Sales Between Related Manufacturer and Middleman Don't Count for 'First Sale,' CBP Says
The sales between a related manufacturer and a middleman can't be considered "bona fide sales" and therefore can't be used for "first sale" appraisement purposes, CBP said in April 5 ruling (here). The question came up as part of a request for internal advice through the Port of Charlotte. The importer, Apex Tool Group (ATG), "is the subject of a Focused Assessment conducted by the Office of Regulatory Audit covering the calendar year 2013," CBP said.
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The importer brings in the goods from a related party, Apex Tool Limited (ATT), which purchases the goods from both related and unrelated manufacturers, CBP said. "The port takes issue with the transactions involving related manufacturers because the port does not believe that ATT takes title to the merchandise in such transactions, and therefore, two bona fide sales do not exist," the agency said. "The port believes that ATT is acting as an agent in related party sales, while acting as an independent buyer/seller in sales involving unrelated manufacturers."
The purchase orders between ATG and ATT provided to CBP say that "title to goods passes upon the buyer’s receipt of the goods at the destination," CBP said. "'At the destination' means, in our view, the ultimate end point," which is the U.S. in this case, CBP said. The more difficult issue is "ascertaining who has title to the goods from the point of delivery at the port of export until delivery in the U.S.," CBP said. The purchase orders from ATG to ATT indicate delivery terms of "FOB/Origin," while the invoices from the manufacturers to ATT indicate delivery terms of "FOB port of export," CBP said. "Based on the documents, risk of loss transfers from the manufacturers to ATT to ATG at the port of export, i.e., there is a flash transfer of the risk of loss."
Here, "the risk of loss transferred simultaneously" at the port of export "from the related manufacturer to ATT to ATG," CBP said. "Therefore, we do not believe that ATT truly ever bore the risk of loss." Also supporting consideration of ATT as an agent was "use of the ATG purchase order number in the ATT sales contracts to the related party manufacturers," CBP said. "Further, while it is asserted there is a flash title transfer between the parties at the port of export, there is no evidence that ATT ever held title to the goods." While ATT may be a buying agent for ATG, there were not separate costs listed on the invoices provided to CBP that showed that, it said. "Therefore, the transaction value for the transactions at issue is the amount paid by ATG to ATT for the goods."
As a result, "the sales between the related manufacturers and the middleman, ATT, are not bona fide sales which may be used for first sale appraisement of the imported merchandise," CBP said. "As the middleman, ATT, never holds title to the goods, there is only one bona fide sale for export to the U.S., i.e., the sale from the related manufacturer to the importer. The proper value for appraisement purposes is the amount paid by ATG for the goods." While ATG asked CBP for input on a question of "reasonable care" by the importer of record, CBP didn't do so. "Since the issue of reasonable care has not been raised by your port in this internal advice request, we will defer to you and decline to comment," CBP said to the port.