VAL CO:R:C:V 544684 TLL/ML
Richard H. Abbey, Esq.
2121 K Street, N.W.
Washington, D.C. 20037
RE: Dutiability of Payments Made to Related Overseas Employees
and The Necessity of Reporting The Payments to Customs
Dear Mr. Abbey:
This is in response to your letter dated March 20, 1991, and
pursuant to a meeting on August 1, 1991, held at Headquarters,
attended by you and members of my staff. You request a ruling
regarding the dutiability of certain monthly payments made by
your client, Brenco Apparel Inc. of Dallas, Texas, (hereinafter
referred to as the "importer"), to its employees in New Delhi,
India, (hereinafter referred to as the "employees"). You further
inquire as to the necessity of reporting these payments to
Customs. We regret the delay in responding.
FACTS:
You state that the importer is a wholly owned subsidiary of
Brenner International, Inc., a publicly traded Delaware
corporation, involved in the manufacture of ladies' wearing
apparel. The importer is the importing arm of Brenner. The
importer has hired a manager, who in turn has hired four other
employees in India, all of whom are engaged in activities which
you state are normally associated with a "buying agent", yet no
written agency agreement exists. On behalf of the importer, the
overseas manager and the employees will identify and select
manufacturers, obtain prices on samples, survey the market for
new styles, assist in the negotiation of prices, execute purchase
orders, inspect the finished goods and sign inspection
certificates. The staff overseas works exclusively for the
importer and it neither manufactures nor buys and sells
merchandise independently. Further, purchase orders are executed
and letters of credit for merchandise are opened between the
importer and the manufacturer of the merchandise.
We note that your letter does not state that the
manufacturer is the seller of the exported merchandise.
Nonetheless, we have assumed for purposes of this response that
the manufacturer is the seller of the exported merchandise. You
have stated that none of the parties (manager and employees
2
included) are related to the manufacturer. Additionally, no
payment, direct or indirect, is made by the manager or through
the manager to a manufacturer. (Please note, we are assuming
that this last sentence means that none of the payments made to
the manager/agent or its employees inures to the benefit of the
manufacturer).
You state that the importer transfers money monthly to the
manager which is used to pay all of the overseas employees'
salaries, the rent, telephone bill and fax bill. Counsel stated
that the money is not linked in any way to specific,
identifiable importations by the importer.
ISSUE:
Whether payments made by the importer to its employees are a
dutiable part of transaction value.
LAW AND ANALYSIS:
The transactions described by counsel are prospective,
current and completed transactions as found in 177.1(a)(1) and
(2), Customs Regulations (19 CFR 177.1(a)(1) and (2)). Current
or completed transactions will normally be resolved by the
Customs Service office involved in that transaction. Therefore,
we will respond to counsel's request as it pertains to pending
transactions in conformance with the facts as stated above.
For purposes of our response, we are assuming that
transaction value, the preferred method of appraisement is
appropriate, given counsel's statement that the buyer and seller
of the merchandise are unrelated as that term is defined in
section 402(g) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA; 19 U.S.C. 1401(g)). Transaction
value is defined in section 402(b) of the TAA, as "the price
actually paid or payable for the merchandise when sold for
exportation to the United States", plus certain enumerated
additions. The term "price actually paid or payable" is defined
in section 402(b)(A) of the TAA 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 has consistently been the position of the Customs Service
that all monies paid to the seller or a party related to the
seller are part of the "price actually paid or payable" for the
imported merchandise. (See, TAA #6) This position was reaffirmed
by the court in Generra Sportswear Company v. United States, 905
F.2d 377 (Fed.Cir. 1990). Inasmuch as under the facts presented
these payments are not to the seller or a party related thereto,
3
they are not part of the price actually paid or payable and under
these circumstances are not part of transaction value.
In addition, it should be noted that the stated services to
be performed by the employees appear to be typical of those
performed by a buying agent and consequently, otherwise
nondutiable. (See, New Trends v. United States, 10 CIT 637,645
F. Supp. 957 (1986)) Counsel stated that the invoices (or
purchases orders) will be opened between the importer and the
manufacturer, consistent with HRL 542141 (TAA #7) dated September
29, 1980. Both factors support our finding the payments made to
the employees would not be added to the "price actually paid or
payable" under 402(b)(1)(B). See, 544396, dated May 14, 1990. In
sum, these payments are not part of the transaction value of the
merchandise.
Finally, under the factual circumstances presented we
believe it is appropriate to allow the concerned field officer to
decide the question as to whether these payments should be
reported to Customs.
HOLDING:
Under the circumstances, payments by the buyer to its
employees abroad are not part of transeetion value.
Sincerely,
John Durant, Director
Commercial Rulings Division