VAL R:C:V 545794 LPF
Alan G. Lebowitz, Esq.
Erik D. Smithweiss, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman
245 Park Avenue
New York, NY 10167-0002
RE: Dutiability of buying commissions when alleged buying agent is related to selling
agent and buying agent also imports on its own account; HRLs 545660, 544958, 544945,
543053
Dear Mssrs. Lebowitz and Smithweiss:
This is in response to your letter of October 12, 1994, submitted on behalf of
[************] ("Company A"), requesting a ruling concerning the dutiability of commissions
paid to it for assisting U.S. companies in their purchase of imported footwear. We have granted
confidential treatment to, and excised in the public version of this decision, the information
designated as such in your March 25, 1995 submission.
FACTS:
Company A intends to act as a buying agent for parties in the U.S. interested in sourcing
footwear in South America. You state that Company A will provide routine buying services
primarily for unrelated U.S. footwear importers. Company A will receive a buying commission
for its efforts in accordance with the buying agency agreements it intends to enter into with the
various U.S. importers. You further explain that on occasion Company A also may source
footwear in South America, import for its own account, and resell to various unrelated purchasers
in the U.S., including some of the same parties for which it acts as a buying agent (1). However,
you provide that Company A would only buy merchandise for its own account in transactions
which are separate and distinct from transactions in which it receives a commission.
You explain that the services to be performed by Company A will be governed by buying
agency agreements under which Company A will perform all the traditional functions of a buying
agent, including: 1) familiarizing itself with the Principal's needs and surveying the potential
markets to obtain the best available merchandise; 2) assisting in the negotiation of the most
favorable prices for the Principal, recommending manufacturers/sellers to the Principal, or
negotiating with manufacturers/sellers designated by the Principal; 3) visiting
manufacturers/sellers, obtaining samples of merchandise, and submitting samples to the Principal
for approval; 4) quoting prices at which the merchandise can be purchased; 5) placing orders with
manufacturers/sellers on behalf of the Principal only at the specific direction of the Principal; 6)
making periodic visits to manufacturers/sellers where orders are placed in order to inspect the
quality of goods to be shipped to the Principal, and providing production progress reports to the
Principal; 7) arranging for consolidation of shipments and, at the direction of the Principal,
arranging for all inland freight, haulage, lighterage, insurance and/or storage; 8) facilitating the
acquisition of the documentation necessary for the exportation of the merchandise from its
country of origin and its importation into the United States; and 9) assisting in pursuit of claims
against manufacturers/sellers for defective merchandise.
You provide that in all instances Company A will be directed and controlled by the
Principal. Further, you state that the agreements explicitly will provide that Company A does not
have the right, power or authority to make any contract or incur any obligation or liability which
would be binding on the Principal unless it has been specifically authorized to do so in advance by
the Principal.
It is contemplated that various Principals will compensate Company A a percentage of the
FOB price of the merchandise which is ordered and shipped pursuant to the buying agency
agreements. The commission received by Company A may vary among principals and also will be
determined by the facts and circumstances underlying specific orders. The variables which will be
determinative of the commission rate include: order size, delivery time, product type, and
availability. Company A will pay all costs associated with the performance of its obligations as a
buying agent for the Principal. The Principal will reimburse Company A for reasonable expenses,
if any, incurred on the Principal's behalf in connection with the cost of merchandise, inland
freight, haulage, lighterage, etc. Such expenses only will be incurred with the consent of the
Principal. Company A will not take title to the merchandise. The Principal will assume the risk of
loss or damage to the merchandise once delivered to the port of export by the seller.
The merchandise will be paid for by the Principal's irrevocable transferable letter of credit
opened in favor of the manufacturer/seller for the FOB price of the merchandise. Company A will
not be involved in the transmission of payment for the merchandise. Company A will provide the
Principal with a separate invoice for the payment of buying commissions and any reimbursable
expenses incurred on behalf of the Principal and also will provide its Principal with the
manufacturers/sellers' commercial invoices reflecting the cost of the merchandise in each
transaction.
Company A is owned by a sole shareholder who also is the sole shareholder of
[**********************] ("Company B"). Hence, the companies are related pursuant to
section 402(g) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979
(TAA), codified at 19 U.S.C. 1401a. Occasionally, you explain that Company B will introduce
potential U.S. buyers to, and receive remuneration from, the sellers in certain transactions in
which Company A receives buying agency commissions from U.S. purchasers. It is contemplated
that such sellers will compensate Company B based on a percentage of the price of the
merchandise sold to U.S. purchasers introduced by Company B. In transactions in which
Company A is the buying agent, it is anticipated that the U.S. purchasers will remit the full
amount of the sellers/manufacturers invoice to Company B. Company B then will remit to the
sellers/manufacturers that invoiced amount less Company B's finder's fee or selling commission.
In some instances, you explain that the Principal may remit the full invoice amount directly to the
foreign seller and the seller in turn will remit the finders' fee or selling commission to Company B.
The fee or selling commission generally will not exceed a certain percentage of the selling
price of the merchandise. Consequently, you explain that the price actually paid or payable for the
merchandise by the U.S. purchasers for the goods will be inclusive of any such finder's fee or
selling commission, and any such fee or commission will not be separately itemized in the seller's
invoice. The U.S. importer therefore will be paying full duty on fees or commissions retained by
Company B.
You submit that Company B's operations will be separate and apart from Company A's
operations. These financially and legally distinct entities will not share expenses or profits.
Commissions paid to Company A will not inure to the benefit of Company B. For these reasons,
it is your position that Company A is a bona fide buying agent and commissions paid to it by its
Principals are not an element of value. Furthermore, you assert that in those transactions in which
Company B receives a finder's fee or selling commission, the relationship between Company A
and Company B does not affect the non-dutiable nature of the buying commissions paid to
Company A.
ENDNOTES
1. In the latter portion of your submission, however, you submit that Company A will not
purchase merchandise for its own account, will not maintain inventory, and will never act as seller
of merchandise to the Principal.
ISSUE:
Based on the facts presented, whether the amounts paid to Company A constitute bona
fide buying commissions such that the payments are not included in the appraised value of the
imported merchandise and whether the dutiability of the buying commissions is affected either by
Company A's relationship with the selling agent, Company B, or by the fact that in some instances
Company A may import on its own account and resell the imported merchandise to some of the
same parties for which it acts as a buying agent.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is
transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA
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
the enumerated statutory additions.
The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the
"total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related services incident to the international shipment
of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for
the benefit of, the seller."
The existence of a bona fide buying commission depends on the relevant factors in light of
the individual case. See J.C. Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D.
4741, 451 F. Supp. 973, 983 (1978). The importer has the burden of proving the existence of a
bona fide agency relationship and that the payments to the agent constitute bona fide buying
commissions. Rosenthal-Netter, Inc. v. United States, 12 CIT 77, 78, 679 F. Supp. 21, 23
(1988); New Trends,
Inc. v. United States, 10 CIT 637, 640, 645 F. Supp. 957, 960 (1986).
In determining whether an agency relationship exists, the primary consideration has been
the right of the principal to control the agent's conduct with respect to those matters
entrusted to the agent. J.C. Penney, 80 Cust. Ct. at 95, 451 F. Supp. at 983. The existence of a
buying agency agreement has been viewed as supporting the existence of a buying agency
relationship. Dorco Imports v. United States, 67 Cust. Ct. 503, 512, R.D. 11753 (1971). In
addition, the courts have considered such factors as: whether the purported agent's actions were
primarily for the benefit of the principal; whether the principal or the agent was responsible for the
shipping and handling and the costs thereof; whether the importer could have purchased
directly from the manufacturers without employing an agent;
whether the intermediary was operating an independent business, primarily for its own benefit;
and whether the purported agent was financially detached from the manufacturer of the
merchandise. Rosenthal-Netter, 12 CIT at 79, 679 F. Supp. at 23; New Trends, 10 CIT at 640-644, 645 F. Supp. at 960-962.
Assuming it would be consistent with that memorialized in the buying agency agreement,
the services you state will be conducted by Company A are characteristic of a buying agent.
However, in this case we must examine whether the dutiability of the buying commissions is
affected either by Company A's relationship with Company B or by the fact that in some instances
Company A may import on its own account and resell the imported merchandise to some of the
same parties for which it acts as a buying agent.
In Headquarters Ruling Letter (HRL) 543053, issued July 11, 1983, Customs addressed
the situation where a U.S. corporation purchased imported merchandise for its own account and
acted as purchasing agent for certain other major domestic importers of the same type of
merchandise. When acting on behalf of the importers, by performing the services
characteristically associated with a buying agent, the U.S. corporation received a commission.
The U.S. corporation also operated an overseas branch office which, in addition to performing
services for the U.S. corporation, performed certain services (e.g., locating sources, assisting in
export documents and shipping) exclusively for the factory. Although the commission paid from
the factory to the branch office for its services was part of the agreed price, the importer was not
necessarily aware of the fact that such a commission was being paid to the branch office.
Customs determined that, under the circumstances presented, the dutiable commissions received
by the branch office from the factory did not cause the separate buying agent's commission to
become a dutiable element.
Moreover, Customs determined in HRL 544958, issued June 8, 1992, that the status of a
party operating as a bona fide buying agent was not necessarily affected by its role as an importer
and domestic seller for the same U.S. customers for which it also acted as a buying agent in
unrelated transactions. Customs explained that the transactions between the agent and the
manufacturers would not impact on the nondutiability of buying commissions as long as the agent
continued to work at the direction of his importers, with the importers maintaining the requisite
degree of control over the actions of its agent. In citing Bushnell Int'l, Inc. v. United States, 60
CCPA 157, C.A.D. 1104, 477 F.2d 1402 (1973) and Jay-Arr Slimwear, Inc. v. United States, 12
CIT 133, 681 F.Supp. 875 (1988), Customs, in this situation and in others somewhat analogous
to it, recognized that a relationship or business ties between the parties to a transaction was not
dispositive, per se, of the bona fides of an agency relationship, but rather such questions were to
be resolved in light of the totality of the evidence presented. See HRL 544945, issued June 30,
1995. Similarly, Customs found, "the fact that a party acts an importer/domestic seller for a
customer for which it also acts as a buying agent in unrelated transactions, should not be
dispositive of whether a bona fide agency exists." HRL 544958.
For these reasons, in the present matter, the dutiability of the buying commissions received
by Company A is not necessarily affected either by Company A's "financially and legally distinct"
relationship with Company B or by the fact that in some "separate and distinct transactions"
Company A may import on its own account and resell the imported merchandise to some of the
same parties for which it acts as a buying agent. However, in accord with HRLs 543053, 544958,
and their progeny, we emphasize that the existence of a buying agency relationship is a factually
specific determination to be made by the appraising officer at the applicable port of entry, based
on the documentation and evidence submitted at that time. The totality of the evidence must
demonstrate that the purported agent is in fact a bona fide buying agent actually performing the
services consistent with that provided in your submission. See HRL 545660, issued February 10,
1995.
Based on the facts and information submitted in this case, we stress, especially in light of
the fact that no buying agency agreement has been tendered, that at the time of entry the
appraising officer will have to find that the importer and its agent, Company A, comply in both
form and substance with the purported terms of the agreement as you have provided. Among
other things, it would have to be demonstrated to the satisfaction of the appraising officer that the
buying agent continues to work at the direction of its importers with the latter maintaining the
requisite degree of control over the former and that the entry documentation clearly indicates in
which instances Company A is acting as a buying agent as opposed to an importer. We caution
that once a non-dutiable buying agency arrangement exists it is plausible that circumstances
between the parties may change and that it could still be found that the roles of the parties are
quite different from what they were agreed or purported to be.
Finally, we note that since, at the present time, information has not been presented
addressing the acceptability of transaction value as the appropriate method of appraisement, such
a determination remains within the discretion of the appraising officer based on the evidence and
documentation submitted at the time of entry.
HOLDING:
Based on the facts presented and information currently available, the amounts paid to
Company A may constitute bona fide buying commissions such that the payments are not included
in the appraised value of the imported merchandise, and the dutiability of the buying commissions
may not be affected either by Company A's relationship with the selling agent, Company B, or by
the fact that in some instances Company A may import on its own account and resell the imported
merchandise. As provided above, this finding remains subject to any determinations that may be
made by the appraising officer at the applicable port of entry, based on the documentation and
evidence submitted at that time.
Sincerely,
John Durant, Director
Commercial Rulings Division