CBP Releases Draft ICP with 'First Sale' Revisions, Documentation List

CBP "maintains the same rights and responsibilities in verifying the transaction value declared in a first sale transaction as it does in a sale in which the importer is the buyer," the agency says in one of the revisions to the ICP (here). The first sale rule allows importers, when there are multiple transactions prior to import into the U.S., to use the price paid in the 'first or earlier sale' as the basis for the customs value of the goods rather than the price the importer ultimately paid for the goods. The current ICP, last updated in 2005, makes little mention of first sale, saying only that it's up to the importer to rebut the presumption that a transaction value is based on the price actually paid or payable, rather than the first sale price. CBP didn't return a request for comment.

Documentation would have to establish the transaction value in a first sale transaction, including that the sale is bona fide and was destined for export to the U.S. The agency outlines multiple levels of potential documentation requirements depending on the relationship of the involved parties in draft additions to the ICP. "Specifically, the importer would be required to provide a different level of documentation to support the claim that 'first sale' should apply where the manufacturer and middleman are not related than when they are related," it said. "Secondly, the importer would also be required to provide a different level of documentation to support the claim that 'first sale' should apply where the manufacturer and middleman are related but there is another non-U.S. party who is the parent than when either the manufacturer or middleman are the parent. Thus no one set of documents will suffice for all cases." The draft also includes a number of example transactions and the documentation that the importer provided to support its use of "first sale" price.

The proposed ICP adds a list of documentation that the agency could consider when it looks at claims of first sale. CBP has said it would consider and likely remove items on the document list that the industry says it does not have access to. According to the draft, examples of documents that the agency may request when evaluating first sale "include but are not limited to":

• Purchase orders, confirmations, and emails regarding the order of the merchandise and subsequent revisions.
• Sales confirmations and emails regarding the order and subsequent revisions
• Documentation concerning price negotiations including price quotes, emails, price lists, accepted and rejected bids and cost elements comprising the value of the imported merchandise
• Contracts/agreements (purchase, sales, agency, distribution, shipping, etc.)
• Commercial invoices (manufacturers, subcontractors, middleman, vendors, ultimate consignees, and agents, and assist providers, as applicable).
• Transportation Records/Freight records from the manufacturer through the port of export and proof of payment, including foreign inland freight and freight from country of origin to country of export
• Transportation Records/Freight records from the supplier of assists to the manufacturer as well as the foreign entry summary for importation of the materials, if applicable
• Insurance for the imported merchandise from the factory door to the port of importation, including proof of payment (provide copy of letter of credit, wire transfer, and bank statement showing the actual debit for the payment as well as any additional banking documentation concerning the payment)
• Inventory records for the receipt of goods into inventory, including the middleman’s inventory and storage of merchandise prior to importation, as applicable
• Proof of payment to manufacturers, suppliers of assists, subcontractors, middlemen, vendors, trading companies, etc. for the cost of materials, finished goods and other charges related to the imported merchandise (provide copy of letter of credit, wire transfer, and bank statement showing the actual debit for the payment as well as any additional banking documentation concerning the payment)
• Proof of payment for commissions paid to all agents and subagents (provide copy of letter of credit, wire transfer, and bank statement showing the actual debit for the payment as well as any additional banking documentation concerning the payment)
• Form 7501 and invoices for any other merchandise paid for in conjunction with any bulk payment
• Documentation for any charge-backs or credit / debit memos issued in connection with the sampled transactions for quantity shortages, quality issues, price adjustments, etc., if applicable
• Importer’s accounting and financial records including the audited financial statements (including any notes and supporting schedules), trial balance, general ledger, cash disbursement and purchase journals (showing transaction level detail) for applicable period supporting the price actually paid or payable and all information relating to statutory additions
• Middleman’s accounting and financial records including, the audited financial statements (including any notes and supporting schedules), trial balance, general ledger, cash disbursement and purchase journals (showing transaction level detail) for applicable period supporting the price actually paid or payable and all information relating to statutory additions
• Manufacturer’s accounting and financial records including, the audited financial statements (including any notes and supporting schedules), trial balance, general ledger, cash disbursement and purchase journals (showing transaction level detail) for applicable period supporting the price actually paid or payable and all information relating to statutory additions
• Overall parent company’s accounting and financial records including, the audited financial statements (including any notes and supporting schedules), trial balance, general ledger, cash disbursement and purchase journals (showing transaction level detail) for applicable period supporting the price actually paid or payable and all information relating to statutory additions
• All contracts and agreements relevant to the import transactions including Agency Agreements, Purchasing Agreements, Financing Agreements, Distributorship Agreements, Royalty and License Agreements, Transfer Pricing Agreements, Advance Pricing Agreements, etc.
• Cost Sheets and Product Specification Sheets
• Records related to the manufacture, design, unique specifications or characteristics of the merchandise (labels, logos, stock numbers. bar codes, unique marks and markings, warranties, certifications).
• Industry pricing practices
• Marketing studies
• Sales to unrelated parties of similar or identical merchandise
• Financial and accounting records (financial statements; tax returns; chart of accounts; general ledger account activity; production records; labor, materials and overhead expense records; bills of materials; inventory records; selling, general and administrative expense records; etc.)
• Supplier Manuals
• Vendor Guidelines
• Export/freight documents
• Records relating to quality control and the disposition of rejected merchandise
• Invoice and proof of payment for hangers, if applicable
• Bills of lading
• Packing list
• Country of Origin Certificates
• Correspondence records

As is, the revised ICP is too vague, said Sandler Travis, which posted the draft (here) "The draft offers little further guidance to CBP auditors and other officials on how, when and to what extent to use the checklist," it said. This raises concerns that they will interpret this list as mandatory and require all the specified documents for first sale claims regardless of their relevance to validating the transaction under scrutiny. As a result, the mere issuance of this list could have a chilling effect on apparel and footwear manufacturers and importers who incorporate the First Sale Rule into their business models, the vast majority of which do so in a legitimate and legal way." The firm said it will submit comments to CBP "challenging any attempts to limit the legitimate use of the First Sale Rule."