CBP Addresses Pharmaceutical Valuation Scenarios for Tolling Operations
Pharmaceutical importers in the U.S. should not use transaction value for an appraisement in certain cases where the shipped products are made and owned by a related party, CBP said in a recently released ruling, dated Aug. 15. CBP's binding ruling, HQ H242509, weighed in on the correct method of appraisement for four scenarios where a U.S. pharmaceutical company imports products under tolling arrangements. The agency reviewed the scenarios at the request of a U.S. manufacturer and pharmaceutical importer, which requested confidentiality.
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Each of the scenarios includes a tolling arrangement, in which raw material owned by one party is sent to another party for "further processing, conversion or packaging," though the processing party may only be paid for the manufacturing services and isn't required to buy or sell the materials it processes, said CBP. The owner of the product, pharmaceutical tablets and/or Active Pharmaceutical Ingredient (API), is a related party to the company that is providing the further processing.
Under the first scenario, a related party ships to the U.S. owner pre-made tablets or API, which can be formed into tablets, said CBP. The U.S. owner will package for retail sale the tablets, whether formed before or after import, and sell them to another related party, which ships them outside the U.S. In this case, the U.S. company buys the products from the first related party at a previously agreed transfer price. In this case "the related seller is the same party that manufactures the goods imported under the tolling contract," said CBP. Because there's no sale for exportation to the U.S., "transaction value is not available," said CBP. The merchandise would best be valued using the transaction value of identical merchandise as because "identical goods are produced by the same producer in the same country as the goods at issue."
Another similar scenario is the same as the previous example, but "the related seller is not the manufacturer of the goods imported under the tolling contract and the sale is a domestic sale, that is, the goods have already been imported by the related party," the agency said. As a result, "there is no previously accepted customs value that can be used to appraise the merchandise that will be imported by the company under the tolling contract using the value of identical or similar goods," said CBP. Therefore, the importer can choose to use either the deductive value or computed value, said CBP.
The next scenario in question has the first related party buy the tablets/API for export to the U.S. from another related party. The merchandise is shipped to the U.S. for packaging and then sold and shipped to another related party abroad, said CBP. Computed value is not applicable here because information on profit and material and processing costs incurred in the production and import and isn't available, said CBP. The importer should use the sale between the related parties, "reasonably adjusted as necessary, for appraisement, said CBP. That appraisement should also be used in the final scenario, which involves the first related party purchasing the tablets or API for export to the U.S. from an unrelated party, said CBP. In this case, the products are then packaged by the processing company and then sold to the first related party to another related party outside the U.S., said CBP