H310087

 HQ H310087 March 18, 2022 OT:RR:CTF:VS H310087 AP CATEGORY: Valuation Center Director Automotive and Aerospace Center of Excellence and Expertise U.S. Customs and Border Protection 477 Michigan Avenue, Rm. 281 Detroit, MI 48226 Attn.: Russell R. Morris, Entry Chief RE: Application for Further Review of Protest Number 1303-19-100276; Transaction Value; Related Parties; Post-Importation Adjustments Dear Center Director: This is in response to the May 29, 2019 Application for Further Review (“AFR”) of Protest Number 1303-19-100276, timely filed by counsel on behalf of the importer [X] (“protestant”), addressing whether certain post-importation adjustments in the amount of $[X] (“TP adjustments”) reducing the transfer price of the imported vehicles should be accepted. Protestant, through its counsel, has asked that certain information submitted in connection with this AFR be treated as confidential. 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 and all attachments to this AFR, forwarded to our office, will not be released to the public and will be withheld from published version of this decision. FACTS: The protestant purchases motor vehicles and spare parts from its related [X] parent company [X] (“parent” or “seller”), and other related and/or unrelated parties, and resells them to authorized dealers and other related parties in the U.S. market. Protestant states that “unforeseen disruption” in the supply of vehicles from the parent to the protestant, arising from governmental vehicle certification delays, resulted in shipment delays in wholesale deliveries to retailers and a depressed return on sales (“ROS”) for the protestant. The parent’s Transfer Price Policy states, in relevant part: Transfer prices (based on planned sales revenues, cost of sales and operating expenses) shall be determined once a year in advance of the transactions and might be adjusted … during the year if the [market performance center’s (“MPC”)] profitability falls outside the range of reasonable profits due to major unforeseeable changes in the market environment (these changes might include for example unforeseen drop in demand, new competitors or aggressive pricing strategies of competitors). Instead of a price adjustment the supplier might also make a one-time payment, e.g. for additional marketing support … The determination and documentation of all transfer prices is subject to approval by [X] Tax/Customs Department in [X]. According to section 6.3 of parent’s Accounting and Financial Reporting Policy, the pricing method used to arrive at the transfer price is calculated based on “the resale price method … based on the wholesale price to dealer (WSD) for which the vehicles and spare parts are resold to Retailers … reduced by a reasonable gross margin … to ensure that the MPC covers its operating expenses including a reasonable profit in the light of its functions, risks and assets employed.” Transfer prices are determined once a year in advance of the transactions based on sales revenues, cost of sales, and operating expenses and might be adjusted. The price adjustment made on November 29, 2018, resulted in a payment by the parent company to the protestant in the amount of $[X], reducing the transfer price of the vehicles and offsetting the net income loss. The protestant did not flag the entry for reconciliation. The $[X] credit note adjustment by the parent to protestant was made as a reimbursement for certain costs that should have been borne by the manufacturer and to restore protestant’s profits to an appropriate margin for distribution activities. Price Waterhouse Coopers’ (“PwC”) 2018 annual transfer price study of the protestant for the fiscal year ending on December 31, 2018 (“2018 PwC Study”) revealed that protestant’s three-year weighted average ROS in the period FY 2016-2018 and the ROS in FY 2018 amounted to [X]% and [X]%, respectively, and was within the calculated inter-quartile range of [X]%-[X]%. Without the TP adjustment, the protestant’s minimum ROS would have been [X]%. PwC determined that the protestant’s ROS after the TP adjustment was within the arm’s length range of comparable results. PwC identified ten functionally “comparable” companies distributing a variety of products ranging from building materials and wood products to rail products and personal computer systems. Protestant advises that the transfer price between the parent company and the protestant has not been challenged by the Internal Revenue Service (“IRS”). The importer was not involved in any Advanced Price Agreements (“APAs”) with the IRS during fiscal years 2017 and 2018. Protestant states that it takes possession of the vehicles on a Cost Insurance and Freight (“CIF”) basis (risk of loss passes to protestant when the vehicles are loaded on a vessel at the foreign port) and that it conducts significant inspection and vehicle preparation prior to its sale of the vehicles to unrelated retailers. For instance, invoice no. [X] from the parent to protestant in the amount of $[X] for a [X] was issued in response to purchase order no. [X] on October 17, 2018 and payment was due by November 15, 2018. The invoice included freight costs, handling, and transport insurance. The invoice states that the delivery terms corresponded to Carriage and Insurance Paid To (“CIP”) meaning the parent paid freight and insurance to deliver the goods to the protestant at the foreign port of lading and the risk of loss/damage to the goods transferred from the parent to the protestant when the goods were delivered to the carrier. The application for foreign-trade zone admission and/or status designation indicates that the port of unlading was [X], Georgia and the foreign port of lading was [X], Germany. The entry date was filed on November 8, 2018. The protestant’s account payable reconciliation shows that a payment was posted on October 17, 2018. The payment matches the invoice amount and purchase order number. Invoice no. [X] from the parent to protestant in the amount of $[X] for a [X] was issued in response to purchase order no. [X] on September 18, 2018. The invoice included freight costs, handling, and transport insurance. The invoice states that the delivery terms corresponded to CIP. The invoice amount was due by October 15, 2018. The application for foreign-trade zone admission and/or status designation indicates that the port of unlading was Los Angeles, California and the foreign port of lading was [X], Germany. The entry date was November 8, 2018. Protestant was listed as the importer of record. The protestant’s account payable reconciliation shows that a payment was posted on September 18, 2018. The payment matches the invoice amount and purchase order number. Invoice no. [X] from the parent to protestant in the amount of $[X] for a [X] was issued in response to purchase order no. [X] on July 13, 2018. The invoice included freight costs, handling, and transport insurance. The invoice states that the delivery terms corresponded to CIP. The invoice amount was due by July 25, 2018. The application for foreign-trade zone admission and/or status designation indicates that the port of unlading was [X], Georgia and the foreign port of lading was [X], Germany. The entry date was November 15, 2018. Protestant was listed as the importer of record. The protestant’s account payable reconciliation shows that a payment was posted on July 13, 2018. The payment matches the invoice amount and purchase order number. According to the Distribution Agreement between the parent and the protestant effective January 1, 2013, the protestant is a non-exclusive distributor of the parent in the U.S. and Puerto Rico. It is wholly owned by [X]. The prices for the vehicles are the parent’s standard prices in Euros exclusive of value-added tax (“VAT”). The protestant is an independent contractor and bu

Initially, we note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further Review of this protest is properly accorded to protestant pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.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, codified at 19 U.S.C. § 1401a. The preferred method of appraisement is transaction value. Transaction value is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain statutorily enumerated additions under 19 U.S.C. § 1401a(b)(1)(A)-(E). Unless there is a bona fide (good faith) sale of merchandise for exportation to the United States, the transaction value method cannot be used. Title 19, CFR § 152.103(a)(1) provides, in pertinent part: In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market ….Is it acceptable to take the subject post-importation price adjustments into account in determining transaction value?U.S. Customs and Border Protection (“CBP”) strongly encourages importers, who may anticipate post-importation adjustments, to use its Reconciliation program. In any event, importers are expected to demonstrate that the price is at arm’s length and to provide supporting information when requested.The customs value of the imported merchan