gopro’s ftz program enter us commerce immediately and mpf and brokerage (chb) fees assessed on a...

GoPro’s FTZ Program US Import Strategy - Customs Duty & Tax Minimization

Jeremiah Pomerleau / Senior Manager, Transportation & Trade Compliance

2017 XXI Conferencia Zonas Francas De Las Americas – Tenerife, Canary Islands, Spain

Baa! Did he

really say

“Wool”?

Baa! Customs

duty and taxes

are no match

for me!

$30-35M Freight

1.7M+ Transactions

32 INTL Trade Lanes

$12-16M Duty & Tax

3000 SKUs / 145+HS

Transportation – Global inbound, outbound and inter-company for all modes

Import Trade Compliance – Global

Export Trade Compliance – US centric

Freight Bill Audit & Payment – Global

Logistics &

Trade Rule!

* Depiction of primary origin-destination pair only, actual sea/air port routing varies by carrier and service

Singapore

Vendors/Manufacturing Sites

Port of Export: Hong Kong (HKG)

Port of Entry

GoPro Distribution Center (DC)

Ocean Trade Lane (SEA)

Air Trade Lane (IAF)

Mode AMR EMEA APAC

HKG->LGB

HKG->OAK HKG->RTM HKG->SIN

HKG->LAX

HKG->SFO HKG->AMS HKG->SIN

Primary Trade-Lanes

Fremont, US, CA

Riverside, US, CA - FTZ

HKG Cross-dock

HKG

Futian FTZ

Intra-China Transportation Flow

HKG

Mira Loma, US, CA

Venray, NL - Bonded

* Depiction of primary origin-destination pair only, actual sea/air port routing varies by carrier and service

Venray, NL - Bonded

Singapore



Port of Entry




Fremont, US, CA


HKG Cross-dock

HKG

Futian FTZ

Intra-China Transportation Flow

HKG

Mira Loma, US, CA

Mode Product Category

HKG



Port of Entry




Truck lane (TRK)

Inland Freight – Port to FTZ


Mode Product Category

Bulk Retail Kits

Bulk Cameras

In-Region Final Assembly: Retail Kit + Camera

B2B DC – Riverside, CA FTZ

B2C DC – Fremont, CA (non-bonded)

B2B Fulfillment

B2C Fulfillment



Truck Lane (TRK)

Secure areas under the supervision of US Customs & Border Protection (CBP)

Typically situated near primary US entry gateways (e.g. Ports – LAX, SEA, ORD, etc.)

Legally considered outside US Customs territory for duty and tax purposes

Legal position provides the benefits of the FTZ program

Goods held within an FTZ are deemed foreign

Duty and tax obligations triggers once goods exit the FTZ (i.e. entering US commerce)

Strategic Tax Management Approach to US CBP Duty & Fees

Inverted Tariff

Customs Duty

Reduction

Merchandise Processing Fee (MPF)

Customs Brokerage Fees (CHB)

Customs & Brokerage Fee Minimization

Exports

Product Scrapping

Duty

Avoidance

Duty Deferral (One-time)

Duty Deferral (Continual) Cash Flow

Improvement

FTZ

Import flow to FTZ do not enter US commerce

Import flow to non-FTZ DC entering US commerce

Non-FTZ DC

Products enter US commerce immediately and MPF and brokerage (CHB) fees assessed on a per shipment basis

Products do not enter US commerce until shipped from the FTZ and MPF & CHB fees are paid weekly

.3464% $25 $485 USD

$50-$100 USD/entry

FORMULA: $485 – (AVG entry value * MPF Fee * Number of Entries Per Week) = Weekly MPF Variance

Annual entry volume 988

Operating weeks 52

AVG entries/week 19

AVG entry value $80,000

Import Entry Profile

Fee 0.3464%

MIN Fee $25

MAX Fee $485

Value MAX $140,012

MPF Tariff Structure

Current FTZ

MPF $ per entry $277.12 -

MPF $ per week $5,265.28 $485.00

MPF $ per year $273,794.56 $25,220.00

MPF VAR $ - Week $0.00 ($4,780.28)

MPF VAR $ - Year $0.00 ($248,574.56)

MPF VAR % -91%

*Computed based on 2014 import data

FORMULA: Negotiated CHB Fee - (Negotiated CHB Fee * # of entries per week) = Weekly CHB Variance

Annual entry volume 988

Operating weeks 52

AVG entries/week 19

AVG # HTS lines/entry 6

AVG # HTS lines/week 22

Import Profile

Fee (inclusive of 3 HTS) $70.00

Additional HTS lines $5.00

CHB Tariff

Current FTZ

CHB $ per entry $85.00 -

CHB $ per week $1,615.00 $165.00

CHB $ per year $83,980.00 $8,580.00

CHB VAR $ - Week $0.00 ($1,450.00)

CHB VAR $ - Year $0.00 ($75,400.00)

CHB VAR % -90%


Finished Camera = 0%!!

Part C 3%

Duty

Part B

5.5% Duty

Part A

8% Duty

Part C

Part B

Part A

Component parts received in

FTZ inventory with no duty

payable to US Customs. Parts are

assembled into finished good

(e.g. manufacturing process).

Duty is payable at the finished

good rate upon entering US

commerce through order

fulfillment.

Bulk Cameras / Components

FTZ

FORMULA: (Finished Good Value * Finished Duty Rate) - (Component Part Values * Individual Duty Rates) = Tariff Variance

Camera Model Black Sellable units 1,450,000

Value $156.46 Current Duty $406,000

Camera Duty Rate 0.00% Inverted Tariff Duty $0

Duty $0.00 Variance ($406,000)

HERO4 BLACK & Retail Components

(32 items excluding water-housing)US HTS

Import

Value

Current

Duty Rate

Inverted

Tariff Rate

Current

Duty

Inverted

Tariff DutyVAR $ VAR %

HERO4 Black Editon Camera 8525804000 $135.00 0.0% 0.0% $0.000 $0.00 $0.00 -

PKG, DISPLAY BOX, BASE, TODOS 3923100000 $0.16 3.0% 0.0% $0.005 $0.00 ($0.00) -100%

Wireless Remote 8517690000 $14.05 0.0% 0.0% $0.000 $0.00 $0.00 -

Battery (Li Ion) 8507600000 $0.01 3.4% 0.0% $0.000 $0.00 ($0.00) -100%

USB Charging Cable 8544429000 $0.42 2.6% 0.0% $0.011 $0.00 ($0.01) -100%

LABEL, KIT, ACCESSORY BOXE 4911998000 $0.01 0.0% 0.0% $0.000 $0.00 $0.00 -

SENSORMATIC, Product Securi ty Sensor 3919905060 $0.05 5.8% 0.0% $0.003 $0.00 ($0.00) -100%

PKG, INSERT CARD, REMOTE PAIRING 4823908600 $0.05 0.0% 0.0% $0.000 $0.00 $0.00 -

PKG, MYLAR DOT, 1" DIA, CLEAR 3919905060 $0.01 5.8% 0.0% $0.001 $0.00 ($0.00) -100%

LABEL, REGULATORY, WI-FI REMOTE 4911998000 $0.05 0.0% 0.0% $0.000 $0.00 $0.00 -

$156.46 - - $0.28 $0.00 ($0.28) -100%

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33 ite

ms

Annual

Units

Current

Duty/Unit

Inverted Tariff

Duty/Unit

Current

Duty

Inverted

Tariff DutyVAR $ VAR %

HERO4 Silver 950,000 $0.25 $0.00 $237,500 $0 ($237,500) -100%

HERO4 Black 1,450,000 $0.28 $0.00 $406,000 $0 ($406,000) -100%

2,400,000 $0.53 $0.00 $643,500 $0 ($643,500) -100%


FORMULA: Current pack-out labor rate * # of bulk cameras – Future pack-out labor rate * # of bulk cameras exported

Units Current FTZ VAR $ VAR %

HERO4 Silver 950,000 $389,500 $57,000 ($332,500) -85.37%

HERO4 Black 1,450,000 $594,500 $87,000 ($507,500) -85.37%

2,400,000 $984,000 $144,000 ($840,000) -85.37%

Received unfavorable CBP ruling in May 2013 for housings – 20% (chpt. 42)

Modified bulk camera pack-out – insert camera into housing

Imported as “camera” (duty free) essential character

FTZ Activation Pack camera only (no housing)

Labor Pack Out $/Unit

Insert CAM in HOU $0.41

Pack CAM only $0.06

Current

FTZ

0% Duty 20% Duty 0% Duty

0% Duty

Import Duty Free


Finished Goods / Accessories

Export Duty Free


Imported Products

Potentially

Dutiable

Exported Products

Duty Free (same

condition for Canada)

Finished Goods Cameras

FTZ

FORMULA: Duty Paid on Imported Product Subsequently Exported = Export Cost Avoidance Opportunity

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B2B bonded exports of

accessories (same condition)

to Canada

Limited B2B accessory exports

to Mexico and LATAM

B2C inventory is non-bonded

Accessory Quantity Value Total Value US Duty Rate US Duty

RECHARGEABLE BATTERY 12,528 $3.81 $47,732 3.40% $1,622.88

CHEST MOUNT HARNESS 12,258 $6.74 $82,619 7.00% $5,783.32

TRIPOD MOUNT 11,375 $0.64 $7,280 5.30% $385.84

HANDLEBAR SEAT MOUNT 11,240 $1.87 $21,019 5.30% $1,114.00

LCD BP TOUCH 8,090 $30.71 $248,444 0.00% $0.00

BATTERY BACPAC 7,971 $13.80 $110,000 1.50% $1,650.00

HEAD STRAP MOUNT 7,827 $3.11 $24,342 7.00% $1,703.94

124,485 $871,894 - $20,179.92*Computed based on 2014 import data

B2C – Non-bonded

B2B – Bonded FTZ

Non-cleared

Product Cleared

Product

Fulfillment

LAX

Duty paid for

product upon

arrival at port of

entry

Prior to FTZ

Activation

GoPro Riverside FTZ

Non-cleared

Product Cleared

Product

Fulfillment

LAX

GoPro Riverside FTZ

Active FTZ – First

Inventory Turn

Product arrives port of entry and

enters FTZ with no duties payable to

Customs. Fulfill orders with ‘cleared’

product using FIFO inventory method.

No duty paid at time of shipment.

Pre-FTZ product

leaves DC with

no duty payable.

Non-cleared

Product Cleared

Product

Fulfillment

LAX

GoPro Riverside FTZ

Active FTZ – Post

Inventory Turn

FTZ inventory

comprised on non-

cleared product

Product imported to US

commerce and must clear

Customs. Duty is now

payable.

FTZ

Products Import Duty Free – September

10, 2015

Products enter

US Commerce Duty Paid – October, 20 2015





FORMULA: (Days of INVT / 365 * COGS) * (Duty Rate) * (Capital Cost Rate) = Capital Cost Opportunity

Capital Cost Rate 12% Total Import Value $75,683,419

AVG INVT Days 20 AVG INVT Value $4,147,037

INVT Turn/year 18.25 AVG Duty Rate 6.26%

AVG Duty Deferral (year) $259,513

Capital Cost Opportunity (year) $30,947

Product US HTS Duty Rate Import Value Duty Cost of Capital

Accessory 1 4202999000 20.0% $9,103,397 $1,820,679 $11,972

Accessory 2 3926909980 5.3% $31,864,906 $1,688,840 $11,105

Accessory 3 6307909889 7.0% $3,898,537 $272,898 $1,794

Accessory 4 8507600000 3.0% $7,382,831 $251,016 $1,456

Accessory 5 8504409580 1.5% $7,297,557 $109,463 $720

Accessory 6 3923100000 3.0% $3,561,271 $106,838 $702

Accessory 7 3926902500 6.5% $1,504,321 $97,781 $643

Accessory 8 3921190000 6.5% $958,098 $62,276 $409

Accessory 9 4016996050 2.5% $2,205,876 $55,148 $363

Accessory 10 8544429000 2.6% $1,823,268 $47,405 $312

$75,683,419 $4,736,108 $30,947

*Computed based on 2014 import data – AVG duty rate for 2015 = 3.5% (limited housing impact @ 20%)

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No Opportunity

CAM - Duty Free

Duty

Relie

f T

ime

(days)

Fluffiness (dimensional)

Fluffy

Extra Fluffy

Impress the CFO!

X

Y

Strategic Tax Management Approach to US CBP Duty & Fees

Inverted Tariff $643K

Camera Pack-out $840K Customs Duty

Reduction MRF Minimization $248K

CHB Reduction $75K

Customs & Brokerage Fee Minimization

Exports $20K Duty

Avoidance Capital Cost Reduction

$31K Cash Flow

Improvement

$1.85M – Projected

$1.5M – Actual Annual FTZ

Savings

gopro’s ftz program enter us commerce immediately and mpf and brokerage (chb) fees assessed on a...

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