December 30, 2009
ENT-1-03 OT:RR:IT:DR H080181 RFA
Mr. D. Scott Johnson Senior Director, Global Trade Compliance Gap, Inc. 2 Folsom Street San Francisco, CA 94105
RE: Right to make entry; importer of record; 19 U.S.C. § 1484 Dear Mr. Johnson:
This is in response to your letter, dated October 6, 2009, requesting a binding ruling as to whether Gap, Inc. ("GAP"), can make entry as importer of record on behalf of its subsidiary entities. In reaching our decision, we considered the information in our conference call of November 17, 2009, as well as the information contained in your submission of December 21, 2009. Our ruling in this matter follows.
GAP as a corporation consists of its own name brand as well as numerous other legal entities, including several wholly-owned subsidiaries. Currently, GAP imports goods under individual subsidiary importer of record designations based on the legal entity that is the purchaser as identified on the purchase order issued to the foreign product vendor. GAP, through its Officers and Directors, directs and exercises control over these subsidiaries and owns 100% of all outstanding shares of stock in each subsidiary.
GAP and its subsidiaries recently entered into an Intercompany Agreement Regarding Customs Payments ("the Agreement") that obligates GAP to pay the duties and related fees due to Customs and Border Protection ("CBP") for each import transaction by the purchasing entities. The Agreement also provides that the costs paid by GAP on behalf of each purchasing entity shall be charged back to the purchasing entity at the end of each month in which the payments were made, and shall be paid to GAP. The Agreement is valid for a one year period and shall automatically renew without notice for successive one year periods unless terminated by one of the parties as provided by the terms of the Agreement.
In further support of its claim that it has a financial interest in the transaction to qualify as importer of record, GAP cites to: trade letters of credit used to pay foreign vendors for transactions relating to importations by its subsidiaries; all accounting records for the parent company and the subsidiaries appear under a consolidated financial reporting system; and that GAP serves as a co-principal with the subsidiaries on CBP bond obligations.
Whether GAP has a financial interest in the import transaction of its subsidiaries in that it may act as importer of record for importations purchased by one or all of its wholly-owned subsidiaries under 19 U.S.C. §1484?
LAW AND ANALYSIS:
Under 19 U.S.C. § 1484(a)(1), a party that qualifies as an "importer of record" may make entry for imported merchandise; and under 19 U.S.C. 1484(a)(2)(B), in pertinent part, the importer of record may be either the owner or purchaser of the merchandise. CBP Directive 3530-002A, dated June 27, 2001, is instructive in interpreting the meaning of the terms "owner or purchaser" for purposes of section 1484(a)(2)(B):
The terms "owner" and "purchaser" include any party with a financial interest in the transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc.
CBP Directive 3530-002A, at section 5.3.1 (emphasis added). Notably, the principal purpose of current section 1484 is to prevent mere nominal consignees, other than licensed customs brokers, from filing entries and engaging in the transaction of customs business without a license (ibid., at section 5.1.4).
CBP has addressed the issue of whether a parent company may make entry for a related company on several occasions. CBP has consistently held that because a parent corporation and a subsidiary are in law separate and distinct entities, a parent corporation could not make entry for its subsidiary. See e.g., HQ 114116, dated February 2, 1998; HQ 115248, dated August 28, 2001; HQ 223804, dated June 29, 1992. As the companies are considered separate and distinct entities, an employee of one corporation could not make entry for the other corporation. See HQ 114116. "Stock
ownership by one corporation is not included within the definition of owner or purchaser set forth in [CBP] Directive 3530-002". See HQ 225357, dated December 22, 1994. Based on the rulings cited above, we find that GAP cannot serve as importer of record for its subsidiaries because GAP and its subsidiaries are separate and distinct legal entities.
In its submissions, GAP argues that it has a "financial interest in the transaction" as defined in CBP Directive 3530-002A. In support of this claim, you cite to HQ H003868, dated March 22, 2007, in which CBP held that a customer had a financial interest in the transaction to act as the importer of the record. The customer could not be considered the owner of the goods until delivery and acceptance occurred based on the terms of the sales agreement. In examining whether the customer had a financial interest in the transaction, CBP stated that: "When establishing what relationship parties have to one another in a transaction ‘The Relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the Case itself’." See HQ H003868 (case citation omitted). CBP found that the language in the sales agreement supported the finding that a purchase had occurred prior to the goods entering the United States. The fact that the customer was the purchaser in combination with the customer having an additional financial interest in the transaction based in part on the customer being responsible for all costs (including import duties and brokerage fees) other than insurance incurred to transport the goods, led CBP to the conclusion that the customer had a financial interest in the transaction as the purchaser of the imported goods.
To determine whether GAP has a financial interest, we must examine the relationship the parties have to one another in the transaction by viewing the entire situation of the relationship. See HQ H003868. In HQ 231255, dated March 28, 2006, CBP stated that the requisite financial interest to be considered an owner or purchaser is when the entity in some significant way is expecting or relying on a financial benefit from the goods. See also HQ H007168, dated August 2, 2007. Unlike the customer in HQ H003868, GAP is not the purchaser of the imported goods. According to the terms of the Agreement between GAP and its subsidiaries, we note that the obligation for GAP to pay all duties and related fees to CBP for each transaction is mitigated by the obligation of the subsidiaries to pay back all of the costs paid by GAP. The Agreement acts as an interest-free loan from GAP to its subsidiaries. Further, the only means of enforcing the terms of the Agreement is compliance with GAP’s policies. The Agreement is governed and construed in accordance with the internal laws of the State of California as applied to contracts. The Agreement does not create any right or interest for GAP in the goods purchased by the subsidiaries. The subsidiaries are the purchaser of the goods in the present situation. The Agreement does not give GAP title to the imported goods. GAP also does not gain a financial benefit from the goods, nor does GAP perform substantive post-entry procedures on the goods that would give GAP a sufficient financial interest in the goods. See e.g., HQ 115805, dated January 7, 2003. We find that the Agreement does not create a financial interest for GAP in the import transactions of its subsidiaries and, therefore, GAP cannot enter goods as importer of record for its subsidiaries. It should also be noted that the payment of customs duties is considered "customs business" as defined in 19 U.S.C. § 1641(a)(2) and that an unlicensed entity cannot conduct customs business for another entity. See HQ 115248.
GAP does not have a financial interest in the import transactions of its subsidiaries and cannot act as importer of record for importations purchased by one or all of its wholly-owned subsidiaries under 19 U.S.C. §1484. Sincerely, William G. Rosoff, Chief Entry Process & Duty Refunds Branch