Supplement No. 2 to Part 734 - Guidelines for De Minimis Rules
15:2.1.3.4.23.0.1.21.28 :
Supplement No. 2 to Part 734 - Guidelines for
De Minimis
Rules
(a) Calculation of the value of controlled U.S.-origin content
in foreign-made items is to be performed for the purposes of §
734.4 of this part, to determine whether the percentage of
U.S.-origin content is de minimis. (Note that you do not
need to make these calculations if the foreign made item does not
require a license to the destination in question.) Use the
following guidelines to perform such calculations:
(1) U.S.-origin controlled content. To identify
U.S.-origin controlled content for purposes of the de
minimis rules, you must determine the Export Control
Classification Number (ECCN) of each U.S.-origin item incorporated
into a foreign-made product. Then, you must identify which, if any,
of those U.S.-origin items would require a license from BIS if they
were to be exported or reexported (in the form in which you
received them) to the foreign-made product's country of
destination. For purposes of identifying U.S.-origin controlled
content, you should consult the Commerce Country Chart in
supplement no. 1 to part 738 of the EAR and controls described in
part 746 of the EAR. Part 744 of the EAR should not be used to
identify controlled U.S. content for purposes of determining the
applicability of the de minimis rules. In identifying
U.S.-origin controlled content, do not take account of commodities,
software, or technology that could be exported or reexported to the
country of destination without a license (designated as “NLR”) or
under License Exception GBS (see part 740 of the EAR). Commodities
subject only to short supply controls are not included in
calculating U.S. content.
Note to paragraph (a)(1):
U.S.-origin controlled content is considered ‘incorporated’ for
de minimis purposes if the U.S.-origin controlled item is:
Essential to the functioning of the foreign equipment; customarily
included in sales of the foreign equipment; and reexported with the
foreign produced item. U.S.-origin software may be ‘bundled’ with
foreign produced commodities; see § 734.4 of this part. For
purposes of determining de minimis levels, technology and
source code used to design or produce foreign-made commodities or
software are not considered to be incorporated into such
foreign-made commodities or software.
(2) Value of U.S.-origin controlled content. The value of
the U.S.-origin controlled content shall reflect the fair market
price of such content in the market where the foreign product is
being produced. In most cases, this value will be the same as the
actual cost to the foreign manufacturer of the U.S.-origin
commodity, technology, or software. When the foreign manufacturer
and the U.S. supplier are affiliated and have special arrangements
that result in below-market pricing, the value of the U.S.-origin
controlled content should reflect fair market prices that would
normally be charged to unaffiliated customers in the same foreign
market. If fair market value cannot be determined based upon actual
arms-length transaction data for the U.S.-origin controlled content
in question, then you must determine another reliable valuation
method to calculate or derive the fair market value. Such methods
may include the use of comparable market prices or costs of
production and distribution. The EAR do not require calculations
based upon any one accounting system or U.S. accounting standards.
However, the method you use must be consistent with your business
practice.
(3) Foreign-made product value - (i) General. The
value of the foreign-made product shall reflect the fair market
price of such product in the market where the foreign product is
sold. In most cases, this value will be the same as the actual cost
to a buyer of the foreign-made product. When the foreign
manufacturer and the buyer of their product are affiliated and have
special arrangements that result in below-market pricing, the value
of the foreign-made product should reflect fair market prices that
would normally be charged to unaffiliated customers in the same
foreign market. If fair market value cannot be determined based
upon actual arms-length transaction data for the foreign-made
product in question, then you must determine another reliable
valuation method to calculate or derive the fair market value. Such
methods may include the use of comparable market prices or costs of
production and distribution. The EAR do not require calculations
based upon any one accounting system or U.S. accounting standards.
However, the method you use must be consistent with your business
practice.
(ii) Foreign-Made Software. In calculating the value of
foreign-made software for purposes of the de minimis rules,
you may make an estimate of future sales of that foreign software.
The total value of foreign-made software will be the sum of: The
value of actual sales of that software based on orders received at
the time the foreign software incorporates U.S.-origin content and,
if applicable; and an estimate of all future sales of that
software.
Note to paragraph (a)(3):
Regardless of the accounting systems, standard, or conventions
you use in the operation of your business, you may not depreciate
reported fair market values or otherwise reduce fair market values
through related accounting conventions. Values may be historic or
projected. However, you may rely on projected values only to the
extent that they remain consistent with your documentation.
(4) Calculating percentage value of U.S.-origin items. To
determine the percentage value of U.S-origin controlled content
incorporated in, commingled with, or “bundled” with the foreign
produced item, divide the total value of the U.S.-origin controlled
content by the foreign-made item value, then multiply the resulting
number times 100. If the percentage value of incorporated
U.S.-origin items is equal to or less than the de minimis
level described in § 734.4 of the EAR, then the foreign-made item
is not subject to the EAR.
(b) One-time report. As stated in paragraphs (c) and (d)
of § 734.4, a one-time report is required before reliance on the
de minimis rules for technology. The purpose of the report
is solely to permit the U.S. Government to evaluate whether U.S.
content calculations were performed correctly.
(1) Contents of report. You must include in your report a
description of the scope and nature of the foreign technology that
is the subject of the report and a description of its fair market
value, along with the rationale and basis for the valuation of such
foreign technology. Your report must indicate the country of
destination for the foreign technology reexports when the
U.S.-origin controlled content exceeds 10%, so that BIS can
evaluate whether the U.S.-origin controlled content was correctly
identified based on paragraph (a)(1) of this Supplement. The report
does not require information regarding the end-use or end-users of
the reexported foreign technology. You must include in your report
the name, title, address, telephone number, E-mail address, and
facsimile number of the person BIS may contact concerning your
report.
(2) Submission of report. You must submit your report to
BIS using one of the following methods:
(i) E-mail: [email protected];
(ii) Fax: (202) 482-3355; or
(iii) Mail or Hand Delivery/Courier: U.S. Department of
Commerce, Bureau of Industry and Security, Regulatory Policy
Division, 14th and Pennsylvania Avenue NW., Room 2099B, Washington,
DC 20230.
(3) 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 described in
the report unless and until BIS contacts you and instructs you
otherwise. BIS may contact you with questions concerning your
report 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 within thirty days after filing the report
with BIS, you may not rely upon the calculations described in the
report, and may not use the de minimis rules for technology
that are described in § 734.4 of this part, until BIS has indicated
that such calculations were performed correctly.
[73 FR 56969, Oct. 1, 2008, as amended at 78 FR 13468, Feb. 28,
2013]