CBP, Importer Agree on Use of Assist Formula for Individual Parts
An importer that uses foreign engineering and design work may distribute the costs of that work across the company's imports for an entire year, said CBP in a June 19 ruling. The ruling, HQ H231836, came in response to a request from the undisclosed importer and its lawyer, Kathleen Murphy of Drinker Biddle. Due to some limitations in the company's knowledge of which imports make use of the engineering and design work, known as assists, the importer asked if it could be allowed to use a modified formula. While most of the company's imports are duty-free, assist costs are otherwise required to be included in transaction value for import purposes.
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The company's work is such that it's difficult to "apportion the costs of the foreign engineering and design services to individual imported parts because such work is not tracked on the basis of a detailed part or drawing related to a specific part or assembly, but instead is accounted for on an aggregate basis," said the ruling. As a result, the company has developed a foreign engineering design cost formula that it would like to apply to the import values of a number of products, it said. Under the formula, the annual foreign engineering and design costs purchased would be divided by the annual cost of goods sold (COGS) less all engineering costs, the company said. That percentage would then be "applied to all imported goods which may have benefited from a foreign design or engineering assist" except for some products that never would benefit from the assists, it said. The percentage factor would also be updated on an annual basis.
Although the company would prefer to use estimated costs, rather than actual costs, for the COGS number, the company "indicated a willingness to use the modified formula," said CBP. The annual COGS amount in the formula "includes both imported and domestically produced goods, i.e., the assembled components sold," it said. "Imported products are also similarly considered inventory costs, in that they are accumulated into inventory on the balance sheet until incorporated into the cost of production units." The COGS amount reflects the contract accounting apportionment of all productions costs for the company, it said.
CBP agreed that it makes sense for the company to use the formula. "Given that the goods are primarily duty-free, we do not have the issue of distributing the assist over different dutiable values," it said. "To the extent that actual COGS will be used via reconciliation and assists costs will be attributed to the extent possible to the goods when they are actually imported (as indicated due to varying turn-around time), we find that the cost factor allocation is reasonable given the circumstances and goods under consideration."