Customs and Border Protection (“CBP”) published ruling HQ H321592 in response to a request submitted on behalf of Hottinger Bruel & Kjaer Inc. (“HBK”). The request dealt with the complicated question valuing goods that undergo repair or recalibration abroad.
HBK is a manufacturer, importer, and distributor of measuring instruments operating through a global network of related entities, including a small manufacturing location in Marlborough, MA. All calibration, repair, or replacement under warranty for HBK goods was carried out at the place of original production. Most goods sold to U.S. customers from the Marlborough facility were sent abroad for these purposes.
When a U.S. consumer requested calibration, repair, or warranty replacement, the goods were exported by the HBK facility in Marlborough to the foreign affiliate. The repaired, calibrated, or replaced goods were shipped directly to the U.S. customer. HBK entered the merchandise into the U.S. under its own name while listing the U.S. customer as the ultimate consignee. HBK proposed to determine the entered value of the returned merchandise under the fallback method by establishing the value of the goods in their condition as exported and then adding the cost of repairs or services carried out abroad.
Customs first noted that throughout the process the U.S. customer retained title and ownership of the goods. As a result, there was no “sale” of the goods at the time of importation. Customs also rejected the use of identical merchandise, deductive value, and computed value as the basis of appraisement.
Under HBK’s proposed methodology of determining the entered value of the imported merchandise, the calculation under the fallback method would consist of four steps. First, all products will be sorted into product groups where engineers would determine the average estimated useful life for each product group. Next, a straight-line equation for depreciation would be calculated using the average estimated useful life. The serial number for the product subject to the repair or calibration would be used to determine when the good was purchased and identify the total years in use. Once identified, the values would be used for the following equations:
Current Transfer Price of the Asset / Average Lifespan of Product Group = Cost per Year of Asset
(Cost per Year of Asset) x (Years since Purchase) = Total Depreciated Value
The cost or value of the repairs or services performed abroad were then to be added for the value declared to Customs at time of importation.
CBP determined that used goods that are returned to the U.S. after undergoing repairs or calibration abroad can be appraised under the proposed fallback method of valuation using straight-line depreciation and the cost of repairs or calibration performed abroad. Additionally, new and used replacement goods that will be imported into the U.S. pursuant to a warranty claim can be appraised using the transaction value of identical or similar new goods.
If you have any questions about valuing imports do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP.