Newly Released CBP HQ Rulings for March 30
The Customs Rulings Online Search System (CROSS) was updated March 30 with the following headquarters rulings (ruling revocations and modifications will be detailed elsewhere in a separate article as they are announced in the Customs Bulletin):
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H313988: Additions to Transaction Value; costs included in Computed Value
| Ruling: (1) When the transaction value is used, sales commissions should not be added to the customs value. (2) When the computed value is used, the computed value should include: direct and indirect labor costs; fixed and variable overhead costs; costs of materials; service costs related to global quality assurance, regulatory affairs, logistics, warehousing, and sourcing of wound care products; and the fee paid to the Foreign Manufacturer. |
| Issue: (1) Whether the following costs should be added to the customs value as an assist when the transaction value method is used and (2) whether those costs should be added to the customs value as a cost when the computed value method is used. Material costs, direct labor costs, indirect labor costs at the foreign manufacturer, fixed overhead costs, variable overhead costs, costs for services related to global quality assurance, fees charged by the foreign manufacturer, global research and development costs, global marketing/advertising costs, global brand, innovation, and sustainability costs, royalties and sales commissions |
| Item: Orthopedic, wound care, and vascular products. The products at issue are manufactured by BSN Medical in Reynosa, Mexico. Both the U.S. Entity and BSN Medical GmbH provide the materials to the Foreign Manufacturer on consignment and the Foreign Manufacturer processes the material into the completed goods. The Foreign Manufacturer will also provide quality control and warehousing services for the Company. The Foreign Manufacturer will bill U.S. Entity and Foreign Entity directly for processing and services. The completed goods are then imported by the Foreign Entity, which acts as a foreign importer, or the U.S. Entity. As there is no acceptable sale between the Foreign Manufacturer and the U.S. Entity or Foreign Entity, the Company would like to use the computed value method to determine the customs value when entering the goods into the United States. You asked whether certain costs should be included when the Company is determining the computed value. |
| Reason: The company's transfer pricing policy states, “The method chosen is the Cost Plus Method” ... the purpose of sharing the aforementioned costs “in an arm’s length way and establishing an overall arm’s length transfer pricing policy is that each participant in the cost sharing arrangements bears their fair share of expense and all legal entities enjoy profits commensurate with their business functions, risks and assets.” CBP has accepted transfer prices based on the CPM in the past, it is not CBP’s role to determine which costs should be included in the transfer pricing policy of a company. CBP Regulations do not define what profit we are to consider under the CPM – gross profit or operating profit. CBP is of the view that the operating profit margin is a more accurate measure of a company’s real profitability because it reveals what the company actually earns on its sales once all associated expenses, such as marketing, have been paid. When the CPM is used, it is CBP’s preference to include costs related to research and development, marketing, advertising, promotion, innovation, and sustainability costs, but it is not a requirement. Under the computed value method, assists must also be included. |
| Ruling Date: Feb. 18, 2022 |