United States: Is CBP Signaling A Renewed Enforcement Interest In The First Sale Rule?

Last Updated: July 18 2014
Article by Lindsay B. Meyer and Amanda C. Blunt

Revised Guidance Shares an Extensive Document List that May be Required to Verify Value

With importers increasingly relying on the use of the multi-tier "first sale" to a middleman for value declarations, U.S. Customs and Border Protection (CBP) is reminding the trade community that audits are well within their jurisdiction and that penalties may ensue for anyone misusing or abusing the rule. On July 9, 2014, CBP circulated a draft amended Informed Compliance Publication (ICP) entitled Bona Fide Sales and Sales for Export to the United States, and requested comments from importers on the updates.

The most important update is the inclusion of Appendix I, which boasts an extensive list of documentation that CBP may request in order to substantiate the importer's declaration of the first sale value. The list includes, but is not limited to:

  • Purchase orders and sale confirmations;
  • Documentation concerning price negotiations;
  • Transportation and freight records;
  • Insurance for the imported merchandise from the factory door to the port of importation;
  • Inventory records, including the middleman's inventory and storage of the merchandise prior to importation;
  • Proof of payment to manufacturer, suppliers of assists, etc.;
  • Proof of payment of commissions to agents;
  • Importer's, middleman's, manufacturer's, and parent's accounting and financial records;
  • Cost sheets and product specification sheets;
  • Industry pricing and marketing studies;
  • Supplier manuals, vendor guidelines, and records relating to quality control; and
  • Correspondence records.

ICP Prompts Importers to Review First Sale Rules

All goods imported into the United States are appraised in accordance with CBP's regulations at 19 C.F.R. Part 152. The preferred method of appraisement is "transaction value," defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus certain statutory additions. In a 1992 seminal case, the Court of Appeals for the Federal Circuit ruled that when there is more than one sale in the supply chain, the first sale transaction value is acceptable under the valuation statute provided that sale is negotiated at arm's length, free from any non-market influences, and of goods clearly destined for the United States. See Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (Ct. Int'l Trade), reversed in part, 982 F.2d 505 (Fed. Cir. 1992). CBP has stated that in order to benefit from the first sale value in a multi-tier transaction, an importer must demonstrate that the first sale price meets this standard. In auditing such declarations, CBP considers "the circumstances of the transaction" including passage of title, assumption of the risk of loss, payment of consideration, ability of the buyer to instruct the seller, ability of the buyer to resell the merchandise at any price to any customer, and the ability of the buyer to order merchandise for the buyer's own account, when assessing whether the requisite factors are present.

Is Revised ICP Signaling a New First Sale Audit "Trend?"

Unlike a statutory amendment or agency rulemaking, ICPs cannot effect substantive regulatory change. At first blush, the reissued ICP appears to inform compliance by reiterating and clarifying existing regulatory requirements and enforcement practices. Through this latest revision, CBP formalizes and publicizes its audit requirements when determining whether an asserted "first sale" is viable for its value declaration.

CBP's focus and audit practices regarding first sale reviews have been evolving over the years. Previously, importers and counsel relied on CBP rulings, court holdings, and informal guidance to identify or confirm such "trends." For example, in prior CBP Ruling HQ H008101 (Oct. 9, 2012), CBP noted that "the courts, based on the cases previously discussed, no longer focus on the relationship between the related parties, but instead focus on the consideration exchanged between them." The revised ICP attempts to increase transparency by highlighting such trends and priorities for importers in advance of an audit or ruling request.

Stronger Statements of Existing Policy May Signal a New Enforcement Push

Of particular interest among the "new" statements in the revised ICP is Question 22, "What documentation and information is needed to support a determination that transaction value should be properly based on a sale to which the importer is not the buyer?" CBP warns that the agency "maintains the same rights and responsibilities in verifying the transaction value declared in the first sale transaction as it does in a sale in which the importer is the buyer." Examples of documentation that CBP may require in support of transaction value are expressly stated in Appendix I. Relying upon the documentary standards originating from Treasury Decision 96-87, this Appendix lists an expansive catalogue of documentation transacted between and among the foreign manufacturer, middleman, and importer as well as that extending to third parties, such as freight forwarders, ocean carriers, and insurers. CBP's response to Question 22 directs that "no one set of documentation will suffice for all cases," because the level of documentation required to support the first sale claim depends on whether: (1) the manufacturer and middleman are related; and (2) the manufacturer and middleman are related but another non-U.S. party is the parent. Essentially, CBP may, in fact, require extensive records from all parties to the transaction from the ultimate consignee, importer, middleman, agent, and even the factory in order to adequately verify the first sale claim made.

While stakeholders may interpret the ICP as adding new obstacles to establishing a first sale, the reissued ICP may be more accurately characterized as CBP's friendly warning shot to industry, possibly signaling a renewed enforcement interest in existing regulatory requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions