Importation Fees Paid; Proceeds; Section 402(b)(1)(E) Dear Assistant Director: This is in response to your memorandum dated October 2, 2018, concerning a Request for Internal Advice regarding the dutiability of post-importation fee payments that Stahl USA, Inc. (Stahl USA) paid to a related company for services and assets provided in connection with the resale of imported chemicals to U.S. automotive companies to treat leather products. A teleconference was held with counsel and members of my staff on October 20, 2021, to discuss the issues involved with the internal advice request. Counsel has also made several additional submissions on this matter. Counsel has requested confidential treatment for certain information contained in its submission and in the file. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in italics in this ruling or in the attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling. FACTS: Stahl USA is a subsidiary of Stahl USA Holding Inc., which, in turn, is a subsidiary of Stahl Holdings B.V. (Stahl B.V.), a private limited liability company incorporated under the laws of the Netherlands. According to the submissions from counsel, the Stahl group of companies is a global leader in the production and sale of various chemical products and technology used for the processing, tanning, dyeing, and finishing of leather, and finishes and coatings for all kinds of flexible and rigid substrates. These coatings are used in various applications like leather replacement, car interiors, functional and decorative films and papers, technical and functional textiles, and resins for producing paints for rigid substrates. The trade names of these products include Permuthane, Permutex, Permaqure, Picassiam and Relca. One of Stahl’s business groups, Performance Coatings & Polymers (PC), is responsible for all of Stahl USA’s sales to its U.S. automotive customers as well as sales to non-automotive customers. This internal advice request and related prior disclosure only concerns sales made to automotive customers of products sold by the PC division of Stahl USA for 2016 and the first half of 2017. Stahl USA imports various chemicals into the United States that it purchases from other members of the Stahl group. Stahl USA resells these chemicals to various customer groups in the United States. One of these customer groups is the automotive group. Pursuant to a December 2016, Automotive Customers Agreement (the “Agreement”) between Stahl USA and its ultimate parent, Stahl B.V., Stahl B.V. agreed to provide support to Stahl USA in sales to automotive customers for certain activities such as sales and marketing which Stahl B.V. undertakes. To compensate Stahl B.V. for the services provided, Stahl USA made payments to Stahl B.V. The parties agreed to an arrangement how these payments were determined. All the imported products may be sold by multiple Stahl USA business groups, including the PC group. At the time of importation, the ultimate customer category for a given import is not known, and it is only after importation, when the sale is made by Stahl USA, that the customer category is known. In most instances, Stahl USA pays the amount shown on an invoice for the imported merchandise and there are no additional payments. However, because Stahl USA relies heavily on Stahl B.V. for marketing and sales support in selling products to the automotive sector, Stahl USA agreed to split some its profits with Stahl B.V. on its sales in the automotive sector in the United States under a tax transfer pricing residual profit split method. This means that the profits obtained in sales to automotive customers are split based on the functions, risks, and assets of each company related to those sales. Thus, profits on sales by the Stahl USA PC division to automotive customers are tracked and aggregated with a portion of the profits paid to Stahl B.V. for automotive customers, pursuant to the Agreement. As reflected in the Agreement, a contribution analysis was used to bring the transfer pricing policy between Stahl Headquarters and Stahl USA in line with the actual functions performed, risks assumed, and assets used within the PC-Automotive group. This contribution analysis applied a weight to each function, risk and asset utilized in the operation of the automotive business, and allocated each function, risk and asset between Stahl USA and Stahl B.V. Based on this contribution analysis, part of the earnings before interest and taxes (“EBIT”) of Stahl USA attributable to sales to automotive customers are paid to Stahl B.V. for its sales and marketing support in the automotive sector. This additional payment is paid exclusively from the profits generated on sales of products sold to Stahl USA’s automotive customers. The profits that Stahl USA made on sales of the same products which are sold to non-automotive customers are not subject to this arrangement. While Stahl USA disclosed these payments, Stahl USA claims that most of these payments should not be considered part of the customs value of the imported merchandise. The parties have specified 24 items to consider in determining the appropriate profit split between Stahl USA and Stahl B.V. These items are assigned a weight based on their importance and on whether Stahl USA or Stahl B.V., or both, performed the activity and, if so, to what extent. As a result of the analysis performed, Stahl B.V. received [xx] percent of the profits from Stahl USA’s sales made to U.S. automotive customers in 2016. The same amount was used for the first half of 2017. It is indicated that the amount is reviewed and, if necessary, adjusted in subsequent years. The parties have determined that there are 11 functions related to the general global sales and marketing of products to automotive customers. They have decided that these functions represent [xx] percent of the profits from the sales made to automotive customers. The functions for which Stahl B.V. received additional payments are: Sales Strategy (pricing/terms & condition product portfolio etc.) Sales/Technical Support Product Portfolio Development Central Marketing (OEM interaction) After-sales/problem solving Key Management (setting directions and making Key decisions Order Fulfillment (order management/CSD interaction/logistics) Centre of Excellence (training application testing) Brand Management Input for Production Planning, and Invoicing & collection Regarding risks, the parties determined that these risks represent [xx] percent of the profits: Product Liability/ Warranty risk Plant Capacity Risk Product Development Risk Market Risk Inventory Risk Foreign Exchange Risk, and Debtor Risk Regarding assets, the parties determined that these categories represent [xx] percent of the profits: Market know-how Customer relations IP Application (recipe, compacts) IP License Production site, and Customer Lists Counsel points out that the fees paid by Stahl USA to Stahl B.V. were for services performed after the merchandise had already been imported into the United States. Thus, counsel claims that the services, risks, and assets involved did not relate to the sale of the imported merchandise to the United States. ISSUE: Whether the service fees paid by the importer to a related party seller for the various services, risks assumed, and assets provided in connection with the resale of the imported merchandise in the United States would be an addition to the pric

Merchandise imported into the United States is appraised for customs purposes in accordance with U.S. value law under section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a). The primary method of appraisement is called transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). The term “price actually paid or payable” means:The 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.As CBP is not questioning whether there were bona fide sales for export to the United States between the Seller and the Importer, we will not examine that question. Imported merchandise will be appraised under transaction value only if the buyer and seller are not related, or if related, either (1) the circumstances of sale indicate that the relationship did not influence the price actually paid or payable, or (2) the transaction value approximates certain test values. See 19 U.S.C. § 1401a(b)(2)(A)-(B). There is no dispute that the transactions at issue involve related parties, as defined in 19 U.S.C. 1401a(g). Counsel claims that a transfer pricing study was conducted to determine the price that Stahl USA should pay to the related selling companies in the Stahl Group for the imported merchandise. Based on the transfer pricing study, counsel further claims that the price paid for the merchandise was at arms-length basis. In this decision, your office has not requested us to examine whether the relationship between Stahl USA and Stahl B.V. influ