Thursday, May 26, 2005
Alas, it seems that it shall not be. Justice Scalia's opinion finds that the fee is used to fund government speech in support of the beef industry. As a result, it is unlike cases involving fees compelling speech on behalf of private interests. Consequently, the fees do not violate the First Amendment.
Since the mushroom fee was unconstitutional but the beef fee is not, beef stroganoff manufacturers are suffering mixed results. Similar fees on watermelon, cotton, avocados and other commodities remain subject to individual analysis (which is my clever way of saying "I don't know.").
Monday, May 23, 2005
I got the feeling that something ain't right,
I'm so scared in case I fall off my chair,
And I'm wondering how I'll get down the stairs,
Clowns to the left of me,
Jokers to the right,
here I am,
Stuck in the middle with you.
Remember that transaction value is the price paid or payable for the goods when sold for export? Well, what happens if there are two or more sales for export? Believe it or not, that happens a fair amount. The most common scenario is where the U.S. customer buys from a reseller who, in turn, buys from the manufacturer. Generally speaking, the price from the manufacturer to the middleman will be less than the sale from the middleman to the importer. So, for customs valuation purposes, guess what the importer wants to use as the sale for transaction value? By the same token, guess what sale Customs wants to use? The answer is that Customs is often quite happy to apply duty to the middleman's profit which is usually the difference between the prices.
Happily, the courts have given importers a path to the lower priced "first sale" for valuation purposes. That path is in the case Nissho Iwai v. United States. In Nissho, the NYC subway folks needed to buy some subway cars from Kawasaki in Japan. Rather than walk into a Kawasaki dealership in Paramus, the Metro went to a Japanese trading company called Nissho Iwai America. Nissho Iwai America bought the cars from Nissho Iwai Japan, which bought them from Kawasaki in Japan. When the goods arrived, Customs wanted to asses duty based on the highest sales price in this chain of events; and that was the price from Nissho Iwai America to the Metro.
The Metro, of course, said, "Wait a minute. The sale from Kawasaki Japan to Nissho Iwai Japan is a sale for export to the U.S. Use that as transaction value."
Low and behold, the U.S. Court of Appeals for the Federal Circuit agreed. The Court said that any sale in the chain that is at arm's length and clearly destined for the U.S. can serve as the basis for transaction value. For subsequent importers trying to apply this decision, the hard part is in proving the facts.
Basically, a transaction is at arm's length if there is no relationship between the parties. When there is a relationship, it can still be at arm's length if the importer can prove that the relationship did not affect the sales price. See the post Relatively Speaking for more on that.
Customs has a laundry list of things it will consider as evidence that the goods were destined for the U.S. at the time of the sale. So, you might need to present purchase orders and bills of lading showing U.S. points of delivery. Technical specifications might show, for example, that the goods were produced to U.S. governmental standards (e.g., left side steering wheels or U.S.-style wall plugs). Product labeling, stock numbers, bar codes, etc. can all be evidence of intent to sell to the U.S. But, Customs will look at these things on a case-by-case basis and, if possible, shoot holes in your theory.
One big giant gaping hole that usually comes up is that there really is no sale at all between the middleman and the manufacturer. This commonly happens when the vendor and middleman are related or the middleman is really an agent for the buyer. Customs looks for a couple things to show that a sale has taken place (although no one of these is necessary):
- a change in who has title to the property
- a change in who has the risk of loss
- a payment made in exchange for the goods
- possession of the goods
As I have said before, this can all get complicated. For example, usually the merchandise is shipped directly from the vendor to the importer, even if there is a sale through a middleman. In that case, there might be an simultaneous transfer of title with possession never going to the middleman. Is that a real sale? Could be, it all depends on what facts you can muster to make your case.
The real killer in this process is the fact that the middleman almost never wants to turn over the pricing information from the vendor and, thereby, disclose its profit. That's where is pays to come up with clever strategies to keep that information from the actual importer while at the same time making claims on their behalf.
Thursday, May 19, 2005
I don’t watch a lot of TV. In fact, now that Enterprise is cancelled and The Amazing Race is over, I have nothing to watch but the 10:00 news. I don’t have cable, so don’t go on about what great stuff there is on Bravo and A&E or the History Channel. I fear cable. When I am in a hotel, cable can completely hypnotize me. I will often find myself channel surfing well past midnight just for the curious sensation of seeing all those channels go by. I don’t need that at home.
Anyway, I had read that Smallville is a good series and recently became the bailee of the complete collection of the first three seasons on DVDs. I am now about half way through season two. It is, in fact, a good series if you have even the slightest fondness for comic-book superheroes.
I write to make a few observations:
First, if I were in high school, I would be deeply infatuated with Lana Lang. This may be good timing as I am now deprived of Science Officer T’Pol, my previous infatuation.
Second, why isn’t Lex Luthor evil? I keep waiting for some Anakin Skywalker-like conversion to the dark side. There have been hints, but nothing happens.
Third, isn’t Center City, which is apparently relatively near Metropolis, the comic book home of Flash?
Every time they hint at the existence of Lois Lane, the Daily Planet, or other Superman-iana, I chuckle.
Finally, don’t anyone tell me what happens. But please, if anyone knows, tell me that there are no future appearances of Krypto the super dog, Beppo the super monkey, Supergirl, or anything having to do with Kandor the Krypton city trapped in a bottle by the evil Brainiac. I am willing to believe a man can fly, but I can only take so much.
Wasn’t I supposed to finish up on customs valuation? OK, coming soon:
Middleman pricing (AKA “first sale” valuation)
That should be enough to exhaust me on customs valuation. Maybe NAFTA after that.
My current transportation travail is a perfect example of the true nature of business travel for me.
Yesterday, I left home at about 9:00 AM to get to O’Hare for a flight to a city I will not name. Why? Because Heisenberg’s uncertainty principal does not apply to airline schedules. If you are smart enough to search the readily available public record of customs rulings and Court of International Trade decisions, you could easily compile a list of many of my firm’s clients. Given both that list and my destination, you could fairly easily figure out who I was visiting today. That is just none of your business.
Back to my story. Because of my out-of-the-way destination, I was forced to fly an airline on which I have no frequent passenger status. Already a bad start to the trip. At least the two-year-old girl next to me behaved. I did, however, wonder whether a two year old should ever be chewing gum, but that is another story.
Upon arriving at the layover in Intermediary City, I spent an hour in an excessively smoky bar eating a lunch consisting of a wilted salad and a respectable amount of over-priced liquor. My prop plane connecting flight was right on time and I got to City of Final Destination just fine, thank you. However, I quickly discovered that the travel agent had failed to include a car in my itinerary. That was only a brief disappointment as Hertz was more than accommodating with a new Ford Focus.
I have never been in a Ford Focus and was pleasantly surprised when I arrived at stall 11 to find a sporty car with a wood trimmed interior and leather wrapped wheel. The dash looked high-tech enough for me to congratulate Ford on the value it put into this economy car. My glee faded quickly when I was unable to start the car. The key just would not fit. At that point, I noticed the Pontiac logo on the steering wheel. I guess I should congratulate GM for the G6 which seems to be a nice enough vehicle.
The Focus—sitting lonely in stall 12—was perfectly adequate.
A very pleasant dinner with the client and one of my partners followed. The hotel was nice enough too. I don’t, however, understand why better hotels continue to insist on charging for broadband access. I can get free broadband at the $89 Courtyard on the interstate but the $250 Marriott in town will often charge $10 a day for the privilege. It makes no sense.
The meeting this morning was a big success. Lots of talk about the Customs-Trade Partnership Against Terrorism and customs compliance in general. Good instant feedback from management was followed by a nice lunch.
Next stop, the tiny regional airport in City of Final Destination and the prop plane back to Intermediary City. Unfortunately, I missed the earlier flight by 20 minutes and had to kill two hours waiting for my ticketed flight. Not too tough as I had work to do and I am reading Jon Krakauer’s engrossing Under the Banner of Heaven.
Which takes me to where I currently sit: the gate in Intermediary City. When I arrived right on time, I had 45 minutes to my connection. At the gate, I found nothing but an ominous “Delayed” sign. It turns out that the earlier flight to Chicago had been delayed two hours and was just leaving. My flight was also to be delayed at least two hours.
So, I had another relatively unpleasant salad and an over-priced beer while I furiously e-mailed on my Treo and simultaneously reading my book. That was followed by a guilt inducing and completely unnecessary Mrs. Fields’ Oatmeal Raisin cookie.
Back in the gate area, I just heard a heart-rending announcement. The earlier flight to O’Hare is returning to Intermediary City due to a ground stop on flights into O’Hare. First of all, why do I care about a ground stop? I want to fly. If there were an air stop, I would understand.
More important, it seems likely my flight will not be getting off the ground on time (assuming the two-hours-delayed departure time has now become “on time”). I am hoping to get home before midnight, but it seems that prospect is fading fast.
Wait! I will update now in real time. It is 8:45 PM. The nice lady behind the counter just announced that the earlier flight is reboarding and my flight will be leaving at 9:30 PM. Given that I arrived at City of Final Destination Regional Airport at about 3:00 and will be home right about midnight, things are looking up.
Sunday, May 15, 2005
The obvious place this breaks down is where there is no sale. If someone sends you 10 pounds of Vegemite as a gift, at least two things are going on. First, you are not going to pay for it so there is no price paid or payable. Second, the sender probably does not really like you much. Where there is no sale, the customs laws say there is no transaction value.
If it is your Australian Mum sending the Vegemite but she expects you to pay for it, there may be a sale. Also, she definitely does not like you. Customs, however, is going to assume that the relationship between you and your Mum affected the price. In this case, she may have inflated the price but in most cases, a related party transaction will be below the normal selling price.
All of this applies to companies as well as disfunctional families. The statute says:
The transaction value between a related buyer and seller isacceptable for the purposes of this subsection if an examination ofthe circumstances of the sale of the imported merchandise indicatesthat the relationship between such buyer and seller did not influence the price actually paid or payable; or if the transactionvalue of the imported merchandise closely approximates -
(i) the transaction value of identical merchandise, or of similar merchandise, in sales to unrelated buyers in the United States; or
(ii) the deductive value or computed value for identical merchandise or similar merchandise;
but only if each value referred to in clause (i) or (ii) that isused for comparison relates to merchandise that was exported to the United States at or about the same time as the imported merchandise.
Remember, at the time of entry, the importer (or its customhouse broker) reports whether the buyer and seller are related. So, Customs is on the look out for these transactions.
Importers with lots of related party transactions usually avoid this problem by establishing a corporate transfer pricing policy. For example, the policy may state that all intra-company transfers must be at the fully loaded cost of production (i.e., including labor and overhead) plus a profit of 5%. This will get you a long way towards a usable transaction value.
Another way to get there is to make sure that related parties are treated just like everyone else. If there is a price list or catalog, the related party price should approximate the prices for goods sold to third parties (on approximately the same terms). It can also help if there is evidence of price negotiations. If GiantMegaCorp, N.A. simply tells its U.S. sub that the price will be $2 and not one penny more, that is a bad piece of evidence when it comes to transaction value.
If there is no way to get around the fact that the relationship affected the price, you are not dead yet. The statute also allows for the use of transaction value if the sale price closely approximates the "test values." The test values include the transaction value of similar or identical merchandise and the deductive or computed value of the merchandise. These test values, however, are only good if the transactions occured at about the same time as the transaction in question.
The truth is that Customs likes transaction value. It is easy to deal with from an audit perspective: look at the invoice and the proof of payment. If you are forced to computed or deductive value, things get messy quickly. So, the vast majority of entries are appraised on transaction value. I'm sure I could find the actual statistic, but trust me, it is a very high percentage. But the law is the law and Customs is not shy about rejecting transaction value when it doesn't apply. A well planned transaction, however, will be structured to permit valuation on transaction value and avoid problems down the road.
Today was the Tour of the North Shore Half Century. My friend and I started early in a cold wind. It was about 50 degrees when we started. The ride is not what I would call a model of organization and parts were not well marked. One would think after doing this for 30 years, it would be old hat. We got off the route two or three times. I blame signage for that.
I did get through it for a total of 53 miles in 3:38:12. By no means fast. But, considering my level of conditioning, I am not complaining. The route took us along bike paths and suburban streets through some very affluent areas. So, there were nice houses to see along the way and the occasional glimpse of the lake. To see the route, look at the 30 and 50 mile maps here.
From about 18 to 23 miles, I was sure I would bonk. I ate a Powerbar and stayed hydrated on Powerbar fluid. I drank water at the rest stops. By the time we got to 30, I was feeling better and the last 20 were not too bad. Truth be told, I also relied on a potent cocktail of performance enhancing substances. First, I was legitimately on a 12-hour Sudafed to fight the end of a cold. This gives me a a buzz equivalent to a couple shots of espresso. Second, and more important, I was riding with a guy I know who rides a lot. That means that, as a male of the species, I was overcome by high dosage of testosterone and driven to keep up the pace. It helped that for a good chunk of the middle of the ride, we were joined by a guy who was at least ten years older than me and quite a bit faster. Finally, I swallowed a Gu pack at about the 30-mile mark.
All in all, I am glad I did it and relatively pleased with the result. I was hoping for closer to 3 hours, but given the weather and my level of training, I'll take it.
Monday, May 09, 2005
The statute says that:
The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to . . . any selling commission incurred by the buyer with respect to the imported merchandise . . . .
There are two kinds of commissions: dutiable selling commissions and non-dutiable buying commissions.
The thing about dutiable selling commissions is that the buyer is paying a cost associated with selling the goods. Think of it as the buyer paying the commission to the sales staff. Why does that happen? Don't ask me, but it does. So, if it is not added to the entered value, that value is understated because it is a cost the seller would otherwise have to bear. Kind of like an assist.
A buying commission is totally different. In that scenario, the buyer has hired someone to go out into the marketplace, find the merchandise, negotiate the deal for purchase, and maybe take care of the paper work. All of the costs associated with those activities are usually borne by the buyer, so they are not necessarily part of the value of the goods and will not be added to the dutiable value.
The problem that usually comes up is not distinguishing selling commissions from buying commissions. Usually, the problem is telling buying commissions from payments for the goods. More on that in a bit.
Separating selling from buying commissions is usually a question of figuring out for whom the agent is working. The real question is who is in control of the agent? In a buying agent situation, the buyer will give the agent specifications for the desired merchandise, terms of sale, acceptable prices, quantities, delivery dates, etc. Also, the buyer will generally control the commission level and how it is paid. These factors indicate that the buyer is in control. If the seller sets the commission amount, encourages the agent to find new buyers, or is related to the seller, the commission will likely be treated as a dutiable selling commission if paid by the buyer.
Seems easy enough. So where is the problem?
The problem is that what might look and feel like a buying agent sometimes turns out to be a seller. Picture this, you send your agent out looking for new gizmotrons in Malaysia. All you told the agent is that you need a new source for gizmotrons. The agent sets out to help you fill all your needs for gizmotrons and does a great job. It finds a supplier, determines that the supplier can make the goods to spec on the required schedule and in appropriate quantities. Not only that, the gizmotrons will be 12% cheaper than your current cost. To close the deal, the agent buys 1,000 units at $100 each and sells them back to you at $105 each. Five dollars being the "commission." That is a savings to you and a tidy profit for the agent.
Trouble is, the agent is no longer working for you. Instead, the agent just went into business for himself or herself. A markup, is not a commission. So, while you the buyer may think that the Malaysian factory is the seller, in reality, the seller is the agent and the "commission" is just part of the selling price. At the end of the day, losing control of the agent just cost your some money.
What do you do to avoid this terrible fate? Get it in writing. You should have written agency agreements spelling out exactly what the agent can and cannot do. Among the things the agent should not do are hold inventory, take title to the goods, have an insurable interest in the goods, place orders on its own account or on spec. The agent can find vendors, place orders on your behalf, arrange the logistics, help translate documents, help you secure financing, etc. But, if they look and act like a seller, that is how they will be treated.
Which, coincidentally, takes us to middleman valuation and the concept of "first sale." I'll save that for another day.
In the meantime, just for completeness, I'll mention that your transaction value also needs to include:
- the packing costs incurred by the buyer with respect to the imported merchandise; and
- the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
Thursday, May 05, 2005
Weather permitting, I commute to work on my bike. Since this is Chicago, the weather does not permit often and I spent much of the fall and winter doing little more than eating. Hence, today I tipped the scale at 20 pounds more than the last time I rode to work. Still, I was excited to start the new season. Plus, I am planning to do a 50 mile ride ("half century") next Sunday, so I need to get warmed up.
I had much anticipation as I packed my pannier last night. Even though I tried to exercise through the winter, I generally failed. I knew it would be a bit hard, so I promised to take it easy. No hammering the flats, as they say. The whole ride is 20 miles of city streets and bike path. It generally takes about an hour and a half. Then, I go home the same way.
So here is the mental conversation I had along the way:
7:23 AM This is great. The air is crisp, the sun is shining. I'm off. Aren't I just great for the environment? Plus, I get to burn all these calories. The bike feels great. I need to tip the guys at the shop who did the tune up.
It's a bit cool. I sure am glad I layered up this morning. Aren't I smart to have on a base layer, cycling shirt, fleece vest and wind breaker. Plus, I love these loose-fit tights and my gloves.
Mile 4: Gee, the bike feels a little heavy. Hey, that is B's house, maybe I should stop in and get a ride to the office. Why are there so many buses on Church street and are they supposed to leave no space near the curb?
Mile 5: I can really feel my heart and lungs. This is a good workout. But Evanston sure needs to pave these side streets. Water, I need to drink. Why is my water bottle banging my knee?
Mile 6: Where the hell am I? Western Avenue was never this long before. Damned buses. I think my heart hurts. Downshift. My other bottle seems too far to reach this year.
Mile 7: 14 MPH, that can't be right. Sure is warm this morning.
Mile 8: Turn off of Western to Pratt. Finally, a bike lane! Ridge road is at the top of a hill. Suddenly that makes sense to me. Stand up, get up this hill. Red light at Clark. Who is this guy behind me? I'll call him Clark. Pull off the stupid gloves and push up my sleeves before the light turns. There goes Clark.
Mile 9: I'm burning up. What was I thinking when I got dressed? More water and Powerbar drink. Hydrate. My heart sure is pounding.
Mile 10: Corner of Devon and Bosworth. Half way there. Crap, it is 8:15. I could stop for some tandoori breakfast somewhere around here. Can't feel my legs but it looks like they are moving. Sure. I can see that. Left, right, left, right, left, right. Look up you idiot!
Right turn on Winthrop. Who decided there should be speed bumps on city streets? I thought Daley was Mr. Bicycle Mayor. How many Catholic schools are there around here?
Left on Granville. There it is! Oh, the Glory of Lake Michigan. The rejuvenating vision. I am renewed, I feel great.
Mile 11.5: Top of the Lake Shore Trail. There is Clark. I think I can catch him. Stand up. You have new strength! The Lake, the sun, this is great. My God, what the hell is wrong with me? Why am I doing this? Public transportation is environmentally friendly too. Maybe I should just buy a Prius. Bye Clark. Have a good day.
Oh, I'd rather be sailing.
Mile 13: Who is that guy? He can't pass me! He is on an old Raleigh with fat tires and high handlebars. He is wearing jeans and a Cubs windbreaker. Oh God, no. What is that? Under his saddle? Get a little closer. It can't be. It is, under his saddle he has strapped a stuffed turtle. A turtle is in front of me. That bastard is taunting me. I'll catch him.
My legs are still going. How is that happening?
Mile 14: Water. Power bar fluid. Did my back ever hurt like this before?
Mile 15: Willie Wonka, Willie Wonka. Oompa Loompa Doopa Dee Doo. Oh, Belmont Harbor looks nice. I'd rather be sailing. I'd rather be a license plate holder that says "I'd rather be sailing."
Wait, I have Gu. Willie Wonka's crack cocaine. Eat Gu, feel better. Oow, my mouth is filled with frosting and I can't breath. Swallow. Water.
Legs? Yes, I still have them. I can't feel my heart. That can't be good.
Mile 16: I'm still behind the turtle. I think it is trying to talk to me. At least there are not too many people on the trail. My shoes are sooo blue. Damnit, look up!
Mile 17: North Avenue or so. The city looms ahead. It is beautiful, or so they tell me. I am still looking at my blue shoes. I should buy lighter shoes, that would help. I have no heart.
I think the turtle is slowing up. He is, I will pass him. Ha, take that! I'll make soup of you and garnish it with sherry. What ever happened to Binyons?
Mile 18: I can see Navy Pier. I am getting close. Hang in there. The turtle is pulling off the trail with me to head to Lake Shore Drive to cross the river. No, he turned right on Illinois. Headed up river. Who was that guy?
Mile 19: Is this a bridge or a man-made mountain? Almost there. Crap, it is almost 9:00. I'm very important. People will wonder if I am not at my important desk soon.
Turn right at the yacht club. Some fast boats there. I'd rather be a yacht club. Whup, whup, whup. Swift boats. Whup, whup, whup. I once saw a snail crawl on the edge of a razor.
What's that noise?
Right on Columbus. My heart is dark. Whup, whup.
There it is. I see the garage.
Slight right. Hands down, leaning right. I missed the curb. Going down. Hands scraping. Snap, snap, my feet are free. Traffic?
Laying there. Whup, whup, whup.
This is the end.
Saigon. Sh*t, still in Saigon. This is the end. Get up, walk the damn bike into the garage.
I survived. Had to work too late to ride home. Can't say I am totally complaining about that. I'll ride home tomorrow. Weather permitting.
Wednesday, May 04, 2005
Well, maybe. As we lawyers like to say, it depends.
Let's start with the law because that is what we are supposed to do. The law says that transaction value should include:
any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States.
That seems relatively clear. If the buyer has to pay a royalty or license fee to get the goods, it is part of the value of the merchandise and should be reported. But, it is not at all clear. Why? Because Customs has a regulation that says:
Royalties or license fees for patents covering processes to manufacture the imported merchandise generally will be dutiable. Royalties or license fees paid to third parties for use, in the United States, of copyrights and trademarks related to the imported merchandise generally will be considered selling expenses of the buyer and not dutiable. The dutiable status of royalties or license fees paid by the buyer will be determined in each case and will depend on (1) whether the buyer was required to pay them as a condition of sale of the merchandise for exportation to the United States, and (2) to whom and under what circumstances they were paid. Payments made by the buyer to a third party for the right to distribute or resell the imported merchandise will not be added to the price actually paid or payable for the imported merchandise if the payments are not a condition of the sale of the merchandise for exportation to the United States.
For those of you who are really into this stuff, that is 19 C.F.R. § 152.103(f).
Traditionally, this was interpreted to mean that patent royalties were generally dutiable and copyright and trademark royalties were part of marketing expenses and, therefore, not part of the dutiable value of the merchandise.
Customs, however, was not satisfied with that relatively easy-to-apply test. In 1993, following a ruling issued to Mattel, Customs published a general notice to the trade explaining its thinking on royalties and license fees. Under its new approach, Customs looks at each situation individually and asks three questions:
- Was the imported merchandise manufactured under patent?
- Was the royalty involved in the production or sale of the imported merchandise?
- Could the importer buy the product without paying the fee?
On Passover, they toss in a fourth, but that is not relevant here.
If the answers to the first two are positive and the third negative, Customs will lean very heavily toward dutiability of the royalty.
Like most things written in the English language, this gives lawyers lots of room for disagreement and opportunities for arguments. Usually, this will focus on the third question. After all, there are plenty of people willing to sell you something whether or not you pay the required royalty to a third party.
Another issue that comes up a lot is whether the royalty was paid to the seller or someone unrelated to one of them. The theory is that a royalty paid to the seller might just be an indirect payment that is dutiable on separate grounds.
Like I said, it all depends. And that is why you hire competent customs managers, in-house lawyers and, when necessary, people like me.
Monday, May 02, 2005
I have pink eye. I got it from my own personal germ vector who happens to be the four year old that lives in my house. My doctor once referred to children as little nuclear incubators of germs. Currently, I am listing pink eye as number six on the top ten list of reasons not to have kids. I'm working out the rest of that list.
For the uninitiated, pink eye falls into two flavors: viral and bacterial. The green oozey stuff gluing my eye shut is apparently evidence that I have become the host for bacteria. It also means I can deal with it via antibiotic drops. The viral version can stick around for weeks.
This morning, I woke up with my right eye stuck shut and swollen. I walked around in my shorts yelling "Cut me Mick. Cut me!" but got no attention and no laughs. I have been on drops for about 24 hours and they seem to be helping.
I'm glad I can handle the drops because I am very squeamish when it comes to my eyes. I don't wear contact lenses because the thought of putting my finger in my eyes is antithetical to a million years of evolution that impels me to protect my vision. I am incapable of getting most things out of my eyes without sticking my entire head into a bucket of water or under a running faucet. So, the drops made me nervous.
Happily, I heard somewhere that a drop in the corner of your eye next to your nose will find its way into your eye with a few blinks. Turns out it works and my eye is clearing up. That's good because it is very disconcerting to see snot coming out of your eyes.
Sunday, May 01, 2005
Commercial invoice . . . $100
A cancelled check . . .$100
Customs compliance relating to valuation . . . Priceless.
Basically, that is it 98% of the time. Your entered value should correspond to the price you agreed to pay for the goods. That amount should be what is shown on the invoice, reported to customs and paid to the supplier.
Of course, it is a lot trickier than that when you start looking at the details.
Most entries are appraised on the basis of the transaction value of the merchandise. Transaction value is defined as the price paid or payable for the merchandise when sold for export to the United States. To that amount, there are certain specified additions that must be reported to account for elements of value not included in the price.
Why is this important? For two reasons. First, the practical answer is that most duties are calculated on an ad valorem basis. We say things like ad valorem when we want to prove we went to law school and that this is too complicated for the average Joe. All it means is that the duty is based on a percentage of the value of the merchandise. If you have a 2.5% rate and the goods cost $100, the duty is $2.5. But, if the goods are really worth $150, the duty is $3.75. So, Customs has reason to be suspicious that value is under reported and importers have a good reason to want to avoid over reporting.
The second reason is less practical. Keep in mind that a lot of what enters the U.S. is duty-free. So, the value is irrelevant for duty calculation purposes. But, it is still the law that the duty be reported properly. Customs does do some calculations based on the duty--Harbor Maintenance Tax and Merchandise Processing Fee for example, may be applicable. Both are ad valorem taxes. Because of this, and for other reasons, Customs want the data to be right. As a result, it still counts as a compliance error to get it wrong, even it there is no real consequence on the revenue collected. If you want to get really technical about, there are potentially serious implications any time you provide false or incomplete information to the federal government.
You also need to keep in mind that the transaction value is the total price whether paid directly or indirectly. This means that an invoice price of $10 per unit plus an off-invoice payment of $2 per unit sold adds up to a $12 appraised value. And, an additional $2 paid to the brother of the owner of the factory is probably going to count as an indirect payment and force your appraised value up to $14. See how it can creep up on you?
The required additions to transaction value are:
- The packing costs incurred by the buyer with respect to the imported merchandise;
- Any selling commission incurred by the buyer with respect to the imported merchandise;
- The value, apportioned as appropriate, of any assist;
- Any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and
- The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
Hands down, the item that causes the most grief for importers and the most work for Customs auditors is the "assist." An assist is defined as:
any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:
- Materials, components, parts, and similar items incorporated in the imported merchandise.
- Tools, dies, molds, and similar items used in the production of the imported merchandise.
- Merchandise consumed in the production of the imported merchandise.
- Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.
Same thing applies if the buyer says, "Look, I don't have a bunch of buttons and zippers laying around. Go buys some and I'll reimburse you." Technically, this is not an assist because the buyer did not provide materials, but it is treated the same way.
Assists can be reported as a lump sum on the first entry or the value can be apportioned over a number of entries. It is up to the importer.
The value of the assist itself is the value to acquire it plus the value to transport it to the place of production. That results in the cool phenomenon that used and fully depreciated production equipment sent abroad for use in production has no value other than the cost of transportation.
This all gets very sticky very fast. For example, what about a multimillion dollar research program in Japan funded by a U.S. buyer? Or, what happens when the assist is not provided by the importer but by subsequent buyer in the U.S. Like I said, it gets sticky. I will not even venture an off-the-cuff generalization.
The other additions are important, and each has its own charm that could merit a post of their own. Maybe I'll do just that.
Stay tuned for royalties and commissions.