15 C.F.R. Supplement No. 2 to Part 734—Calculation of Values for De Minimis Rules
Title 15 - Commerce and Foreign Trade
(a) Use the following guidelines in determining values for establishing exemptions or for submission of a request for authorization: (1) U.S. content value. (i) U.S. content value is the delivered cost to the foreign manufacturer of the U.S. origin parts, components, or materials. (When affiliated firms have special arrangements that result in lower than normal pricing, the cost should reflect “fair market” prices that would normally be charged to similar, unaffiliated customers.) (ii) In calculating the U.S. content value, do not include parts, components, or materials that could be exported from the United States to the new country of destination without a license (designated as “NLR”) or under License Exception GBS (see part 740 of the EAR) or under NLR for items classified as EAR99. (2) The foreign-made product value is the normal selling price f.o.b. factory (excluding value added taxes or excise taxes). (3) To determine the value of the U.S.-origin controlled content, you should classify the U.S.-origin content on the Commerce Control List, determine those items that would require a license from BIS for reexport to the ultimate destination of the foreign-made product if such parts, components, or materials were reexported to that destination in the form received, and divide the total value of the controlled U.S. parts, components, and materials incorporated into the foreign-made item by the sale price of the foreign-made item. (4) If no U.S. parts, components or materials are incorporated or if the incorporated U.S. parts, components, and materials are below the de minimis level, then the foreign-made item is not subject to the EAR by reason of §734.4 of this part, the classification of a foreign-made item is irrelevant in determining the scope of the EAR, and you should skip Step 4 in §732.2(d) and go on to consider Step 6 in §732.2(f) of the EAR regarding the foreign-produced direct product rule. Note to paragraph (a)—U.S. origin peripheral or accessory devices that are merely rack mounted with or cable connected into foreign equipment are not deemed to be incorporated components even though intended for use with products made abroad. Rather, such items are treated as U.S. items that retain their identity and remain subject to the EAR. (b) One-time report prior to reliance upon the de minimis exclusion. Report requirement. Before you may rely upon the de minimis exclusion for foreign software and technology commingled with U.S. software or technology, you must file a one-time report for the foreign software or technology. The report must include the percentage of U.S.-content by value and a description of your calculations including relevant values, assumptions, and the basis or methodologies for making the percentage calculation. The three criteria important to BIS in its review of your report will be the export price of the U.S.-content, the assumption regarding future sales of software, and the choice of the scope of foreign technology. Your methodologies must be based upon the accounting standards used in the operation of your business, and you must specify that standard in your report. Regardless of the accounting systems, standard, or conventions you use in the operation of your business, you may not depreciate the fair market values reported or otherwise reduce the fair market values by other accounting conventions such as depreciation. You may rely upon the de minimis exclusion from the commingled rule only to the extent you have reported the relevant calculations, values, assumptions, and the basis or methodologies for the calculations. These values may be historic or projected. You may rely on projected values only to the extent that and for so long as they remain consistent with your report or future values reduce the U.S.-content under your reported assumptions, basis, and methodologies. You are not required to file the above report if you do not choose to take advantage of the de minimis exclusion from the commingled rule. (2) Export price. The report must include a description of the U.S.-content including its classification on the Commerce Control List, its performance characteristics and features, and the method of calculating its fair market value. The fair market value shall be the arms-length transaction price, if it is available. If an arms-length transaction price is unavailable, then the report will describe the valuation method chosen to calculate or derive the fair market value. Such methods may include comparable market prices or costs of production and distribution. This rule does not require calculations based upon any one accounting system or U.S. accounting standards. However, you must specify the accepted accounting standards you have chosen, and cost-based methods of valuation must be based upon records you maintain in the normal course of business. You should also indicate whether reported values are actual arms-length market prices or derived from comparable transactions or costs of production, overhead, and profit. For example, if you chose to make calculations under the transfer pricing rules of the United States Internal Revenue Code at section 482, your report should indicate that this is the source for your methodology, and you should also indicate which of the several methodologies in these transfer pricing rules you have chosen. (3) Future software sales. For calculations of U.S.-content in foreign software, you shall include your historic and estimated future software sales in units and value along with the rationale and basis for those estimates in the report. Unlike parts incorporated into commodities, the cost of U.S. software code will be attributed or allocated to the future sales of foreign-made software incorporating the U.S. code, to determine the percentage of U.S. controlled content. In making this calculation for foreign-made software, you must make an estimate of future software sales of that foreign software if it is commingled with or incorporated with the U.S. code. The value of the U.S. code commingled with or incorporated into the foreign made software shall be divided by the total selling price of all foreign-made software units already sold, plus the total selling price of all foreign-made software units estimated for future sales. (4) Foreign technology and software. For calculations of U.S.-content in foreign technology and software, you shall include in the report a description of the foreign technology or software and a description of its fair market value along with the rationale and basis for the selection and valuation of such foreign software or technology. The report does not require information regarding destinations and end users for reexport. The purpose of the report is solely to permit the U.S. Government to evaluate the reasonableness of U.S.-content calculations. (5) Report and wait. If you have not been contacted by BIS concerning your report within thirty days after filing the report with BIS, you may rely upon the calculations in your report and the de minimis exclusions for software and technology for so long as you are not contacted by BIS. BIS may contact you concerning your report to inquire of you further or to indicate that BIS does not accept the assumptions or rationale for your calculations. If you receive such a contact or communication from BIS, you may not rely upon the de minimis exclusions for software and technology in §734.4 of this part until BIS has indicated whether or not you may do so in the future. You must include in your report the name, title, address, telephone number, and facsimile number of the person BIS may contact concerning your report. [61 FR 12746, Mar. 25, 1996, as amended at 62 FR 25456, May 9, 1997]
Title 15: Commerce and Foreign Trade
PART 734—SCOPE OF THE EXPORT ADMINISTRATION REGULATIONS
Supplement No. 2 to Part 734—Calculation of Values for De Minimis Rules
