HQ 546798

July 31, 1998

RR:IT:VA 546798 MWM

CATEGORY: Valuation

Carl D. Cammarata

Law Offices of George R. Tuttle

Three Embarcadero Center, Suite 1160

San Francisco, California 94111

RE: Prospective Ruling Request for Porsch Cars North America, Inc.

Dear Mr. Cammarata:

This is in response to your request of July 10, 1997 on behalf of Porsch
Cars North

America, Inc.(\"PCNA\"), regarding the dutiability of a refundable
security deposit with respect to

the importation of automobiles into the United States. We regret the
delay in responding.

FACTS:

Counsel states that PCNA is an importer and authorized distributor of
automobiles for

resale in the United States. PCNA participates in a program called the
\"American Tourist

Delivery Program.\" The program allows an American customer, who is
planning to travel as a

tourist in Germany, to place an order with a PCNA dealer for automobile
delivery at the Porsch

factory. The customer can then use the vehicle while in Europe, prior to
shipping it to the United

States. The program is designed for personal use of the vehicles only,
it is not designed for

commercial resale purposes.

When a customer purchases a car through the American Tourist Delivery
Program, he or

she must sign the Tourist Delivery Program car order form.\' This form,
submitted by counsel,

indicates the specifications for the car, vehicle insurance and
registration applications, requested

date of delivery and acknowledgment of release. The price of the car and
other charges are listed

on the form. Counsel also submitted the February 1998, Tourist Delivery
Procedures Manual,

which outlines the purchase process.

According to counsel, when an order is placed, the dealership will
collect a refundable

deposit to cover the cost of the German \"Value Added Tax.\" (\"VAT\")
In accordance with the

Tourist Delivery Procedures Manual (February 1998), this tax is to be
listed separately on the

invoice as the VAT. This tax is levied on the automobile in the event
that it is not exported to

the United States. When the car is exported from Germany to Canada or
the United States, the

deposit, plus interest, is refunded to the customer. However, if the car
is not exported to the

United States or Canada, within six months of the date of delivery, the
deposit is forfeited, and

paid over to the German governmental authorities as the VAT.

You indicate that when the U.S. customer takes delivery of the
automobile in Germany,

the VAT is not due to the German government, since the vehicle is sold
for exportation to the

United States and intended to be used temporarily in Europe before
exportation. However, if the

tourist changes his or her mind and decides to keep or resell the
vehicle in Germany, the VAT

becomes due. If this occurs, the German tax authorities will collect the
VAT from the German

manufacturer, because t will be difficult to locate the tourist and/or
vehicle to collect the tax. To

the manufacturer passe the expense onto PCNA, who, in turn, uses the
customer\'s security

deposit to satisfy the expense.

When the customer exports the vehicle from Germany, the act of
exportation both

alleviates the German requirement of the VAT and satisfied the PCNA
condition precedent for

the refund of the deposit (plus interest). However, until PCNA is
notified by the Pre Delivery

Inspection Center that the car has arrived in the United States, the
refund, with interest, will not

be issued. In addition, if the customer fails to properly export the
tourist vehicle to the U.S. or

Canada, the deposit will be forfeited.

ISSUE:

Whether the refundable security deposit should be included in the
transaction value of the

imported vehicles, assuming transaction value is applicable as a means
of appraisement.

LAW AND ANALYSIS:

The preferred method of appraisement is transaction value. Transaction
Value is defined

in §402, Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA: 19 U.S.C.

1401a), as the price actually paid or payable for the merchandise when
sold for exportation to

the United States, plus amounts for items specifically enumerated in
§402(b)(1) of the TAA.

The term\"price actually paid or payable\" is defined in §402(b)(4)(A)
as:

\"\...the total payment (whether direct or indirect, and exclusive of
any costs, charges, or

expenses incurred for transportation, insurance, and related services
incident to the international

shipment of the merchandise from the country of exportation to the place
of importation in the

United States) made, or to be made, for imported merchandise by the
buyer to, or for the benefit

of the seller.\"

Although you have not inquired about the use of transaction value, it
may become an

issue with regard to certain customers. Depending upon the extended
period of time that a U.S.

customer uses the vehicle abroad, there may not be and \"exportation to
the United States\" at the

time of the sale. This would eliminate the use of transaction value.

For example, we have held that a vehicle that is purchased in a foreign
country, and used

for an extended period of time, prior to its exportation, cannot be
considered to have been sold

for export to the United States. See, Headquarters Ruling No. 542962
dated, December 29, 1982

and 543210, dated April 11, 1984. However, in this case, you indicate
that if the car is not

exported within six months of the date of delivery, the deposit is
forfeited and paid over to the

German governmental authorities as the VAT. Therefore, for purposes of
this decision, we

assume that the vehicles are imported within six months of delivery.
Based on this assumption,

and the additional facts presented regarding the American Tourist
Delivery Program, we are

satisfied that the vehicles in question are sold for exportation to the
United States.

In Caterpillar, Inc., v. United States, 941 F. Supp. 1241 (1996), appeal
dismissed, CIT,

Slip Op. 96-158 (1997), Caterpillar, Inc., purchased truck components
from a British company.

The merchandise was not exported immediately following payments, but
remained in the seller\'s

inventory for up to five months. The British government assessed a VAT
upon the sale of the

merchandise. The invoice from the seller to Caterpillar, Inc., included
an amount for the

merchandise and a separate amount for the VAT. Subsequently,
Caterpillar, Inc., received full

refunds directly from the British government of all the VAT payments. In
that case the Court

held that the VAT sums, remitted to and the subsequently refunded by the
British government,

were not to be included in the transaction value of the imported
merchandise.

We agree with your conclusion that the security deposit should not be
included in the

transaction value of the imported vehicles. The amount deposited will be
refundable to the

customer upon the arrival of the vehicle into the United States. In
addition, the VAT amount is

to be separately stated on the invoice per the Tourist Delivery
Procedures Manual (February

1998). Further, the VAT deposit will be paid to the German government
only if the vehicle is

not imported into the United States within six months.

HOLDING:

Based on the relevant factors and documents submitted, the refundable
security deposit or

a VAT should not be included in the transaction value of the imported
vehicle, assuming the

vehicles are imported within six months of delivery.

Sincerely,

Acting Director

International Trade Compliance Division