Importers should beware that if you furnish materials, components, machinery or even certain types of engineering, development or art work to your overseas manufacturer under most circumstances the costs of these "assists" must be declared to Customs as part of the imported merchandise's value for duty assessment purposes.
Importers should pay close attention to their transactions and should take steps to assure that they are familiar with Customs laws and their obligations under those laws. One particular area warranting examination by importers is how their goods are valued for duty assessment purposes.
Most experienced importers are aware that the Customs laws of the United States provide for a variety of ways to value imported merchandise. Since Customs duties are generally based on a percentage of the value of the imported goods, the value assigned to the goods is just as important as the tariff classification of the goods and the corresponding rate of duty. However, both experienced and novice importers alike frequently overlook that aspect of the Customs value laws pertaining to assists.
The term "assists" is generally used by Customs to refer to items which form a part of the value of imported merchandise, but may not necessarily be reflected in the invoiced price from the foreign seller to the United States importer. Since the invoiced price is normally the value of the merchandise for the purpose of duty assessment, assists frequently go unreported to Customs. The resulting underpayment of duty leads to penalty cases and the assessment of additional duties that should have been paid in the first instance.
For example, if a United States importer furnished sewing machines free of charge to a foreign manufacturer to be used for production of goods sold by the manufacturer to the importer, the cost of such sewing machines would under most circumstances become a component of the value of the imported goods. As such, the value of the machines would need to be declared to Customs and duty paid on such value. This would be true even if the sewing machines were of United States origin. The duty rate applicable to the sewing machines would be the same rate as that applicable to the imported goods that were made using the machines.
The sewing machines referenced above are just one example of a dutiable "assist." Customs law defines "assists" to mean items supplied directly or indirectly, and free of charge or at a reduced cost, by the buyer of imported merchandise for use in connection with the production or sale of merchandise for export to the United States. Other dutiable "assists" can include such items as materials, components, parts, tools, dies, molds, products consumed in the manufacture of the imported merchandise and other similar articles. "Assists" also include merchandise consumed in the production of imported merchandise; engineering, development, art work, design work and plans and sketches that are undertaken elsewhere than in the United States that are necessary for the production of the imported merchandise. While this is not an all-inclusive list of "assists," it is intended to provide importers with a general idea of what may constitute a dutiable "assist."
Much can be written on the topic of "assists," ranging from how "assists" are defined and valued, to how they are depreciated and apportioned over imported merchandise. All of these areas are very fact-specific and may vary from case to case. While such information is obviously quite important, what is of even greater consequence is that importers be aware that "assists" are dutiable items that may be present in their import transactions.
If there is any payment or transfer of an item of value either directly or indirectly from an importer to a foreign manufacturer, either free of change or at reduced cost, and that item of value is somehow connected to the manufacture or sale of the imported merchandise, the importer's "alarm" mechanism should sound that it may be a dutiable expense. Even if the item is not technically defined as an assist it may still be dutiable as an indirect payment for the merchandise.
Because "assists" seems to be an area of the value laws not always focused upon by importers, "assists" can become a trap for the unwary. Typically, the existence of "assists" in import transactions will be discovered by Customs import specialists, Customs auditors or Customs agents. When this happens, penalty proceedings for failure to declare the "assists" are often commenced against the importer, resulting in fines many times more than the duties that would have been owed if the assists had been properly declared.
Importers should examine their existing policies and procedures to be certain they conform to the law and that dutiable "assists" are not going unreported. Money spent in avoiding an assist problem will normally net a return on investment many times over when compared to the substantial sums that would be spent defending a penalty action.
F. Gordon Lee is a partner in the Washington, DC office of Nossaman LLP. He has more than three decades of experience in customs, export control, and international trade law. He has successfully represented major multi-national companies, as well as medium and small-sized companies, and individuals on a wide range of import and export issues before numerous government agencies. He can be reached at 202.887.1463 or email@example.com.