CBP Says Importer May Revise Maquiladora Costs to Reflect Accounting Principles
CBP will allow the 17/21 Group, an apparel importer, to revise a cost submission for reconciliation purposes in order to fall within Generally Accepted Accounting Principles (GAAP), the agency said in a Feb. 19 ruling. The ruling, HQ H242984, was in response to an internal advice request from the Port of Phoenix. The company sought advice from the Port of Phoenix on its ability to address cost irregularities it found related to the operations of a maquiladora it owns in Mexico. The importer is in CBP's reconciliation program and planned to submit final values for the year in question following the CBP decision, the ruling said.
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The maquiladora facility in Mexico, called T-Mex, provided a number of finishing operations for 17/21 jeans, before the products were imported into the U.S. and appraised using computed value, said CBP. T-Mex stopped providing the services for 17/21 in 2011 after the importer shifted production to unrelated contract assemblers, it said. After Aug. 4, 2011, T-Mex functioned solely as a distribution center, i.e., it received finished garments from unrelated plants around Mexico and then sent garments to 17/21 in the U.S. From Aug. 5 to the end of 2011, T-Mex performed no production at its plant and 17/21 provided an email sent by 17/21’s Chief Financial Officer to T-Mex’s landlord that said 17/21 has decided to close the plant, the agency said.
The winding down of T-Mex's operating expenses created some irregularities in accounting, which resulted in an improper 2011 Cost Submission, said CBP. The cost submission included a "complete 12-month period of costs in its budget for the T-Mex facility, including production and labor costs, and administrative, general, and overhead expenses," said CBP. "These expenses were incorrectly reported because T-Mex only operated as a production facility for eight out of the twelve months in 2011. Therefore, 17/21 proposes to reduce the amount for direct labor costs, overhead production costs, and general and administrative costs, appearing on the books of T-Mex, by 66.66% to reflect the four months of 2011 during which no garments were produced by T-Mex."
CBP allows for companies to maintain their own books as long as the accounting adheres to GAAP, said CBP.The importer should have adjusted its standard costs for several accounts after the T-Mex stopped the finishing operations, but 17/21 did not. "Thus, the amounts in these accounts were wrong and not recorded in the producer’s books in accordance with GAAP (even after the producer’s books were closed) because 17/21 forgot to make the appropriate accounting adjustments so that the final amounts for the affected accounts reflected the costs that were actually incurred," said CBP. The company provided the necessary documentation showing when the maquiladora closed and the related accounting irregularities, said CBP. "Accordingly, we find that 17/21 must report to CBP the amounts that should have been recorded as the final actual costs on its books to reflect the closing of T-Mex facility in order to comply with GAAP," it said.