Sales of Italian Suits From Parent to Importer Ineligible for First Sale Treatment, CBP Says
CBP recently ruled that imports of men's suits from an Italian parent company to its related U.S. importer didn't qualify for first sale treatment. In a ruling issued Jan. 4 and released March 7, the agency said that transactions between factory and parent company and between parent company and importer don't qualify as "sales" and that the transaction value between the importer and its U.S. customers should instead be used to value the merchandise. The ruling followed a request for internal advice from the CBP Validation and Compliance Division as to how to correctly appraise the suits.
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CBP looked at the initial transaction between the Italian factory and the parent company and found there was no independent buyer and seller; the parent company wholly owns and controls the factory and supplies all materials; and it controls the factory’s capital, provides services and exercises control over the factory’s finances. Therefore, the transfer of merchandise didn't constitute a bona fide sale, the agency said.
In the transaction between the parent company and the related importer, CBP said the importer submitted no proof of payment and that it couldn't determine whether there was a sale between the parent and the importer. Without evidence of a sale, there was nothing to base a "second sale" valuation on, it said. "Even if there was a bona fide sale between the factory and the parent company, the 'first sale' price proposed by the parties still would not be acceptable" because to be viable for valuation purposes, it "must be a sale negotiated at arm’s length and free from any non-market influences," the agency said.
CBP examined the relationship between the factory and the parent company and concluded it affected the price. Using the “all costs plus a profit” method, CBP found that the related factory’s overall profits were less than the parent company’s overall profits for the same year, demonstrating that the price charged by the factory wasn't sufficient to recover all costs associated with production of the goods plus a profit equivalent to the parent’s overall profit over a period of time, it said.
CBP found the transaction between the U.S. importer and its final customers qualifies as a sale for exportation to the U.S. because the offer by the U.S. purchaser was transmitted to and accepted by the foreign factory, the customers were identified on the sales documents and labels, and the merchandise was custom-made according to the customers’ measurements. CBP concluded that the transaction value can be based only on the price charged by the U.S. importer to its customers.