Luigi Bormioli Corp., Inc. v. United States
304 F.3d 1362, 24 I.T.R.D. (BNA) 1481, 2002 U.S. App. LEXIS 18787 (2002)
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Rule of Law:
For interest charges on imported goods to be excluded from the dutiable transaction value, the importer must demonstrate that the charges are part of a bona fide financing arrangement that is made in writing and whose material terms are actually followed by the parties. Payments made under a written agreement from which the parties consistently and materially deviate will be considered part of the 'price actually paid or payable' for the merchandise.
Facts:
- Luigi Bormioli Corp. ('Bormioli'), a U.S. corporation, imported glassware purchased from its Italian parent company, Luigi Bormioli S.p.A. ('Bormioli Italy').
- Typically, payment for the glassware was due within 60 days of the invoice date.
- In a series of letters, Bormioli Italy agreed to extend Bormioli's payment deadline to 90 days.
- The letter agreement stipulated that for payments made after 60 days, Bormioli would pay interest at the then-prevailing Italian prime rate, with such payments due quarterly.
- During the 1996 entries at issue, Bormioli paid a charge of 1.25% per month (15% annually) on a separate 'corporate charge invoice' for delaying payment from 60 to 90 days.
- The actual prevailing prime rate in Italy in 1996 was approximately 11.1%, not the 15% rate Bormioli paid.
- Bormioli made these 'interest' payments on an accrued basis every six to twelve months, not quarterly as specified in the agreement.
- Bormioli also frequently paid the principal invoices for the glassware after the 90-day deadline had passed.
Procedural Posture:
- The United States Customs Service ('Customs') appraised Bormioli's imported glassware and determined that the transaction value should include an additional 1.25% charge Bormioli paid to its parent company.
- Bormioli filed a lawsuit in the United States Court of International Trade, a court of first instance, to challenge Customs' determination.
- On cross-motions for summary judgment, the Court of International Trade granted judgment in favor of the United States.
- Bormioli, as appellant, appealed the judgment to the United States Court of Appeals for the Federal Circuit, with the United States as appellee.
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Issue:
Does an additional charge paid by an importer to its foreign parent company for delayed payment qualify as an excludable interest charge when the parties consistently deviate from the essential terms of their written financing agreement regarding the interest rate and payment schedule?
Opinions:
Majority - Archer, Senior Circuit Judge
No. The additional charge does not qualify as an excludable interest charge because it was not made pursuant to a bona fide financing arrangement whose material terms were actually followed. The U.S. Customs Service's policy, TD 85-111, provides the proper framework for determining whether a payment is a bona fide interest charge or part of the dutiable 'price actually paid or payable' for merchandise. To be excluded, an interest charge must, among other things, be made pursuant to a written financing arrangement. This requires not merely the existence of a written agreement, but that the agreement actually governs the transaction. Here, Bormioli and Bormioli Italy materially deviated from all three essential terms of their written agreement: the interest rate (15% vs. the required ~11.1% prime rate), the payment frequency (6-12 months vs. quarterly), and the principal payment deadline (often paid late). Because the parties did not adhere to the written agreement, it was not the true 'financing arrangement in question,' and the payments were correctly included in the dutiable transaction value to prevent manipulation of customs duties.
Analysis:
This decision solidifies the principle that substance prevails over form in customs valuation. It clarifies that a written financing agreement is not a 'safe harbor' for excluding payments from dutiable value if the parties' actual conduct deviates from the agreement's material terms. The ruling strengthens Customs' ability to scrutinize transactions, especially between related parties, to prevent importers from artificially lowering the price of goods by labeling part of the payment as 'interest.' The case serves as a precedent requiring importers to demonstrate strict adherence to their financing agreements to benefit from the interest charge exclusion.
