More Documentation Needed to Consider Use of 'First Sale,' CBP Tells DHL

Paper imported into the U.S. shouldn't be appraised based on the price between the purchaser and related manufacturer, CBP told DHL Global Forwarding in response to a prospective ruling request (here). DHL sought the ruling for its client, April Fine Paper Trade, Hong Kong, regarding AFP Hong Kong's possible role in several transactions. The agency also ruled against the proposed use of a sale between unrelated parties in Indonesia as proof of an "arm's length" transaction.

In each scenario, AFP Hong Kong acts as a middleman, operating as the seller and U.S. importer of record, said CBP. When an order reaches AFP Hong Kong, either directly from a U.S. consignee or through an unrelated Japanese company, AFP Hong Kong contacts another company, AFP Macau. AFP Macau then orders the paper from a related manufacturer in Indonesia. AFP Hong Kong believes that the sale between AFP Macau and the related Indonesian manufacturer should serve as the basis for appraisal upon entry. The company also asserted that "the presence of a lower price for similar paper when sold to an unrelated domestic company demonstrates that the sales to AFP Macau are at arm’s length."

Although AFP Hong Kong provided documentation to support each situation, more information is necessary to show supporting evidence of a sale, said CBP. "We have no contracts between the parties, evidence of payment or any other documentation to show that at each stage the parties are acting as buyers and sellers and not as an agent for another party," said the agency. AFP Hong Kong also didn't give "sufficient information to support that the sale between the related parties is an arm’s length sale," the agency said.

Sales between related parties may be allowed under transaction value if there's proof that the price paid is close to that in sales to unrelated buyers in the U.S. under similar circumstances. But, the provided documentation showing a sale of paper from the Indonesian manufacturer to an unrelated party in the same country can't be used as "test value," said CBP. That transaction didn't involve unrelated buyers in the U.S., "nor is there any information that the paper subject to that sale was destined ultimately to the U.S.," said CBP. "Based on the information provided, 'first sale' is not the appropriate basis for appraisement for the submitted transactions," CBP said in the ruling.