H304179

HQ H304179 February 28, 2020 PRO OT:RR:CTF:ER H204179 ABH Port Director U.S. Customs & Border Protection 726 Exchange Street Suite 400 Buffalo, NY 14210 Attn: Sherri Rudy, Supervisory Import Specialist RE: Application for Further Review of Protest 0901-19-100320; Craft Beverage Modernization and Tax Reform Act; Excise Tax; Reduced Rate for Beer Dear Port Director: The purpose of this correspondence is to address the application for further review (“AFR”) of Protest 0901-19-100320, dated May 15, 2019, filed by Labatt USA Operating Co., LLC (“Labatt”). Labatt protests the determination that its imports are not eligible for the reduced excise tax rate on beer pursuant to the Craft Beverage Modernization and Tax Reform Act (“CBMA”). The issue presented is whether Labatt qualifies as a “brewer” under the facts presented. Facts: On May 15, 2019, Labatt USA Operating Co., LLC (“Labatt”) filed a protest and application for further review (“AFR”) with the Port of Buffalo, NY. Labatt claimed that it is entitled to benefit from the reduced excise tax rate available under the Craft Beverage Modernization and Tax Reform Act of 2017 (“CBMA”). On May 29, 2019, the Port of Buffalo denied the protest and sent the AFR to Headquarters. Labatt brand beer (such as Labatt Blue, Labatt Blue Light, Labatt’s 50, Labatt ICE, Labatt Double Blue, Labatt Nordic, Labatt Select, Labatt Non-Alcoholic, Labatt Holiday, and Max ICE) was previously owned by InBev N.V./S.A., InBev USALLC d/b/a Labatt USA. In July 2008, InBev N.V./S.A. entered into an agreement to acquire Anheuser-Busch Companies, Inc. to form ABI. The U.S. Department of Justice filed an antitrust complaint alleging that the proposed merger would reduce competition in certain territories within the United States where Labatt brands were effective competitors of the brands of ABI. On August 11, 2009, the parties entered into a Consent Decree requiring ABI to divest the Labatt brands of beer. The divestiture was to include the exclusive, perpetual, assignable, transferable, and fully-paid-up license that would grant the acquirer the right to brew Labatt brand beer in Canada and/or the United States for sale for consumption in the United States; to promote, market, distribute, and sell Labatt brand beer for sale for consumption in the United States; and to use all intellectual property rights associated with the brewing, marketing, sale, and distribution of Labatt brand beer for sale for consumption in the United States. Labatt states that in order to comply with the Consent Decree and secure a supply of Labatt Beer that was completely independent from ABI, Labatt began production of certain Labatt beer products in Canada (Labatt Blue, Labatt Blue Light, Labatt Ice, Labatt Maximum Ice) at facilities owned by Molson, which was traditionally a competitor. Labatt asserts that the only relationship between the two companies is governed by their Production Agreement and its subsequent three amendments (hereinafter “Production Agreement”). Labatt states that it does not own equity in Molson, nor does Molson own equity in Labatt. After the promulgation of the Craft Beverage Modernization and Tax Reform Act of 2017 (“CBMA”), which is discussed at length below, Labatt sought to take advantage of the excise tax relief provided by the CBMA. In order to make a CBMA claim on imports, CBP requires, inter alia, an Assignment Certification from the brewer of the foreign manufactured beer to the importer in order to establish the right of the importer to claim the excise tax relief. Labatt, however, was not able to obtain an Assignment Certification from Molson to claim the benefit of the CBMA. To this end, on March 14, 2019, Labatt (through FIFCO USA) sought guidance from TTB regarding its eligibility to seek the reduced excise tax rate under the CBMA. On April 4, 2019, in a letter to Labatt’s counsel, TTB indicated that CBP is responsible for the collection of tax on imported alcohol products and, accordingly, any determination with regard to a foreign producer’s ability to assign the reduced tax rate would be made by CBP. At the time of entry, Labatt did not claim the reduced excise tax rate under the CBMA. Upon liquidation of the entries at issue, Labatt filed a protest asserting that although the Labatt beers are produced in a Molson facility, Labatt is entitled to the CBMA rate because Labatt maintains the independence and control necessary to be considered the “brewer” for purposes of the CBMA. Accordingly, Labatt asserts that it should be able to complete the Assignment Certification and assign its importer the right to excise tax relief under the CBMA. The Port of Buffalo disagreed and denied Labatt’s protest because Labatt did not provide the appropriate Assignment Certification to establish eligibility for the reduced excise tax rate for the imported beer under the CBMA. Legal Analysis: It is the opinion of your office that this protest meets the criteria for further review. We agree and are of the opinion that this protest involves questions of law and fact upon which there has not been a previously ruling. 19 C.F.R. § 174.24(b). Additionally, Labatt’s protest is timely, pursuant to 19 U.S.C. § 1514(c)(3)(A), because it was filed within 180 days after the date CBP liquidated the entries at issue. Effective January 1, 2018, the Craft Beverage Modernization and Tax Reform Act of 2017 (“CBMA”), amended the Internal Revenue Code (“IRC”) with regard to the excise tax treatment of certain alcoholic beverages. Pub. L. No. 115-97, Subpart A of Part IX of the Tax Cuts and Jobs Act §§ 13801-13808, signed December 22, 2017, as implemented by 26 U.S.C. §§ 5001, 5041, & 5051. Under the CBMA, reduced tax rates and/or tax credits are applicable to the domestic and foreign production of certain limited quantities of beer, wine, and distilled spirits during the calendar years 2018-2019. U.S. Customs and Border Protection (“CBP”) assesses, collects, and enforces the excise taxes imposed on the importation of alcoholic beverages. 6 U.S.C. §§ 212, 215. The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) of the U.S. Department of Treasury administers and enforces excise taxes on the domestic production of alcoholic beverages. Regulations limit CBP’s authority to issue refunds of excessive duties, taxes, or fees, or interest imposed on beer, wine, and distilled spirits. 19 C.F.R. § 24.36(d). CBP and the U.S. Department of Treasury expanded this limited authority on August 16, 2018, by amending 19 C.F.R. § 24.36(10), and authorizing CBP to refund excessive duties, taxes, fees, or interest imposed on imported beer, wine, and distilled spirits in order to facilitate the implementation of the CBMA. Refund of Alcohol Excise Tax, 83 Fed. Reg. 40,675 (Aug. 16, 2018). The new § 24.36(d)(10) makes it clear that CBP has authority to refund the difference between the full excise taxes an importer pays at the time of entry summary filing and the CBMA’s lower effective tax rate. Id. An importer, however, must request and substantiate its entitlement to the reduced tax rate or tax credit appropriately. Id. Under the CBMA, [i]n the case of beer removed after December 31, 2017, and before January 1, 2020, the rate of tax shall be . . . $16 on the first 6,000,000 barrels of beer . . . brewed by the brewer and removed during the calendar year for consumption or sale; . . . or imported by the importer into the United States during the calendar year . . . . 26 U.S.C. §§ 5051(a)(1)(C). With regard to the “[r]educed tax rate for foreign manufacturers and importers,” and in the case of barrels of beer “brewed or produced outside of the United States and imported into the United States,” the reduced tax rate of $16.00 per barrel “may be assigned by the brewer” to an importer pursuant to procedures established by CBP. Id. at § 5051(a)(4)(A)-(B). Thus, an importer may only receive the reduced excise tax rate on the first 6,000,000 barrels of imported beer if the barrel

It is the opinion of your office that this protest meets the criteria for further review. We agree and are of the opinion that this protest involves questions of law and fact upon which there has not been a previously ruling. 19 C.F.R. § 174.24(b). Additionally, Labatt’s protest is timely, pursuant to 19 U.S.C. § 1514(c)(3)(A), because it was filed within 180 days after the date CBP liquidated the entries at issue.Effective January 1, 2018, the Craft Beverage Modernization and Tax Reform Act of 2017 (“CBMA”), amended the Internal Revenue Code (“IRC”) with regard to the excise tax treatment of certain alcoholic beverages. Pub. L. No. 115-97, Subpart A of Part IX of the Tax Cuts and Jobs Act §§ 13801-13808, signed December 22, 2017, as implemented by 26 U.S.C. §§ 5001, 5041, & 5051. Under the CBMA, reduced tax rates and/or tax credits are applicable to the domestic and foreign production of certain limited quantities of beer, wine, and distilled spirits during the calendar years 2018-2019. U.S. Customs and Border Protection (“CBP”) assesses, collects, and enforces the excise taxes imposed on the importation of alcoholic beverages. 6 U.S.C. §§ 212, 215. The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) of the U.S. Department of Treasury administers and enforces excise taxes on the domestic production of alcoholic beverages. Regulations limit CBP’s authority to issue refunds of excessive duties, taxes, or fees, or interest imposed on beer, wine, and distilled spirits. 19 C.F.R. § 24.36(d). CBP and the U.S. Department of Treasury expanded this limited authority on August 16, 2018, by amending 19 C.F.R. § 24.36(10), and authorizing CBP to refund excessive duties, taxes, fees, or interest imposed on imported beer, wine, and distilled spirits in order to facilitate the implementation of the CBMA. Refund of Alcohol Excise Tax, 83 Fed. Reg. 40,675 (Aug. 16, 2018). The new § 24.36(d)(10) makes it clear that CBP has authority to refund the difference between the full excise