Importers who negotiate prices subject to discounts or rebates should be aware that the statutes and regulations governing transaction value take price modifications into account when determining import value.
The regulations provide that the ''price paid or payable'' against which duty is applied can result from ''discounts, increases or negotiations.''While this language sounds simple enough, experience shows that appraisement in these circumstances is often complicated by oral or written agreements adjunct to the primary sales contract.
In general, a discounted price will be allowed as the appraised value, assuming that the discount is agreed to and effected prior to the importation of the merchandise. Such discounts are often applied when volume purchases are made, or when the import transaction benefits the manufacturer's economies of scale.
This ''prior to importation'' rule holds true, even if something may have occurred during the transaction (such as late shipment) that ultimately rendered the merchandise less valuable to the importer.
Customs takes the view that the dutiable value is the original contract price, not what is subsequently renegotiated. Customs also applies the same principal to post-
importation rebates or refunds that ultimately reduce the purchase price.
Where the buyer and seller agree prior to shipment that early payment on a shipment can result in a lower sales price, and the sales price actually reflects this discount, the discounted value is applied when appraising the merchandise.
However, importers should be careful here, since Customs has held that certain advance payments to reserve manufacturing capacity are fully includable in the price paid or payable for merchandise subsequently discounted.
CAPACITY PAYMENT NOT
A PREDETERMINED DISCOUNT
The difference is that the capacity payment is not viewed as a predetermined discount, but as a necessary indirect payment, absent which there would have been no export sale.
When negotiating their prices, importers often take into account the possibility that their own U.S. resale prices might be less than anticipated. As a result, the sales contract may include a provision for rebates back to the manufacturer according to a specific formula included in the import contract, but applied long after the importation has occurred.
However, the mere fact that, prior to importation, the buyer and seller contractually agreed to certain post-importation rebates according to a specific formula, does not mean the rebates will be applied to the appraised value.
Customs still adheres to the base price originally negotiated.
Likewise, Customs has held that the subsequent reduction of a royalty payment payable to the exporter does not reduce the Customs value of the underlying transaction. Customs specifically noted that the royalty had to be disregarded, even though the sales contract attempted to apply subsequent open-ended deductions retroactively.
SOME 'DEFECTIVE ALLOWANCES'
Even more common are export sales where the buyer knows in advance that a certain percentage of the imports will be defective and unusable.
Customs has held certain ''defective allowances'' valid when importers sought to reduce the appraised value. In one ruling, for example, the commercial invoices listed an original as well as adjusted price for defective merchandise. The allowance set by fixed percentage corresponded to the amount of damaged merchandise and related only to the items on the invoice, not to previously imported items.
Given adequate evidence that the method was used in lieu of returning the defective goods, Customs granted the allowance.
From the tenor of these rulings, it is easy to see how stringently Customs views its definition of the price paid or payable.
METHODS CAN BENEFIT TRADERS
In those situations, such as consignment sales, where it is impossible to determine a sales price at the time of exportation, Customs defers to one of the alternative appraisement methods as a way of backing into the invoice price.
Alternative methods, such as deductive value, can have certain advantages over transaction value, because they allow for a range of value deductions that could be unusually high in an uncertain market or start-up business.
However, by statutory authority, Customs must attempt to apply transaction value first, even if, as noted above, it results in appraisements that the importer considers unyieldingly high, absent post-importation discounts.