H312455

HQ H312455 October 28, 2020 OT:RR:CTF:VS H312455 AP CATEGORY: Valuation Carrie Leer Weyco Group, Inc. 333 W Estabrook Blvd. Glendale, Wisconsin 53212 RE: Dutiability of license fee payments; Co-branding license agreement Dear Ms. Leer: This is in response to your June 1, 2020 submission, on behalf of Weyco Group, Inc. (“U.S. importer” and “licensee”), requesting a ruling regarding the dutiability of a license fee paid under a co-branding license agreement. A copy of the agreement was received with your ruling request. You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of Title 19, Code of Federal Regulations (“C.F.R.”), Section 177.2(b)(7), your request for confidentiality is approved. The information contained within brackets and all attachments to your request for a binding ruling, forwarded to our office, will not be released to the public and will be withheld from the published version of this ruling. FACTS: Weyco Group is a footwear company located in Glendale, Wisconsin that designs, markets, and distributes brand names including Florsheim, Nunn Bush, Stacy Adams, and BOGS. A few of its brands are exploring a co-branding license agreement with [ ], an unrelated U.S. company (“licensor”), to incorporate its eco-friendly resin into shoe insoles and other products. The eco-friendly resin containing algae is subject to a patent. The licensor owns the rights to several U.S. Patent and Trademark Office and World Intellectual Property Organization registered trademarks. The licensor and the licensee plan to collaborate on the commercialization of products for footwear, accessories, and fashion applications that include the licensor’s [ ] brand, ingredients and technology, and to jointly market the products. The licensor will sell the agreed upon quantities of resin to factories in China designated by the licensee. The factories in China, which are unrelated to the licensor and the licensee, will produce the finished products for the licensee. The licensee will serve as the U.S. importer of record and will import the finished merchandise into the United States. Under the one-year license agreement, the licensor will charge the foreign factories a base price at bonded warehouses in China, Vietnam and the United States subject to duties, taxes, and value-added tax. The licensee will pay the licensor a license fee per kilogram for the purchased resin. Ten percent will be paid 30 days from signing the agreement. The additional license fee will be invoiced in nine equal monthly payments with 30 day terms. The resin will not be released to the factories until the initial license fee is paid by the licensee. At the end of the agreement, the amount of the resin purchased will be reconciled with the amount under the agreement, and the license fee may need to be adjusted. If excess resin was purchased, an invoice will be issued for the additional license fee owed. If the resin purchases are under the amount agreed upon, the excess license fee will be credited toward a new co-branding license agreement. For the term of the license agreement, the licensee has the right to use the licensor’s brand, ingredients, and technology on each commercial product containing the resin. The licensor’s trademarks can be used on logos, hang tags, printed packaging, announcements, press releases, social media, website display, and advertising. The licensor has a commercialization office in China and offers support for pricing, sourcing, and technical discussions with Asian factories regarding the production of the commercial products for the licensee’s brands. You explain that the right to use the licensor’s technology includes access to the licensor’s technical office for help in using it in the licensee’s products. ISSUE: Whether the license fee paid by the licensee under the co-branding license agreement is dutiable and if it is dutiable, how the importer should declare it on multiple future importations. LAW AND ANALYSIS: 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 (“TAA”). See 19 U.S.C. § 1401a. The primary basis of appraisement under the TAA is transaction value, which the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for enumerated statutory additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). One of the additions includes the value, apportioned as appropriate, of any assists. See 19 U.S.C. § 1401a(b)(1)(C). You advise that the instant license fee is not part of the price actually paid or payable for the imported merchandise. The payments are made by the licensee to the unrelated licensor, and are separate from the price. Therefore, we need to address whether the license fee payments constitute additions to the price actually paid or payable. Among the statutory additions described in section 402(b)(1) of the TAA are: (D) any … license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States …. 19 U.S.C. § 1401a(b)(1)(D). With respect to the dutiability of license fees, the Statement of Administrative Action (“SAA”) to the TAA, H.R. Doc. No. 153, 96 Cong., 1st Sess. (1979), reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (1981), at 48-49, states, in pertinent part: Additions for … license fees will be limited to those that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States. In this regard, … license fees paid to third parties for use, in the United States, of copyrights and trademarks related to the imported merchandise, will generally be considered as selling expenses of the buyer and therefore will not be dutiable. However, the dutiable status of … license fees paid by the buyer must be determined on a case-by-case basis and will ultimately depend on: (i) whether the buyer was required to pay them as a condition of sale of the imported merchandise for exportation to the United States; and, (ii) to whom and under what circumstances they were paid. For example, if the buyer pays a third party for the right to use, in the United States, a trademark or copyright relating to the imported merchandise, and such payment was not a condition of the sale of the merchandise for exportation to the United States, such payment will not be added to the price actually paid or payable. However, if such payment was made by the buyer as a condition of the sale of the merchandise for exportation to the United States, an addition will be made. As a further example, an addition will be made for any … license fee paid by the buyer to the seller, unless the buyer can establish that such payment is distinct from the price actually paid or payable for the imported merchandise, and was not a condition of the sale of the imported merchandise for exportation to the United States. Whether license fees are a condition of sale is determined by applying the following three factors set forth in General Notice, Dutiability of Royalty Payments, Vol. 27, No. 6 Cust. B. & Dec. at 1 (Feb. 10, 1993) [hereinafter General Notice]: Was the imported merchandise manufactured under patent? Was the royalty involved in the production or sale of the imported merchandise? and, Could the importer buy the product without paying the fee? Affirmative answers to questions one and two, and a negative answer to question three suggest that the payments are dutiable. Otherwise, the payments are non-dutiable. The first question is whether the imported merchandise is manufactured under patent. The a

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 (“TAA”). See 19 U.S.C. § 1401a. The primary basis of appraisement under the TAA is transaction value, which the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for enumerated statutory additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). One of the additions includes the value, apportioned as appropriate, of any assists. See 19 U.S.C. § 1401a(b)(1)(C).You advise that the instant license fee is not part of the price actually paid or payable for the imported merchandise. The payments are made by the licensee to the unrelated licensor, and are separate from the price. Therefore, we need to address whether the license fee payments constitute additions to the price actually paid or payable. Among the statutory additions described in section 402(b)(1) of the TAA are:(D) any … license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States ….19 U.S.C. § 1401a(b)(1)(D).With respect to the dutiability of license fees, the Statement of Administrative Action (“SAA”) to the TAA, H.R. Doc. No. 153, 96 Cong., 1st Sess. (1979), reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (1981), at 48-49, states, in pertinent part:Additions for … license fees will be limited to those that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States. In this regard, … license fees paid to third parties for use, in the United States, of copyrights and trademarks related to the imported merchandise, will generally be considered as selling expenses of t