Bona Fide Sale Was to U.S. Consumer, Not to Subsidiary, CBP Tells Canadian Apparel Company

The sale between a Canadian apparel company and the U.S. customers, and not the company's American subsidiary, represents the bona fide sale for customs purposes, CBP said in a Jan. 6 ruling (here). Do-Gree Fashions USA (DG USA), a wholly-owned subsidiary to Do-Gree Fashions (DG Canada), requested a further review of protest after CBP rejected the subsidiary's use of the intercompany price upon import. The company also asserted that even if a bona fide sale didn't occur between the related companies, the sale to the consumer should not be used for valuation purposes.

At issue are imports of DG Canada apparel for which the company "charged DG USA an intercompany price based on the price it paid to its unrelated suppliers 'plus a markup of 25% to 40%,'" said CBP. According to DG Canada, a “bona fide sale for export” occurred between DG Canada and DG USA when DG Canada sent pre-addressed orders from its Canadian warehouse to DG USA’s FedEx warehouse in Champlain, New York. The company pursued further input from CBP after DG USA was ordered to instead declare the price paid by the U.S. customer.

Despite the claims otherwise, " DG USA’s only role in these transactions, if any, appears to be its responsibility for cashing checks from U.S. customers, while the buyer was actually the end U.S. customer," the agency ruled. "No sales agreements or contracts between DG Canada and DG USA set forth the terms of the sale or detail the passage of title for the goods" and "many of the invoices merely list 'Do-Gree Fashions' and a shared address and phone number such that it is ambiguous which entity was actually a party to the sale," CBP said.

Documentation provided to CBP doesn't show a transfer of title between DG Canada and DG USA, CBP said. While DG USA claimed that the title transferred "when the merchandise was picked up from DG Canada’s warehouse in Canada because the invoice and bill of lading state 'FOB – Montreal,'" CBP disagreed. The documentation instead "indicated that the risk of loss and title passed from DG Canada to the end U.S. customer when the goods were picked up in Montreal," the agency said. The company was also wrong that "CBP must apply another method of appraisement in the 19 U.S.C. § 1401a hierarchy merely because we find that the intercompany price is unacceptable." CBP previously ruled that it doesn't need to provide another method in cases that a bona fide sale occurred and "there was bona fide sale between DG Canada and its U.S. customers in this case."