RR:IT:VA 547033 RC
Nancy J. Wollin, Esq.
Sandler, Travis & Rosenberg, P.A.
400 Colony Square, Suite 200
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
RE: Price actually paid or payable; consultant fees
Dear Ms. Wollin:
This is in regard to your request for a ruling, dated March
2, 1998, submitted on behalf of your client, [XXXX XXXX XXXX]
("importer"), concerning the dutiability of certain consulting
fees. We have also considered your subsequent submissions dated
April 13 and 23, 1998. Your request for confidentiality with
regard to the bracketed information has been granted and will not
be disclosed in copies of this ruling made available to the
public.
FACTS:
The importer imports garments from various unrelated
manufacturers throughout the world and in this instance, plans to
engage the services of a [XXXX] "consultant," a Hong Kong-based
service provider, who will act in the capacity of Field Import
Fabric Consultant on behalf of the importer. A letter dated
December 7, 1997, from the importer to the consultant regarding
the services to be performed by the consultant was submitted.
The consultant's primary duties will include acting as mill
liaison for the importer and assisting the importer in ensuring
that woven fabric purchased by the manufacturers for use in the
production of garments to be purchased by the importer conform to
the importer's stringent quality specifications. The duties
which will be performed by the consultant on the importer's
behalf parallel activities currently performed by importer-employed Import Sourcing Managers. These services include:
Coordinating delivery date of the fabric from the mills to
the manufacturer.
Assisting the mills with fabric development.
Locating fabric sources meeting the importer's
specifications.
Assisting with fabric testing and quality control functions.
Acting as on-site liaison between the importer and the mill
including training the fabric QC manager.
You advise that the consultant's assistance to the mills in
their fabric development activities is restricted to interpreting
the instructions provided by the importer and acting as liaison
between the mill and the importer. For example, the importer
will forward a swatch of fabric to the consultant and request
that he communicate to the mill that it should design a fabric
similar in construction to the swatch provided. The mill will
undertake the development and design of the fabric, the cost of
which will be incorporated into the value of the garments to be
imported. The consultant's assistance in this process will be
restricted to explaining to the mill how a given fabric's weave
should be comprised, such as "20 threads North and 16 threads
East" pursuant to the specifications developed by the importer's
designers in the U.S. For fabric prints designed by the importer
in the U.S., the consultant will present a sample of the fabric
to the mill and convey the importer's instructions that the mill
should replicate the particular print or plaid.
The consultant will not actually assist the mill in
developing the replicate fabric, but is charged merely with
communicating the instructions of the importer and acting as a
go-between should any questions arise. For instance, the mill
might have a question concerning the color to be used in the
fabric. Often words describing colors in English do not
translate perfectly into Mandarin. As such, it would be
incumbent upon the consultant to explain the correct color to the
mill. While "lime green" might be recognizable to an English-speaker, its equivalent in Mandarin might be more of a light
green or other shade not contemplated by the US-based fabric
designers wishing to impart this particular color concept to the
mill. The consultant's fluency in Mandarin enables him to convey
the wishes and desires of the importer to the mill.
All fabric at issue is purchased directly by the
manufacturers. The importer will not provide fabric to the
manufacturers free of charge or at a reduced price.
The consultant is also the principal of [XXXX XXXX XXXX], a
buying agent used by the importer in connection with its
purchases of knit garments (sweaters). However, the consultant's
activities as the importer's consultant are separate and distinct
from his function as a principal of the buying agent. Under the
terms of the consulting agreement between the importer and the
consultant, the consultant will be compensated by a flat fee wire
transfer [XXXX ] per month, plus expenses, to his Hong Kong bank.
A separate account has been set up at a separate bank for the
buying commissions paid to the buying agent, which are based on
the FOB price of the knit garments purchased with the buying
agent's assistance. The activities performed by the consultant
and the buying agent, respectively, as Field Fabric Consultant in
connection with woven fabric sourcing and as a buying agent in
connection with knit garment sourcing, will at all times be
readily distinguishable and separately identifiable.
This ruling is limited to prospective import transactions
involving these same parties which are conducted in the same
manner as those described above.
ISSUE:
Whether the monthly fees the importer pays to the consultant
for the above-described services are included in the transaction
value of the imported merchandise.
LAW AND ANALYSIS:
We are assuming, for the purposes of this ruling, that
transaction value is the appropriate basis of appraisement for
the imported merchandise. Merchandise imported into the United
States is appraised in accordance with the provisions of section
402(b)(1) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)). This section
provides, in pertinent part, that the transaction value of the
imported merchandise the price actually paid or payable for
merchandise when sold for exportation to the United States.
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." We note, in particular,
that section 402(b)(1) provides, in pertinent part, that the
price actually paid or payable for imported merchandise is
increased by amounts for the enumerated statutory additions
insofar as they are not otherwise included within the price
actually paid or payable. Those enumerated items are:
(A) the packing costs incurred by the buyer with
respect to the imported merchandise;
(B) any selling commission incurred by the buyer with
respect to the imported merchandise;
(C) the value, apportioned as appropriate, of any
assist;
(D) any royalty or license fees related to the imported
merchandise that the buyer is required to pay, directly
or indirectly, as a condition of the sale of the
imported merchandise for exportation to the United
States; and
(E) the proceeds of any subsequent resale, disposal or
use of the imported merchandise that accrue, directly
or indirectly, to the seller.
Section 402(h)(1)(A) of the TAA provides, in pertinent part,
as follows:
The term assist' means any of the following if
supplied directly or indirectly, and free of charge or
at reduced cost, by the buyer of imported merchandise
for use in connection with the production or the sale
for export to the United States of the merchandise: . .
.
(iv) Engineering, development, artwork, design work,
and plans and sketches that are undertaken elsewhere
than in the United States and are necessary for the
production of the imported merchandise.
As a general proposition, Customs finds that fees paid to
third parties, to the extent that they are similar to bona fide
buying commissions, are generally not part of the price actually
paid or payable for imported merchandise. See, Jay-Arr Slimwear
Inc., v. United States, 12 CIT 133, 681 F.Supp 875 (1988); Norco
Sales Co. v. United States, 65 Cust. Ct. 778 (1970);
International Fashions, Inc. v. United States, 76 Cust. Ct. 92,
aff'd 64 CCPA 35 (1976); Concord Electronics Corp. v. United
States, 85 Cust. Ct. 87 (1980); Headquarters Ruling Letter (HRL)
543365, dated November 1, 1984; and HRL 544681, dated July 21,
1991. However, when inspection or consulting-type services are
at issue and entail quality control along the lines of production
related design or development, and intimate involvement in the
nature of the goods produced, the fees may be dutiable either as
part of the price actually paid or payable, or as an assist.
See, HRL 544088, dated March 25, 1988.
In this case, the consultant's activities appear to be
typical of those performed by a buying agent. The consultant's
primary duties will include acting as mill liaison for the
importer and assisting the importer in ensuring that woven fabric
purchased by the manufacturers for use in the production of
garments to be purchased by the importer conform to the
importer's stringent quality specifications.
The fact that the consultant acts both as "consultant" with
respect to woven fabric sourcing, for a flat fee, and as a
"buying agent" with respect to knit garment sourcing, for an
amount based on the FOB value, does not per se vitiate the
existence of a bona fide buying agency between the importer and
the consultant for the services performed as a consultant. Our
ruling is limited to the questions regarding the inclusion of the
consultant fees in the price actually paid or payable and whether
they constitute assists to be included in the transaction value.
While the consultant's activities as the importer's
consultant are separate and distinct from his function as a
principal of the buying agent and the terms of the consulting
agreement between the importer and the consultant are different,
the activities performed as the consultant, in connection with
woven fabric sourcing, are similar to those performed by a bona
fide buying agent.
Based on the information provided, the consultant services
here are similar to activities typically performed by bona fide
buying agents, and do not amount to production quality control
intimately involved with the nature of the merchandise produced.
See, HRL 547058, dated May 19, 1998 Consequently, the consulting
fees are not part of the price actually paid or payable. We
assume for purposes of this ruling that the consultancy fees will
be paid exclusively to the consultant and that no part will inure
to the benefit of the foreign manufacturers/seller or a party
related to the seller. See, Generra Sportswear Co. v. United
States, 8 CAFC 132, 905 F.2d 377 (1990), and Chrysler Corporation
v. United States, Slip Op. 93-186, 17 C.I.T. 1049 (1993).
With respect to whether the consultant services constitute
assists, again, based on your description, we note that the
consultant's services appear to be relatively limited in nature
with respect to involvement in production. All fabric at issue
is purchased directly by the manufacturers. The importer will
not provide fabric to the manufacturers free of charge or at a
reduced price. There is no indication that the consultant
supplies the seller with "development," in any manner (directly
or indirectly).
Customs has ruled that services similar to those provided by
the consultant do not constitute assists. For example, in HRL
544887, October 2, 1992, Customs held that engineering support
performed by the importer's agent, involving the explanation of
blueprints, designs, or drawings in order to ensure that language
barriers do not impede or interfere with the full understanding
of the manufacturing specifications, did not constitute assists.
Customs has ruled that management and supervisory personnel
services, provided on behalf of the importer did not constitute
assists. See, HRL 543992, dated September 10, 1987; HRL 543820,
dated December 22, 1986; and HRL 544421, dated April 3, 1990.
Moreover, in HRL 544421, Customs held that cooking and medical
services did not constitute assists. See, also, HRL 542122 (TAA
#4); there, Customs held that accounting services and legal
services did not constitute assists and those services were not
included in the price actually paid or payable for the imported
merchandise.
Based on the above considerations, we find that the
consultant services, as described, are not assists.
HOLDING:
Based on the facts provided, we find that the consultant
fees are for services to be performed akin to those provided by a
bona fide buying agent on behalf of the importer. Therefore the
consulting fees are not to be included in the price actually paid
or payable, nor do the services to be performed constitute an
assist to be added to the price actually paid or payable.
Sincerely,
Acting Director
International Trade Compliance
Division