RR:IT:VA 546037 KCC
Port Director
U.S. Customs Service
101 E Main Street
Norfolk, Virginia 23510
RE: Application for Further Review of Protest 1401-95-100127;
paper and paper products; bona fide sale; Dorf
International; J.L. Wood; selling commission; HRL 544907;
price actually paid or payable; international freight;
insurance; U.S. duties; 19 CFR 152.103(i); HRLs 545538,
543827 and 542467; discount; 19 CFR 152.103(a)(1); Allied
International; HRLs 545659, 544907, 543302, 543537, and
543662
Dear Port Director:
This is in regards to the Application for Further Review of
Protest 1401-95-100127, concerning the transaction value of paper
products imported by WWF Paper Corporation pursuant to 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(b). Comments made by
WWF's counsel in letters dated May 16, and August 17, 1995, were
taken into consideration in rendering this decision.
FACTS:
The merchandise at issue is light weight coated paper which
was appraised pursuant to transaction value, 402 (b) of the TAA,
based on the invoice provided at the time of entry. The invoice
from KNP LEYKAM, the foreign manufacturer, to WWF Paper
Corporation (WWF), the importer, indicates that the terms of sale
were "FREE DELIVERED DUTY PAID" to Donnelly R.R. in Glasgow
Kentucky. The price of the imported merchandise on the invoice
was listed as $181,117.37. After a deduction for an "agent's
commission" in the amount of $4,980.73 or 2.75% of the price of
the imported merchandise, the total invoice amount was listed as
$176,136.64. The invoice also listed a value for "international
freight/handling charge" of $27,816.65 and for "insurance" of
$704.55. The invoice payment terms stated:
PAYMENT IN OUR POSSESSION WITHIN 45 DAYS AFTER DATE OF
INVOICE BY T.T. LESS 2% OR 60 DAYS NETT AFTER DATE OF
INVOICE.
You determined that the price actually paid or payable of
the merchandise included the agent's commission as a selling
commission. This position is based on a letter you received from
WWF's V.P. Adm., Gloria Gregg, dated June 21, 1993, with regards
to a previous transaction which states that:
Agents commission is our commission on this sale and is
deducted from the KNP invoice. WWF is the agent.
There is no contract.
You determined that the transaction value of the imported
merchandise was $181,117.37.
In a protest timely filed on May 2, 1995, WWF contends that
the agent's commission is actually a discount which should not be
included in the price actually paid or payable. Moreover, they
state that the terms of sale were Free Delivered Duty Paid and
that Customs failed to make the proper deductions from the
invoice price. Moreover, WWF states that it receives an
additional 2% discount for invoices paid within 45 days which
they pay on a regular basis. As evidence of this payment, WWF
submitted copies of wire transfers from previous transactions
which showed that they do take advantage of the 2% "45 day
discount."
WWF's Counsel has described WWF' business in the following
manner. WWF buys paper products from foreign paper producers and
suppliers ("foreign producers") and sells these paper products to
U.S. paper consumers ("U.S. customers"). WWF is not related to
either the foreign producers or the U.S. customers. As an
example of a typical transaction, Counsel in its August 17, 1995,
letter has submitted a set of purchase orders and invoices
between WWF, KNP Leykam, a foreign producer, and Shenendoah
Valley Press (Judd's, Inc.), a U.S. customer.
Counsel states that WWF locates the foreign producers and
directly buys merchandise from the foreign producers for WWF's
own account. Thus, Counsel states that WWF takes title to,
assumes risk of loss, and is the importer of record for the
imported merchandise. Some of WWF's purchases are made to fill
pre-existing orders from U.S. customers. In this situation, the
foreign producers know who WWF's U.S. customers are but do not
know the price which WWF sells to the U.S. customers. Other
purchases are made for WWF's inventory which is later resold by
WWF to U.S. customers. In this situation, the foreign producers
do not know the U.S. customers nor the price which WWF sells to
its U.S. customers. In all cases, you state that the price which
WWF sells to its U.S. customers is negotiated solely by WWF and
WWF's U.S. customers are not aware of the price which WWF pays to
the foreign producers.
Counsel states that the invoices from foreign producers to
WWF sometimes show a discount listed as a "rebate", "commission",
or other similar terms, which is subtracted from the gross price
to yield a net price. Counsel contends that the word
"commission" is a misnomer and that it is merely a discount from
the foreign producer's base price. WWF pays the foreign producer
the net price and provides the foreign producer with no other
consideration, nor provides any consideration to anyone on behalf
of the foreign producer. Additionally, Counsel states that WWF's
U.S. customers do not provide any consideration to WWF's foreign
producers or to anyone on behalf of WWF. WWF has no contracts or
agreements with the foreign producers, other than the purchase
order agreements which lead to the importations of the
merchandise, and performs no services for the foreign producers.
WWF receives no payments from the foreign producers. Moreover,
WWF has no contracts or agreements with its U.S. customers other
than the purchase order agreements which are its sales to U.S.
customers. WWF receives no payment from its U.S. customers
except the amount WWF invoices its U.S. customers for the
imported merchandise.
ISSUE:
1. Whether WWF has proffered sufficient evidence to prove that
it is operating other than as a selling agent and, consequently,
that the transaction value of the imported merchandise should not
include an addition for a selling commission?
2. Whether deductions should be made for international freight,
insurance and U.S. duties from the price actually paid or
payable?
3. Whether the 2% "45 day discount" should be deducted from the
price actually paid or payable?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into
the United States is transaction value pursuant to 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. 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 amounts for certain enumerated additions, including selling
commissions incurred by the buyer. 19 U.S.C. 1401a(b)(1).
1. Selling Commission
Counsel's statements appear to contend that the "agent's
commission" is not a selling commission, because a bona fide sale
occurs between WWF and both KNP and the U.S. customer. In
determining whether a bona fide sale takes place between a
potential buyer and seller of imported merchandise, no single
factor is determinative. Rather, the relationship is to be
ascertained by an overall view of the entire situation, with the
result in each case governed by the facts and circumstances of
the case itself. Dorf International, Inc. v. United States, 61
Cust. Ct. 604, A.R.D. 245 (1968). Customs recognized the term
"sale," as articulated in the case of J.L. Wood v. United States,
62 CCPA 25, 33; C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be
defined as: the transfer of property from one party to another
for consideration.
However, several factors may indicate whether a bona fide
sale exists between a potential buyer and producer. In
determining whether property or ownership has been transferred,
Customs considers whether the potential buyer has assumed risk of
loss and acquired title to the imported merchandise. In
addition, Customs may examine whether the potential buyer paid
for the goods, and whether, in general, the roles of the parties
and circumstances of the transaction indicate that the parties
are functioning as buyer and seller.
In determining whether the relationship of the parties to
the transaction in question is that of a buyer/seller, where the
parties maintain an independence in their dealings, as opposed to
that of a principal-agent, where the former controls the actions
of the latter, Customs will consider whether the potential buyer:
a. provides (or could provide) instructions to the seller;
b. was free to sell the items at any price he or she
desired;
c. selected (or could select) his or her own customers
without consulting the seller; and
d. could order the imported merchandise and have it
delivered for his or her own inventory.
Based on the information provided by Counsel, it would
appear that the WWF is acting as a buyer/seller, as opposed to a
selling agent. Counsel states that WWF buys paper from the
foreign producer for its own account, taking title to the paper
and assuming risk of loss. In this regard, Counsel advised that
WWF independently negotiates its price with its U.S. customers
and the price it pays the foreign producer for the merchandise.
Counsel states that the foreign producer may know to whom the
imported merchandise will be delivered, but does not know the
price the U.S. customer is paying for the imported merchandise.
Moreover, the U.S. customers do not know the price WWF paid the
foreign producer for the merchandise. Additionally, Counsel
states that the U.S. customers pay WWF for the merchandise; no
consideration is exchanged between the U.S. customers and the
foreign producer. Moreover, Counsel states that WWF does not
receive any consideration from the foreign producer; WWF only
pays the foreign producer for the merchandise. WWF does not have
any agreements between the foreign producer and the U.S.
customers except for the purchase or sale of the merchandise.
In Headquarters Ruling Letter (HRL) 544907 dated April 13,
1992, we determined that an invoiced amount qualified as a
selling commission as opposed to a trade discount. In that
decision, it was explained that an agency relationship was found
to exist between the parties, based on the admission of the
parties and their labeling the invoiced amounts as a commission,
and that insufficient evidence was proffered to indicate that the
amount was anything other than a selling commission.
Based on the all the information contained in this file, it
appears that WWF operates as a selling agent. Based on WWF's own
admission, although there is no written contract, WWF is a
selling agent for KNP. The amounts deducted from the invoice are
WWF's commission for arranging the sale. Moreover, the terms of
sale provided on the invoice imply that property or ownership of
the imported merchandise was not transferred to WWF. The invoice
terms of sale were Free Delivered Duty Paid (DDP) which means
deliver duty paid to the named place of destination. In DDP
shipments the seller fulfills his obligation to deliver when the
goods have been made available at the named place in the country
of importation. The seller has to bear the risks and costs,
including duties, taxes and other charges of delivering the goods
cleared for importation. See, International Chamber of Commerce,
Incoterms, at 92 (1990). Thus, contrary to Counsel's statement
that WWF takes title to and assumes risk of loss for the imported
merchandise which is directly shipped from KNP to the U.S.
customer, it appears that the shipping terms obligate KNP to bear
risk of loss for the merchandise until it reaches the U.S.
customer's place of business. Therefore, the terms of sale
provided on the invoice indicate that property or ownership was
not transferred to WWF, but remained with KNP.
We are not satisfied from the evidence available that the
amount at issue is other than a selling commission. Therefore,
under 402(b)(1)(B) of the TAA the "agent's commission" is added
to the price actually paid or payable in determining transaction
value of the imported merchandise.
2. International Freight, Insurance and U.S. duties
The term "price actually paid or payable" is defined in
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 from the
country of exportation to the place of importation in the
United States) made, or to be made, for imported merchandise
by the buyer to, or for the benefit of, the seller.
As regards costs that are incurred after the merchandise has
been imported, 402(b)(3) of the TAA states that:
The transaction value of imported merchandise does not
include any of the following, if identified separately from
the price actually paid or payable and from any cost or
other item referred to in paragraph (1):
(B) The customs duties and other Federal taxes currently
payable on the imported merchandise by reason of its
importation, and any Federal excise tax on, or measured
by the value of, such merchandise for which vendors in
the United States are ordinarily liable.
See also, 152.103(i), Customs Regulations (19 CFR 152.103(i).
The above cited statutory provision clearly states that the
transaction value of imported merchandise does not include any
reasonable cost incurred for customs duties of the imported
merchandise that is identified separately from the price actually
paid or payable.
Additionally, transportation costs and insurance costs
pertaining to the international movement of merchandise from the
country of exportation, to the extent included in the price
actually paid or payable, are to be excluded from the total
payment made for imported merchandise appraised under transaction
value. The costs associated with transportation and U.S. duty
are not the estimated costs, but the actual costs paid to Customs
and the freight forwarder, transport company, etc.
In HRL 544538, issued December 17, 1992, Customs
acknowledged that pursuant to 402(b)(4)(A) the cost of
international transportation is to be excluded from the price
actually paid or payable for imported merchandise. However,
Customs explained that in determining the cost of the
international transportation or freight, it always looked to
documentation from the freight company, as opposed to the
documentation between the buyer and the seller which often
contains estimated transportation costs or charges. In essence,
Customs requires documentation from the freight company because
the actual cost, and not the estimated charges, for the freight
is the amount that Customs excludes from the price actually paid
or payable. See also HRL 543827, issued March 9, 1987, in which
Customs determined that the proper deduction from the price
actually paid or payable for marine insurance was the amount
actually paid to the insurance company by the seller, as opposed
to the amount paid by the related importer/buyer; and HRL 542467
dated August 13, 1981.
The invoice describes the terms of sale as DDP. As stated
previously, in DDP shipments the seller fulfills his obligation
to deliver when the goods have been made available at the named
place in the country of importation. The seller has to bear the
risks and costs, including duties, taxes and other charges of
delivering the goods cleared for importation. See, International
Chamber of Commerce, Incoterms, at 92 (1990). Thus in DDP
shipments, the invoice price normally includes charges for
international freight, insurance and duties. The charges for
international freight and insurance are listed on the invoice
and, therefore, should be deducted from the price actually paid
or payable. However, the charges for international freight and
insurance should be the actual charges for these costs and not
estimated charges. Moreover, it is our position that the U.S.
duties are also to be deducted from the price actually paid or
payable. The DDP terms of sale include U.S. duties. Since the
duties of the country of importation are by their nature
distinguishable from the price actually paid or payable, they do
not form part of the value of the imported merchandise. Thus, it
is our position that the international freight, insurance costs
and U.S. duties are to be excluded from the price actually paid
or payable for the imported merchandise.
3. 2% "45 day discount"
152.103(a)(1), Customs Regulations (19 CFR 152.103(a)(1)),
provides that the price actually paid or payable "...will be
considered without regard to its method of derivation. It may be
the result of discounts, or negotiations, or may be arrived at by
the application of a formula...." A discounted price must be
agreed to and effected prior to importation for it to constitute
the price actually paid or payable. See, Allied International v.
United States, 16 CIT 545, 795 F. Supp. 449 (1992); Headquarters
Ruling Letter (HRL) 545659 dated October 25, 1995; HRL 544907
dated April 13, 1992; HRL 543302 dated November 1, 1984; HRL
543537 dated February 14, 1986; and HRL 543662 dated January 7,
1986.
In this case, WWF did not submit evidence showing that it
took advantage of the 2% "45 day discount." We note that WWF did
submit wire transfers showing that they have taken advantage of
the "45 day discount", but with regards to the entry at issue no
evidence of payment at the 2% "45 day discount" was presented.
Consequently, the 2% "45 day discount" is not excluded from the
price actually paid or payable.
HOLDING:
Based on the evidence available, WWF has proffered
insufficient evidence to prove that it is operating other than as
a selling agent. Consequently, under 402(b)(1)(B) of the TAA
the "agents's commission" is added to the price actually paid or
payable in determining transaction value of the imported
merchandise. The actual costs for international freight,
insurance and U.S. duties are to be excluded from the price
actually paid or payable for the imported merchandise. However,
the 2% "45 day discount" is not excluded from the price actually
paid or payable.
The protest should be GRANTED IN PART and DENIED IN PART.
In accordance with Section 3A(11)(b) of Customs Directive 099
3550-065 dated August 4, 1993, Subject: Revised Protest
Directive, this decision, together with the Customs Form 19,
should be mailed by your office to the protestant no later than
60 days from the date of this letter. Any reliquidation of the
entry in accordance with the decision must be accomplished prior
to mailing the decision. Sixty days from the date of the
decision the Office of Regulations and Rulings will take steps to
make the decision available to customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette
Subscription Service, Freedom of Information Act and other public
access channels.
Sincerely,
Acting Director
International Trade Compliance
Division