First Sale Rule and Tariff Reduction
The First Sale Rule is a valuation method recognized by U.S. Customs and Border Protection. The rule provides for the value declared at entry to be based on the price paid for the first sale of the goods intended for export to the U.S. In other words the value can be based on the price to a middleman rather than the ultimate purchaser in a multi-tiered transaction.
The First Sale Rule requires the sale to be:
- Be negotiated at arm’s length
- Free from any non-market influences
- Involving goods clearly destined for the U.S.
The First Sale Rule was established by the Court of International Trade in Nissho Iwai American Corp. v United States, 16 C.I.T. 86 (Fed. Cir. 1992). Congress later limited CBP’s ability to revoke the rule in the 2008 Farm Bill (PL 110-234).
The First Sale Rule requires the importer to demonstrate both sales were bona fide. In evaluating whether a sale is bona fide, CBP considers who bears the risk of loss and when transfer of title occurs. CBP also considers whether the buyer can provide instructions to the seller and was free to sell to any customer.
CBP also considers test values (i.e. all costs plus a reasobable value) and the circumstances of sale in determining whether a value is compliant.
For more information please contact Erik Lieberman at erl@liebermanpllc.com or 202.830.0300.