H316892

 HQ H316892 July 20, 2022 OT:RR:CTF:VS H316892 AP CATEGORY: Valuation Center Director Center of Excellence and Expertise for Machinery U.S. Customs and Border Protection 109 Shiloh Dr., Suite 300 Laredo, TX 78045 Attn: Wilbert Jones, Supervisory Import Specialist RE: Internal Advice Request; Transaction Value; Multi-Tiered Transaction Dear Center Director: This is in response to your e-mail referral of February 16, 2021, forwarding an internal advice request regarding the valuation of metal, woodworking, and industrial tools imported by JPW Industries (“U.S. importer”). This internal advice request specifically concerns the acceptability of the first sale between JPW Industries’ related company, JPW Tool Group Hong Kong Ltd (“middleman” or “JPW HK”) and unrelated manufacturers in China and Taiwan. A virtual meeting with the importer’s customs consultant PricewaterhouseCoopers LLP (“PwC”) was held on April 18, 2022. The importer has asked that certain information submitted in connection with this internal advice be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the importer’s request for confidentiality is approved. The information contained within brackets in italics in the internal advice decision and all attachments to the internal advice request, forwarded to our office, will not be released to the public, and will be withheld from published versions of this decision. FACTS: The U.S. importer serves as a distributor of metal, woodworking, and industrial tools. It is part of a U.S.-based multinational group engaged in the manufacture and distribution of metal, woodworking, and industrial tools in the U.S. and worldwide. The importer purchases the products it imports into the United States through its related middleman operating through branch offices in Taiwan and China. The middleman is responsible for product sourcing from the Asia Pacific region. Specifically, the middleman identifies and maintains relationships with suppliers, negotiates prices, and communicates with distributors in the individual markets. The middleman does not hold physical inventory and does not maintain an inventory account in its books and records. The middleman records purchases to its costs of sales account. The submitted U.S. Transfer Pricing Documentation Study for the Fiscal Year Ended December 31, 2014, prepared for the importer, describes the U.S. importer as having “a strong presence in the U.S. market for manual metalworking and woodworking machinery and industrial workholding.” The study also states that the middleman operates “through its branch office in Taiwan, and its representative office in China” and assists with product development, engineering, and direct sourcing of the company’s products through China and Taiwan, and sales to third party customers in and outside of the region. The Transfer Pricing Analysis and Report for the Fiscal Year Ended December 31, 2018, prepared for the importer, explains that the U.S. importer is responsible for negotiating and selling to customers in North America. Its customers are mainly wholesale distributors, retail chain stores, and specialty stores. Most products sold are handled and processed by the importer through a warehousing facility in Tennessee. Products are also drop-shipped directly from Asia to customers. Pursuant to the Master Supply Agreement between the U.S. importer and the middleman, the U.S. importer designs, markets, and sells products, while the middleman sources, procures, and supplies products. The importer purchases the products from the middleman. The products consist of metalworking machinery, woodworking machinery, hand tools and toolsets, shop equipment, and other related products supplied to the importer by the middleman, which are manufactured by third parties with whom the middleman coordinates, manages, and oversees. The products are manufactured according to the importer’s standards and the quantities specified in the importer’s purchase orders. Unless otherwise agreed by the parties, title to and risk of loss pass from the middleman to the importer at the international date line. All products are considered delivered to the importer at the international dateline. The middlemen’s services are “non-exclusive,” and the importer may purchase products from other sources. All purchase orders submitted by the importer need to specify the product type and quantity, and the requested delivery date. In the event of any inconsistency between the agreement and the purchase order, the terms and conditions of the agreement prevail. The purchase price is an amount agreed upon by the middleman and the importer. The full amount of the purchase price is due and payable no later than 30 calendar days after the invoice date unless otherwise agreed by the parties. Payment of any amount by either party is by direct bank transfer to the payee’s bank account or by debit or credit to the relevant party’s intercompany account. On December 20, 2019, the importer, through its customs consultant PwC, explained that “while JPW HK is responsible for arranging transportation with approved carriers, JPW Industries bears the cost of international freight.” The marine cargo insurance policy valid from November 12, 2017 to November 12, 2018, was issued “[f]or the account of JPW Industries, Inc. (known as the Assured)[,] its affiliates, subsidiaries and for the related companies for which this Policy is at risk.” The insurance policy covers “all lawful goods and/or merchandise of every description in packing suitable for the intended voyage but consisting principally of: wood working, metal working tools, and similar merchandise.” The policy covers “all shipments, lost or not lost, from ports and/or places in the World, to ports and/or places in the World directly or via ports and/or places in any order, including the risk of transshipment by land, air, or water.” The goods are insured “[a]gainst all risks of physical loss or damage from any external cause.” The U.S. importer paid for the policy. The U.S. importer first places a purchase order to the related middleman for specific qualities of certain goods with different shipping dates, who issues a purchase order for the same merchandise to one of the unrelated manufacturers, who then produces the merchandise according to the requested specifications. The manufacturers ship the ordered merchandise in accordance with the requested shipping dates directly to the importer in the U.S. The merchandise does not ship to or enter the physical inventory of the middleman. The U.S. importer renders payment to the middleman, who in turn pays the manufacturers. Title and risk of loss to the goods are supposed to pass from the manufacturers to the middleman in accordance with free on board (“FOB”) Port of Export Incoterms when the product is loaded onto the shipping vessel at the port of export. Under the Master Supply Agreement memorializing the parties’ practices since January 2018 title and risk of loss to the goods are supposed to pass from the middleman to the U.S. importer when the shipping vessel crosses the international date line. The importer has submitted the following supporting entry documentation: Purchase from [X] in China (“manufacturer A”) Purchase order (“PO”) number (“No.”) [X], dated March 28, 2018, from the importer to the middleman. It requests that the merchandise be shipped directly to the importer in La Vergne, TN. The shipping terms are “FOB-ocean freight.” Manufacturer A located in China is listed as the requested manufacturer. The merchandise consists of tools such as reversible vises made to certain specifications. The required ship date is September 20, 2018. Part no. 14800 described as “4800 reversible vise 8 in jaw ship except” with a quantity of 240 pieces priced at $[X] per unit had a total price of $[X]. All the merchandise (18,200 pieces) listed on the invoice was priced at $[X]. Pursuant

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. Transaction value is the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions including the value, apportioned as appropriate, of any assist. 19 U.S.C. § 1401a(b). Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the circumstances of sale indicate that the relationship does not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values,” i.e., previously accepted values of identical or similar merchandise. See 19 U.S.C. § 1401a(b)(2)(B). In Nissho Iwai Am. Corp. v. United States, 16 CIT 86, 786 F. Supp. 1002 (1992), rev’d in part, 982 F.2d 505 (Fed. Cir. 1992), the courts addressed the methodology for determining the transaction value of merchandise imported pursuant to a three-tiered transaction. In each case, the courts held that the price paid by the middleman could serve as the basis for transaction value for the shipments if the sale was negotiated at arm’s length free from non-market influences and involved goods clearly destined for the United States.In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. An importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. It is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai. That is, the importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length s