U.S. Customs and Border Protection (CBP) is strictly enforcing the interpretation of first sale requirements. First sale is a lawful way for importers purchasing goods in a multi-tiered transaction to reduce the amount of import duty they pay by declaring the price charged between the manufacturer and the middleman rather than the price charged between the middleman and the U.S. importer, which is traditionally the case. Simply put, by declaring the lower or “first sale” price at the time of entry, the importer saves duty on the difference, leading to considerable landed cost savings. To import goods under first sale, three primary requirements must be met:
- The goods must be clearly destined for exportation to the U.S.
- There must be two bona fide sales between the parties
- The first sale value must be at arm’s length.
An example is CBP’s recent ruling H316892, which determined there was not a bona fide sale in existence between the manufacturer and the middleman—specifically, the middleman did not take title to, or assume the risk of loss for the underlying goods, as part of the transaction based on the Incoterms. As a result, CBP stated that the importer could not use the first sale price at the time of entry. Instead, the importer had to value the goods based on the price it paid to the middleman.
It is the importer’s obligation to exercise reasonable care in appraising imported goods. This ruling reiterates the importance of conducting continued reviews of first sale transactions to ensure compliance and avoid potential challenges with CBP.
For more information on any valuation issue and recommended maintenance reviews, reach out to Mohawk Global Trade Advisors.
By Clarissa Chiclana