VAL-CO:R:C:V 544396 DHS
Nancy J. Wollin, Esq.
Sandler, Travis & Rosenberg, P.A.
5200 Blue Lagoon Drive
Miami, Florida 33126-2022
RE: Administrative and Quality Control Services, Fabric Costs
and Buying Commissions; 19 U.S.C. 1401a(b); 19 U.S.C.
1402(b)(2)(b); Busnell v. United States
Dear Ms. Wollin:
This is in response to your letter of September 5, 1989,
and additional submission dated April 23, 1990, requesting a
ruling regarding the dutiability of payments made to Textile
Sourcing, Inc., a company located in the British Virgin Islands
by Private Manufacturing, Inc., the importer, for administrative
services and quality control services provided by its wholly-
owned subsidiary in Mexico. You further inquire about the
dutiability of fabric purchased by Textile Sourcing and supplied
to the Mexican assembler. Finally, you inquire as to the
dutiability of commissions to be paid to a related company
located in Hong Kong in exchange for services in procuring fabric
and other components to be used in the manufacture of garments in
Mexico, as well as, services in aiding in the purchase of
completed merchandise from foreign manufacturers.
FACTS:
You state that your client, Private Manufacturing, Inc.,
plans to establish a corporation in Texas for the purpose of
importing garments manufactured and/or assembled in Mexico from a
related facility and unrelated manufacturers. These
manufacturers will engage in full cut, make and trim (CMT)
activities as well as assembly of U.S. components which will be
entered under the "807 program". The importer will supply the
U.S. as well as the foreign components free of charge to the
manufacturers.
You inquire about payments made by the importer to Textile
Sourcing for services performed by its Mexican subsidiary, S-Co.
You state that Textile Sourcing is related to the importer within
the meaning of section 402(g) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C.
1401a(g)). You state that S-Co will perform the services of
assisting the importer in determining what types of garments can
be economically made by the manufacturer; accounting and billing
services; quality control supervision; and various other
administrative services on an as-needed basis. Textile Sourcing
will invoice the importer for the services provided by S-Co at
regular intervals (e.g., monthly). S-Co will at all times act
under the direct control of the importer. S-Co may also, from
time to time, provide similar services to unrelated companies
both in Mexico and in the U.S.
You also inquire about the cost of fabric to be purchased by
Textile Sourcing and resold to the Mexican manufacturers to be
used in the CMT operations. The manufacturers will then sell the
garments which incorporate the fabric to the importer.
Finally, you inquire about the dutiability of commissions
paid for services to be provided by a company located in Hong
Kong in aiding the importer in procuring components to be used in
the manufacturing operations, as well as, assisting the importer
in its purchase and importation into the U.S. of completed
garments from unrelated manufacturers. The buying agent may also
assist the importer in the purchase of foreign fabric to be cut
in the U.S. and shipped to a Mexican manufacturer for use in the
"807" assembly operations.
You have submitted a draft buying agency agreement which
provides only the name of the importer and does not furnish the
name of the agent or the signatures of the concerned parties.
ISSUES:
(1) Are payments made to Textile Sourcing, Inc., a related
company located in the British Virgin Islands, for administrative
services and quality services performed by a related company
located in Mexico dutiable?
(2) Are payments made to Textile Sourcing for fabric which will
be purchased and resold to the Mexican manufacturers dutiable?
(3) Are the activities performed by an agent who is related to
the importer sufficient to conclude that a buying agency exists?
LAW AND ANALYSIS:
For the purpose of this prospective ruling request, we are
assuming that transaction value will be the applicable basis of
appraisement.
Transaction value is defined in section 402(b)(1) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA: 19 U.S.C. 1401a(b)) as the "price actually paid or
payable for the merchandise when sold for exportation to the
United States," plus certain enumerated additions. The "price
actually paid or payable" is more specifically defined in section
402(b)(4)(A) as:
The total payment (whether direct or
indirect...) made, or to be made, for
imported merchandise by the buyer to, or for
the benefit of, the seller.
Only those items specifically referred to in section
402(b)(1) may be added to the price actually paid or payable when
not otherwise included within the price. These items referred to
in section 402(b)(1) are:
"(A) the packing costs incurred by the buyer
with respect to the imported merchandise;
"(B) any selling commission incurred by the
buyer with respect to the imported
merchandise;
"(C) the value, apportioned as appropriate,
of any assist;
"(D) any royalty or license fee related to the
imported merchandise that the buyer is required to
pay, directly or indirectly, as a condition of the
sale of the imported merchandise for exportation
to the United States; and
"(E) the proceeds of any subsequent resale,
disposal, or use of the imported merchandise
that accrue, directly or indirectly, to the
seller.
You state that the administrative services, the quality
control services and the supervisory functions to be performed by
S-Co are to be conducted under the supervision of the importer.
You allege that these are the type of activities normally
undertaken by the buyer on its own account. The fees paid for
these services are not included within any of the above
enumerated items under section 402(b)(1). Therefore, these fees
are not to be part of the transaction value for the imported
merchandise.
You additionally inquire about the dutiability of fabric
purchased and resold to the Mexican manufacturers to be used in
the CMT operations. The manufacturers will then sell the
finished garments to the importer. Assuming that transaction
value is the applicable basis of appraisement, the price to be
paid by the importer for the finished garments will include the
cost of the fabric as part of the price actually paid or payable.
Note, however, that since the concerned parties are related, the
appraising officer must be satisfied that the transaction value
is acceptable under section 402(b)(2)(B) of the TAA.
Finally, you inquire about the dutiable status of certain
commissions to be paid to a foreign agent for the services of
aiding in the purchase of fabric to be provided to the Mexican
assembler as well as aiding in the purchase of finished garments.
Buying commissions are not specifically included as one of
the additions to the "price actually paid or payable." As stated
in HRL 542141 (TAA #7), dated September 29, 1980, "...an invoice
or other documentation from the actual foreign seller to the
agent would be required to establish that the agent is not a
seller and to determine the price actually paid or payable to the
seller. Furthermore, the totality of the evidence must
demonstrate that the purported agent is in fact a bona fide
buying agent and not a selling agent or an independent seller."
You have stated that the agent is related to the importer.
However, you have not provided any information regarding the
nature of this relationship. Therefore, we can only advise you
that a relationship of an agent with the importer does not
preclude the existence of a buying agency. However, the
circumstances surrounding such related party transactions are
subject to close scrutiny in determining whether a commission is
a bona fide buying commission. Bushnell v. United States, C.A.D.
110 (1973).
Based upon the facts and draft buying agency agreement
presented, the services to be performed by the agent are
indicative of those generally provided in a buying agency
relationship. However, in order to find that a bona-fide buying
agency exists, satisfactory documentation which will fulfill the
concerns addressed above and will meet the requirements described
in TAA #7, must be presented at the time of entry. Furthermore,
the actions of the parties must conform to your letter, the
buying agency agreement and the documentation to be presented.
Note, however, that the degree of control asserted over the agent
is factually specific and could vary with each importation. The
actual determination as to the existence of a buying agency will
be made by the appraising officer at the applicable port of
entry.
HOLDING:
In view of the foregoing, the fees paid for the
administrative services, quality control services and the
supervisory functions to be performed by S-Co are not to be part
of the transaction value for the imported merchandise.
In addition, the price paid for the fabric which is to be
purchased and resold to the Mexican manufacturers by Textile
Sourcing is to be included in the price actually paid or payable
by the importer.
Finally, the commissions to be paid to the prospective
company to perform the services of assisting in the purchase of
the merchandise from the foreign manufacturers are to be
considered bona fide buying commissions as long as the
considerations discussed above are followed.
Sincerely,
Jerry Laderberg
Acting Director
Commercial Rulings Division