Court: Court of Appeals for the Federal Circuit; September 13, 2002; Federal Appellate Court
Luigi Bormioli Corp. appeals a summary judgment from the United States Court of International Trade, which upheld the United States' assessment that a 1.25 percent charge on its imported glassware's invoice price was properly included in the transaction value. The court found that Bormioli failed to prove that this charge constituted a bona fide interest charge eligible for exclusion under relevant customs regulations. The case involves favorable payment terms extended by Bormioli Italy, its parent company, which initially allowed a 180-day payment period but was later shortened to 90 days. During the importation of glassware in 1996, Bormioli was billed a 15 percent annual interest charge for delaying payment beyond the standard 60-day term. This charge, recorded as "corporate charges," was not explicitly labeled as "interest" on the invoices from Bormioli Italy. The appellate court affirmed the lower court's decision, agreeing that Bormioli did not adequately demonstrate the charge's exclusion from the transaction value.
Bormioli's payment practices for interest charges diverged from its agreement with Bormioli Italy in several key respects: payments were made for six to twelve months' worth of accrued charges instead of quarterly, at a 15 percent interest rate (1.25 percent monthly) rather than the 1996 Italian prime rate of approximately 11.1 percent, and often after a 90-day deadline, sometimes up to 22 days late. In 1996, Customs appraised Bormioli's imported merchandise based on transaction value under 19 U.S.C. § 1401a(b), determining the value included the invoice price plus 1.25 percent attributed to Bormioli's payments to Bormioli Italy. Customs' policy, TD 85-111, states that interest payments can be excluded from dutiable value if specific conditions are met, including separate identification of interest charges, a written financing agreement, proof of pricing consistency, and compliance with prevailing interest rates. Bormioli challenged the inclusion of the 1.25 percent charge in the Court of International Trade, arguing that TD 85-111 was inapplicable or that it met the criteria for excluding interest. Evidence presented included comparable U.S. and Canadian pricing and IRS classification of the payments as interest requiring U.S. tax withholding. The Court granted summary judgment to the United States, denying deference to TD 85-111 and conducting a de novo review. The court concluded that Bormioli met only one condition of TD 85-111, noting deviations from the written agreement, irrelevance of Canadian transactions, and a non-comparable interest rate. The review of summary judgment and statutory interpretation by the Court of International Trade was conducted without deference to its prior interpretation.
Deference to Customs' interpretation of interest in TD 85-111 is debated, with the government advocating for Chevron deference and Bormioli opposing it. The Supreme Court's decision in United States v. Mead Corp. clarified that Chevron deference applies when Congress delegates rule-making authority to an agency, while even without such deference, an agency's interpretation may still receive persuasive weight per Skidmore principles. However, the court opts not to determine the applicability of Chevron or Skidmore deference, agreeing with the Court of International Trade that TD 85-111 appropriately interprets 19 U.S.C. § 1401a based on a de novo review.
The statutory framework includes the 1979 GATT Customs Valuation Code, which mandates 'transaction value' as the primary method for appraising imported merchandise, defined as the 'price actually paid or payable' for goods. The United States codified this in 19 U.S.C. § 1401a(b), specifying that the transaction value includes the price paid for the merchandise plus certain additional amounts, while excluding certain charges. Notably, 'interest' is not explicitly included or excluded in this statute. The definition of 'price actually paid or payable' encompasses total payments made by the buyer to the seller, excluding transportation and insurance costs.
The term 'total payment' within the definition of 'price actually paid or payable' is considered 'all-inclusive,' encompassing all payments made by a buyer to a seller for merchandise, even if those payments do not represent the direct value of the goods. This was established in Generra Sportswear Co. v. United States, where it was determined that quota payments are included in this price. Customs has issued interpretive rulings regarding the inclusion of interest payments in the 'price actually paid or payable.' Specifically, interest payments are not dutiable if they are part of an 'overall financing arrangement' or paid to a third party unrelated to the seller without benefiting the seller. For instance, in TAA 43, Customs ruled that certain interest payments related to a financing arrangement were excluded from the price considered for customs value because they were separate from the specific sale. Conversely, interest payments linked directly to the purchase of goods were deemed dutiable. In 1985, Customs introduced TD 85-111 to align with the GATT Committee's decision on interest charges, outlining that interest charges relating to imported goods are excluded from customs value if they are clearly distinguished from the price, documented in writing, and meet specified criteria regarding the sale price and interest rates. TD 85-111 was implemented in response to challenges in distinguishing between different types of interest payments.
TD 85-111 is interpreted as consistent with statutory language and aligned with GATT obligations, as there are no indications in the statute or its legislative history to suggest otherwise. The statute and GATT both define 'price actually paid or payable' broadly, preventing importers from manipulating duty assessments by misclassifying parts of payments as 'interest.' TD 85-111 mirrors GATT's framework, evaluating all interest charges related to financing arrangements for imported goods and requiring that charges are distinctly documented from the actual price of the goods. Both TD 85-111 and the 1984 GATT Committee decision mandate that financing arrangements be documented in writing, that the declared price corresponds to actual sales, and that interest rates do not exceed prevailing rates in the financing country.
Bormioli argues that there is a crucial distinction between prior Customs rulings (TAA 14, 31, 43) and TD 85-111, asserting that the latter only pertains to interest included in a 'unitary price' for merchandise, whereas 'separately invoiced' interest charges should fall under TAA 43. Thus, Bormioli claims that TD 85-111 is not applicable to its situation since the interest payments were separately invoiced, and TAA 43's stipulations regarding financing arrangements should govern the case.
Bormioli incorrectly conflates the legal concept of a charge being included in the 'price actually paid or payable' with its physical listing on invoices. The 'price actually paid or payable' encompasses all payments made for imported goods, regardless of how charges are documented. Legal precedents, such as Generra Sportswear Co. v. United States and All Channel Products v. United States, affirm that charges can be legally included in this price even if invoiced separately. However, when a charge must be 'separately identified' from the price, it necessitates distinct documentation, as outlined in 19 U.S.C. § 1401a(b)(3), which allows for exclusion of separately identified charges from transaction value. TAA 43 clarifies that documentation must demonstrate a charge's separation from the import transaction for it to be excluded, particularly for financing arrangements, and does not imply that all separately invoiced charges are automatically excluded. TD 85-111 does not create a distinct valuation policy for interest charges but specifies criteria for their exclusion, emphasizing that such charges must be separately identified from the price actually paid or payable. Overall, merely invoicing a charge separately does not guarantee its exclusion from the transaction value for customs purposes.
Bormioli's proposed distinction regarding interest charges, which it claims should only be evaluated under TAA 43, is undermined by Customs' acknowledgment in TD 85-111 that it has reevaluated its previous positions and will adhere to the criteria set forth in TD 85-111. This regulation explicitly states that interest payments are excluded from the transaction value of merchandise if the criteria are met, irrespective of whether these payments are included in the invoice price. The Court of International Trade correctly applied TD 85-111 to Bormioli, affirming that the regulation encompasses interest payments regardless of their invoicing status, and that TAA 43 is no longer applicable due to being superseded.
Bormioli further argues that interest payments are not dutiable as part of the price paid or payable, relying on dictionary definitions and asserting that the Court should disregard TD 85-111’s factors. However, the statute defining "price actually paid or payable" under 19 U.S.C. § 1401a(b)(4)(A) includes all payments made for imported merchandise, without excluding interest payments unless they are not made for the merchandise itself.
Additionally, Bormioli references an IRS statement categorizing the disputed charges as interest. However, Customs is not bound by the IRS's determination, as the IRS's evaluation pertained to tax implications rather than customs valuation under 19 U.S.C. § 1401a. The IRS did not distinctly assess whether Bormioli's payments fell within the customs transaction value exclusions, allowing Customs to reach a different conclusion.
The Court of International Trade correctly granted summary judgment to the United States, concluding that Bormioli's interest payments did not fulfill the criteria established in TD 85-111. Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law, per U.S.Ct. Int'l Trade Rule 56(c). While Bormioli's payments met the initial requirement of being separately identified from the purchase price, the remaining criteria were disputed.
Bormioli claimed it satisfied the requirement for a written financing arrangement through letters dated January 8, 1987, December 11, 1987, and June 8, 1989, despite acknowledging deviations from these terms. However, the court noted that any modifications to the written agreement must also be documented in writing. Significant violations of the essential terms of the agreement—such as charging a higher interest rate than stipulated, failing to bill quarterly, and paying invoices late—remove the financing arrangement from TD 85-111 coverage. The essential terms of the letter agreement included the applicable interest rate, billing frequency, and payment deadlines, none of which were adhered to by Bormioli. Consequently, the court concluded that Bormioli failed to demonstrate compliance with the requirement that the financing arrangement be in writing, affirming the summary judgment ruling.
The requirements of TD 85-111 are conjunctive, meaning that not all conditions need to be met for compliance; therefore, it is unnecessary to evaluate whether Bormioli met the final condition regarding Customs' requirements for demonstrating the price paid and interest rates on financed transactions. The judgment of the Court of International Trade is affirmed.
Additional amounts to be included in appraisement are identified as: (A) packing costs incurred by the buyer for imported merchandise; (B) selling commissions related to the merchandise; (C) the apportioned value of any assist; (D) royalties or license fees that the buyer must pay related to the merchandise as a condition of sale for export to the U.S.; and (E) proceeds from any subsequent resale or use of the merchandise that benefit the seller, as defined in 19 U.S.C. 1401a(b)(1).
Excluded charges include: (A) reasonable costs for construction, assembly, or technical assistance related to the merchandise after importation, and transportation costs after importation; (B) customs duties and federal taxes due on imported merchandise, as outlined in 19 U.S.C. 1401a(b)(3).
The "price actually paid or payable" encompasses the total payment made or to be made by the buyer for the imported goods, which can take various forms beyond just monetary transfer, according to the 1994 GATT Interpretive Note.
Notably, many factors in TD 85-111 mirror those in TAA 43, including documentation requirements for financing transactions. However, TD 85-111 specifically mandates separate identification of interest charges and written financing arrangements, while allowing Customs to verify that the interest rate aligns with prevailing rates.
