Today's ruling is HQ H270670 (Feb. 17, 2016) and continues our focus on value questions. Value is complicated enough to make many compliance professionals quake.
The ruling involves purchases by "The Cereal Company" of premiums or toys. The only Cereal Company I can find online purports to be in Zambia. Thus, my assumption is that the Cereal Company is a pseudonym for an actual cereal company and that these toys are headed into boxes of puffed sugar and artificial color.
This case is honeycombed with players. The Cereal Company buys the toys from suppliers in China. An unrelated third party in the U.S. called Insight Promotions arranges for the toys to be wrapped and performs project management and testing. To save on alpha-bits, I will call that company "Insight." Insight outsources the wrapping to a third company in Canada called Econopac. Consequently, the goods go from China to Econopac in Canada and then to the United States. Econopac does not purchase the goods and does not have title. It invoices Insight for its services.
Insight Promotions performs additional services on behalf of the Cereal Company. Those include consultation about the toy design, communication with the manufacturer about production, testing, consultation with the buyer about packaging, management of the packing process, etc. According to Customs, the Cereal Company "reimburses" Insight for these services. I think the better term is "pays." Although, Insight may be reimbursed for the services from Econopac, assuming it pays Econopac.
For some reason, the Canadian Econopac is the importer into the United States. Think about that for a moment. Econopac does not own the goods, it is a toller providing services. The Cereal Company needs the merchandise and is the purchaser. Insight is supposed to be managing the process for The Cereal Company. There may be a perfectly good reason why this is set up this way. But, to my way of thinking, the Cereal Company might want to have more control over the compliance of its supply chain. It is a kick in the head when there is a problem with an entry and the party with the greatest interest in the goods, which I am assuming is the Cereal Company, is not the importer and can't easily get involved in the issue. But, that is a side issue for another day.
At entry, Econopac declares the value to be the sum of the following pebbles of value:
- The price paid by the Cereal Company for the toy
- Econopac's fee for wrapping
- The value of the wrapping material (plastic film)
- The additional fees for services charged by Insight
Uncle Sam, through U.S. Customs and Border Protection, assumes that the proper method of appraisal is transaction value. That means that the dutiable value will be the "price actually paid or payable for the merchandise when sold for exportation to the United States." That is, in other words, the total payment made for the merchandise by the buyer to or for the benefit of the seller.
Here, the payment to Insight is not a payment to the seller of the imported goods. The goods were sold by the supplier in China to the Cereal Company. Insight and Econopac were service providers, not sellers. On top of that, the services Insight provided were not closely related to production. It did not design the item nor did it provide manufacturing or production expertise. The payments to Insight, therefore, are not art of the price paid or payable for the imported merchandise. Which, I can say without waffling, is a good result.