VAL CO:R:C:V 544676 ML
Sandra -------------
----------------------------
--------------e South
New York, N.Y.-------
RE: Dutiability of Buying Agency Commissions.
Dear Ms. --------:
This is in response to your letter dated March 12, 1991,
regarding the effect of section 402(b) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.
1401a(b)), on certain contemplated transactions to be entered
into by your client. You request a ruling regarding the
dutiability of certain commissions to be paid by importers to
their agent, ---. Apparel ---------. (hereinafter referred to as
the "agent"), in view of the agent's contemplated receipt of
compensation from some unrelated manufacturers of the imported
merchandise.
FACTS:
You state that your client, the agent, will act as a buying
agent for various buyers seeking to import wearing apparel from
manufacturers located in the Far East. Typically the agent will
act in accordance with the terms of a buying agency agreement;
act only upon the explicit instructions of the buyer; quote ex-
factory prices exclusive of commission to the buyer; assist the
buyer in arranging for the exportation of the merchandise to the
United States; and negotiate on behalf of the buyer in the event
defective goods are received.
For these services, the agent will receive a commission of
approximately 8% of the ex-factory price. In addition to the
above, the agent proposes, with the full knowledge and
acquiescence of the buyer, to perform certain services on behalf
of some of the manufacturers and receive compensation from these
manufacturers. These services will consist of:
1) locating materials needed by the manufacturer to
meet the requirements of the buyer;
2) providing quality control and inspection services;
3) advising the manufacturer of U.S. requirements for
importing the merchandise, such as advice on invoicing,
visas, etc.;
4) providing ministerial services requested by the
manufacturer which will facilitate importation of the
merchandise into the United States.
You state that none of the parties will be related and that
none of the commissions paid to the buyer will inure to the
benefit of any of the manufacturers.
ISSUE:
Will buying agency commissions be treated as nondutiable
when the agent receives compensation from unrelated manufacturers
for essentially ministerial functions.
LAW AND ANALYSIS:
For the purpose of this prospective ruling request, we are
assuming that transaction value will be applicable as the basis
of appraisement.
Transaction value is defined in section 402(b)(1) of the
TAA. This section provides, in pertinent part, that the
transaction value of imported merchandise is "the price actually
paid or payable for the merchandise when sold for exportation to
the United States," plus amounts for the items enumerated in
section 402(b)(1). Buying commissions are not specifically
included as one of the additions to the "price actually paid or
payable." 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.
It is clear from the statutory language that in order to
establish transaction value one must know the identity of the
seller and the amount actually paid or payable to him. As stated
in Headquarters Ruling Letter (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.
In order to view the relationship of the parties as a bona
fide buying agency, Customs must examine all the relevant
factors. J.C. Penney Purchasing Corporation et al. v. United
States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F.Supp. 973
(1978); United States v. Knit Wits (Wiley) et al., 62 Cust. Ct.
1008, A.R.D. 251 (1969). The primary consideration, however, "is
the right of the principal to control the agent's conduct with
respect to the matters entrusted to him." Dorf Int'l Inc., et
al. v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F.Supp.
690 (1968). The degree of discretion granted the agent is an
important factor. New Trends Inc. v. United States, 10 CIT 637,
645 F. Supp. 957 (1986). The plaintiff bears the burden of proof
to establish the existence of a bona fide agency relationship and
that the charges paid were bona fide buying commissions. Monarch
Luggage Company Inc., v. United States, 13 CIT , Slip Op. 88-91
(1989).
The Court of International Trade in the case of New Trends
Inc., supra, set forth several factors upon which to determine
the existence of a bona fide buying agency. These factors
include: whether the agent's actions are primarily for the
benefit of the importer, or for himself; whether the agent is
fully responsible for handling or shipping the merchandise and
for absorbing the costs of shipping and handling as part of its
commission; whether the language used on the commercial invoices
is consistent with the principal-agent relationship; whether the
agent bears the risk of loss for damaged, lost or defective
merchandise; and whether the agent is financially detached from
the manufacturer of the merchandise.
The above-stated factors have been determining factors
applied by the courts to deny the existence of a buying agency
relationship in New Trends, Inc., supra, Jay-Arr Slimwear Inc.,
v. United States, 12 CIT , 681 F. Supp. 875 (1988), Rosenthal-
Netter,Inc. v. United States, 12 CIT , Slip Op. 88-9 (1988), 679
F. Supp. 21 (1988).
Under the facts provided, the services to be performed by
the agent are indicative of those generally provided in a buying
agency relationship. The agent might be visiting factories,
negotiating favorable prices, arranging for shipping, inspecting
the goods, but all at the behest of the importer. It appears
that the agent is acting primarily at the specific direction of
the importers, as is necessary in an agency relationship. In
keeping with the principles of an agency relationship, the
importers will, in all instances, be apprised of any payments to
be paid to the agent by the manufacturers of their merchandise.
The Restatement (Second) of Agency 14K (1958). Additionally,
the agent will not bear the risk of loss of the goods as "it is
uncharacteristic of an agency relationship to allow the
intermediary to bear the risk for damaged, lost, or defective
merchandise." Rosenthal-Netter, 12 CIT at , 679 F. Supp. at 26.
Whether a commission is a bona fide buying commission
depends in each instance on the facts of each particular case.
J.C. Penney, 80 Cust. Ct. at 95, 451 F. Supp. at 983; Nelson Bead
Co., 42 CCPA at 183. HRL 544452, dated September 11, 1990,
contained substantially similar facts as those involved in the
instant case. In HRL 544452, the agent performed services for
its principle such as obtaining the best available merchandise;
visiting factories and placing orders; arranging for payment
terms as per specific instructions; arranging for inland
freight; facilitating acquisition of necessary documentation when
importing into the United States; acquiring trim; and assisting
in the return of defective merchandise. The agent also
participated in rebate programs with manufacturers whereby it
would receive rebates from the factories for supplemental quality
control and inspection activities; providing U.S. Customs
compliance advice services; and other ministerial services
designed to facilitate procurement of goods. In that case,
Customs found that bona fide buying commissions existed where an
agent participated in a manufacturers rebate program with the
full knowledge of its principal.
Consistent with our finding in HRL 544452, the services to
be provided by the agent are typical of a bona fide buying agent
and will not be negated by the agents furnishing of essentially
ministerial services to manufacturers, given the full disclosure
and acquiescence by the imports. In the instant case, a buying
agency is further supported by agents separately breaking out the
amounts for commissions on the invoices or, by their preparing
separate invoices which they will issue directly to the
importers. As long as the payments by the manufacturers do not
impact on the importer's "price actually paid or payable", it
will have no effect on the nondutiability of the agents's
commissions. This will continue to be the case if the agent is
working primarily for the benefit of the importer, finding the
best price/quality deal as designated by the importer.
On the basis of the information you have provided regarding
the prospective transactions in question, if the actions of the
parties conform to your letter and the terms of the agency
agreement the importer will exercise the requisite degree of
control over the buying agent. 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 upon the presentation of
the proper documentation as described in TAA No. 7. Based upon
these considerations, we conclude that the commissions to be paid
to the buying agent constitute bona fide buying commissions which
will not be dutiable under transaction value.
Please note, that the approval of these buying arrangements
in no way authorizes the acceptability of an 8% buying agency
fee. The appraising officer will determine whether the
percentage exceeds the percent commission that is normal in the
trade for bona fide buying agents. Documentary evidence
detailing the extent of additional services provided beyond
those normally performed by such agents would need to be
presented to the appraising officer.
HOLDING:
In view of the foregoing, the commissions to be paid to the
agent to perform the services of purchasing merchandise from
manufacturers are to be considered bona fide buying commissions;
and therefore, not to be added to the price actually paid or
payable.
The received by the agent from the manufacturers for
performing the services described above will not impact on the
nondutiability of buying commissions as long as the agent
continues to work at the direction of his importers with the
importers maintaining the requisite degree of control over the
actions of it's agent.
Sincerely,
John Durant, Director
Commercial Rulings Division