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CBP Floats Revised ICP on First Sale

July 16, 2014


Recently, Customs and Border Protection circulated draft revisions to the Informed Compliance Publication entitled “Bona Fide Sales & Sales for Exportation to the United States.” The first sale rule allows an importer to declare the price of the first sale between a middleman and the manufacturer as the transaction value, upon which duties are calculated, if that price represents a bona fide sale, conducted at arm’s length, that is destined for exportation to the United States. The revisions may result in Customs requesting additional documentary evidence to substantiate an importer’s use of the first sales price in a multi-tiered transaction.

In the draft revision, Customs outlines different levels of documentation requirements depending on the relationship of the parties involved. For example, in a multi-tiered transaction where the manufacturer and the middleman are related parties, the agency may require complete accounting and audited financial statements, trial balance, general ledger, cash disbursement, and purchase journals from not only the importer, but also from both the manufacturer and middleman showing transaction level details that support the declared first sale price. Customs states that the documents may be necessary to prove that the declared price generates enough revenue for the manufacturer to recover the costs for production plus a profit that is equivalent to the firm’s overall profit realized over a representative period of time. Similarly, in cases where the manufacturer or middleman a third party parent corporation, Customs outlines a list of exhaustive financial details specific to the parent company as well.

The draft revisions provide a checklist at the end of the publication explaining the other documents that may be required to prove the availability of the first sale price as the price actually paid or payable. Included in this list are the following: contract information and agreements relevant to the import transaction; marketing studies; industry pricing practices; cost sheets and product specification sheets; records related to the manufacture, design, unique specification, or characteristics of the merchandise; transportation and freight records corresponding to any assists provided to the manufacturer for use in the production of the imported merchandise; inventory records for the receipt of goods for the supplier corresponding to the middleman; and proof of payment in the form of wire transfers, letters of credit and bank statements to manufacturers, suppliers of assists, subcontractors, middlemen, vendors, trading companies and others for the cost of the materials, finished goods and other charges related to the imported merchandise; to name a few.

While Customs will continue to review first sale transactions on a case-by-case basis, the proposed revisions provide much more formal documentation requirements to prove the eligibility of first sale benefits. If adopted, the revisions will apply to both importers that have established first sale programs, and much smaller importers new to first sale. The revisions signal that Customs is unsatisfied with corporate application of first sale and may, therefore, follow with increased enforcement.