VAL RR:IT:VA 546539 CRS
Area Director
U.S. Customs Service
Hemisphere Center
Room 200
Routes 1 & 9 South
Newark, NJ 07114
RE: Internal Advice 23/95; buying agency; commissions
Dear Madam:
This is in reply to the above-referenced request for internal
advice, forwarded to this office through the Customs Information
Exchange, N.Y., under cover of your memorandum of February 23, 1996.
The internal advice request was initiated by counsel Weltz & Posner
on behalf of the importer, W. Weber Co., Inc. (hereinafter "Weber").
In conjunction with a case opened by the Office of Investigations,
Newark, the Regulatory Audit Division conducted an audit of Weber.
We regret the delay in responding.
FACTS:
Weber purchases and imports wearing apparel manufactured in
Europe. The bulk of Weber's purchases are made under annual
contracts based on Weber's assessment of its projected demand. In
certain situations, however, Weber requires additional production
that cannot be met by the contract factories. As a result, in 1992,
Weber retained the services of an individual, Mr. Rauf Alamin, to act
as agent in Europe for Weber's additional requirements as they might
arise from time to time. This arrangement was formalized in an
agreement, dated December 4, 1992, between Weber and Mr. Alamin.
The agreement provides that Mr. Alamin would, among other
things, obtain samples from vendors and provide them to Weber;
negotiate the "cut and make" unit price per garment, obtain trim;
enter into purchase contracts with vendors; and arrange for quality
control and shipment. As compensation for these services, Weber
agreed to pay Mr. Alamin a commission to be negotiated at the
beginning of each season.
The commission paid to Mr. Alamin was calculated on a per
garment basis. In an affidavit submitted with the internal advice
request, Weber's president stated that prior to selecting a factory
to manufacture the garments, Weber and Mr. Alamin would agree on a
maximum, or ceiling, price for the garments. Mr. Alamin would then
negotiate the cut and make unit price with the manufacturer. Mr.
Alamin would be paid the differential between the actual total cost
of the goods and the ceiling price as a commission for his role in
the transaction. Thus, the commissions paid to Mr. Alamin fluctuated
from manufacturer to manufacturer and from garment to garment.
Pursuant to the agreement, Mr. Alamin agreed to prepare and submit
periodic invoices for his commissions.
As stated above, the payment to the manufacturer/seller of the
imported merchandise was a "cut and make" price. The necessary
fabric was procured in some instances by Weber, while in other cases,
Mr. Alamin would procure the fabric. In either case, the fabric was
provided free of charge to the manufacturer/seller.
Weber maintains that the commissions paid to Mr. Alamin are bona
fide buying commissions and should not have been included in the
appraised value of the imported merchandise. Weber alleges that Mr.
Alamin had no authority to select manufacturers and that the actual
selection thereof was made by Weber after thorough consideration.
Weber remained involved throughout the production process. Weber
states that the title to the goods never passed to Mr. Alamin and
that Mr. Alamin never had a financial interest in the factories which
were selected. In support of this, Weber has submitted invoices from
the manufacturers/sellers and copies of correspondence between itself
and certain of the factories with which it dealt through Mr. Alamin.
It is your position that the payments to Mr. Alamin are not bona
fide commissions. You note that no separate invoices were submitted
to document the payments to Mr. Alamin. In this regard, you also
note that Weber dealt with Mr. Alamin on open account. Payments for
fabric and trim, payments to cover Mr. Alamin's expenses, as well as
the payments, described above, which incorporated Mr. Alamin's
commissions, were all booked to this account. Moreover, you note
that Mr. Alamin incurred a loss on certain transactions and this is
not typical of an agent. As a result, you concluded that Mr. Alamin
was acting as an independent seller of the imported merchandise
rather than as a buying agent.
ISSUE:
The issue presented is whether amounts in question constituted
bona fide buying commissions such that they should not have been
included in the transaction value of the imported merchandise.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in
accordance with section 402 of the Tariff Act of 1930, as amended by
the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). The
primary method of appraisement under the TAA is transaction value,
defined as "the price actually paid or payable for the merchandise
when sold for exportation to the United States," plus five enumerated
additions including the value, apportioned as appropriate, of any
assist, and any selling commissions incurred by the buyer with
respect to the imported merchandise. 19 U.S.C. 1401a(b)(1).
Pursuant to section 402(b)(4) of the TAA, the term "price
actually paid or payable" is defined in pertinent part 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. 19 U.S.C. 1401a(b)(4). Bona fide buying commissions,
however, are not an addition to the price actually paid or payable.
Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 354, 13 CIT
161, 164 (1989); Rosenthal-Netter, Inc. v. United States, 679 F.
Supp. 21, 23, 12 CIT 77, 78 (1988); Jay-Arr Slimwear, Inc v. United
States, 681 F. Supp. 875, 878, 12 CIT 133, 136 (1988).
The existence of a bona fide buying commission depends upon the
relevant factors of the individual case. E.g., J.C. Penney
Purchasing Corp. v. United States, 451 F. Supp. 973, 983, 80 Cust.
Ct. 84, 95, C.D. 4741 (1978). However. 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, 679 F. Supp. 21, 23; New Trends, Inc. v. United
States, 645 F. Supp. 957, 960, 10 CIT 637 (1986).
The primary consideration in an agency relationship is the right
of the principal to control the agent's conduct with respect to those
matters entrusted to the agent. J.C. Penney, 451 F. Supp. 973, 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 examined such factors as: the
transaction documents; whether the purported agent's actions were
primarily for the benefit of the principal; whether the importer
could have purchased the merchandise 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, 679 F. Supp. 21, 23 (1988); New
Trends, 645 F. Supp. 957, 960-962.
In determining whether an agency relationship exists, the
evidence submitted to Customs must clearly establish the fact of a
bona fide buying agency. Headquarters Ruling Letter (HRL) 544610
dated February 23, 1991. Customs has consistently held that an
invoice or other documentation from the actual foreign seller to the
agent is required in order to establish that the agent is not the
seller, as well as to determine the price actually paid or payable to
the seller. HRL 542141 dated September 29, 1980 (TAA No. 7).
In this instance, Weber has submitted a buying agency agreement
between itself and Mr. Alamin. However, while a written buying
agency agreement supports the notion of a bona fide agency
relationship, it is merely evidence that the parties intended to
create an agency relationship and is not dispositive as to the
existence of such an arrangement. Rosenthal-Netter, 679 F. Supp. at
26, 12 CIT at 83, citing J.C. Penney, 451 F. Supp. at 985, C.D. 4741
at 98. Thus, "having legal authority to act as a buying agent and
acting as a buying agent are two separate matters and Customs is
entitled to examine evidence which proves the latter. General
Notice, 23:11 Cust. B. & Dec. 9 (March 15, 1989). See also, HRL
544965, dated February 22, 1994.
In addition, Weber has provided of copies of relevant
correspondence, primarily involving the sellers/manufacturers of the
imported merchandise. The correspondence indicates that Mr. Alamin
was involved in the transactions between Weber and the sellers. For
example, the correspondence indicates that Mr. Alamin procured trim
on behalf of Weber and that the sellers were aware that the goods
were ultimately destined for Weber, rather than Mr. Alamin. J.C.
Penney, 451 F. Supp. at 983, C.D. 4741 at 80. Nevertheless, with
respect to the agent's duties as set forth in paragraph 3 of the
buying agency agreement, there is no evidence, for example, that Mr.
Alamin obtained samples and submitted them to Weber, nor that he
negotiated the cut and make price on behalf of Weber, nor that he
exercised any supervision quality control. Furthermore, Mr. Alamin
did not submit periodic invoices for agent's commissions as required
under paragraph 3 of the buying agency agreement.
Moreover, the evidence indicates that Mr. Alamin lost money on
certain of the transactions in which he purported to act as agent for
Weber. The fact that Mr. Alamin profited on some transactions and
yet lost on others suggests that he was acting in his own name and
interests rather than those of Weber. Thus, the evidence does not
support a finding that Mr. Alamin actually acted as a bona fide
buying agent under the terms of the buying agency agreement.
Finally, the evidence shows that Weber dealt with Mr. Alamin on
open account. The payments to that account reflected amounts for
fabric, trim and expenses connected with the purchase of the imported
merchandise, as well as amounts in respect of Mr. Alamin's
compensation, calculated as described above. In this respect, Weber
has failed to establish that Mr. Alamin was not an independent seller
of the imported merchandise. Accordingly, it is our position that
the payments to Mr. Alamin are part of the price actually paid or
payable for the imported merchandise and therefore were properly
included in transaction value.
HOLDING:
In conformity with the foregoing, the amounts in question were
properly included in the transaction value of the imported
merchandise.
This decision should be mailed by your office to the internal
advice requester no later than sixty days from the date of this
letter. On that date 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 to the public via the Diskette
Subscription Service, the Freedom of Information Act and other public
access channels.
Sincerely,
Acting Director
International Trade Compliance Division