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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
$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
Vendors/Manufacturing Sites
Port of Export: Hong Kong (HKG)
Port of Entry
GoPro Distribution Center (DC)
Ocean Trade Lane (SEA)
Air Trade Lane (IAF)
Fremont, US, CA
Riverside, US, CA - FTZ
HKG Cross-dock
HKG
Futian FTZ
Intra-China Transportation Flow
HKG
Mira Loma, US, CA
Mode Product Category
HKG
Vendors/Manufacturing Sites
Port of Export: Hong Kong (HKG)
Port of Entry
GoPro Distribution Center (DC)
Ocean Trade Lane (SEA)
Air Trade Lane (IAF)
Truck lane (TRK)
Inland Freight – Port to FTZ
Riverside, US, CA - 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
Ocean Trade Lane (SEA)
Air Trade Lane (IAF)
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%
*Computed based on 2014 import data
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%
Abbre
via
ted –
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%
*Computed based on 2014 import data
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
Bulk Cameras / Components
Finished Goods / Accessories
Export Duty Free
Finished Goods / Accessories
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
Abbre
via
ted
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
Bulk Cameras / Components
Finished Goods / Accessories
Bulk Cameras / Components
Finished Goods / Accessories
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%)
Abbre
via
ted
No Opportunity
CAM - Duty Free
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%)
Abbre
via
ted
No Opportunity
CAM - Duty Free
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