VAL CO:R:C:V 544452 ML
------------------ n, Esq.
--------------rs
-------- Avenue
New York, N.Y. 1----
RE: Request for Ruling on Nondutiability of Buying Agency
Commissions.
Dear Ms. B------n:
This is in response to your letter dated August 31, 1990,
referencing your written request made on January 24, 1990,
regarding the effect of section 402(b) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.
1401a(b)), on certain contemplated transactions to be entered
into by your client. You request a ruling regarding the
dutiability of certain commissions to be paid by importers to
their agent, Teen Distribution Company (hereinafter referred to
as "Teen"), in view of Teen's contemplated receipt of certain
rebates from the manufacturers of the imported merchandise.
FACTS:
You state that your client, Teen, sources goods for
numerous importing entities. Typical services provided by Teen
might include obtaining the best available merchandise that will
comport with the importer's needs; visiting and placing orders
with factories designated by the importers; arranging for
payment terms as per specific instructions; arranging for inland
freight, hauling, lighterage, storage consolidation when
instructed by the importer; facilitating acquisition of necessary
documentation when importing into the United States; acquisition
of necessary quota, fabric, piece goods, findings, trimmings,
labels and packaging materials in the manner dictated by the
importer; visiting manufacturers where orders are placed to
inspect the quality of the merchandise shipped to importers; and
assisting in the return of defective merchandise.
Teen is paid a buying agent's commission calculated as a
percentage of the "free on board" ("FOB") price of the goods
purchased. The commissions are not included in the
manufacturers' sales price of the goods and will either be
separately broken out on invoices issued by Teen which report
the FOB prices charged by the manufacturers, or, separate
invoices will be issued by Teen directly to the importers.
Either way, payment for the commissions or FOB prices plus
commissions will be made directly to Teen, and would not be
shared with any of the manufacturers.
Teen wishes to participate in rebate programs with the
manufacturers. Teen would receive rebates from the U.S.
importers' designated manufacturers in exchange for its
performance of supplemental quality control and inspection
activities at the factories, its provision of U.S. Customs
compliance advice services, and other ministerial services
designed to facilitate procurement of goods. While the importers
would, in all instances, be made aware of the rebate program,
none of the rebates received by Teen would be passed on to them.
Additionally, Teen notes that they have no independent
financial interest in the business of any of the manufacturers,
and have no intention of acquiring a financial interest in any
of them. Should disputes between the importer and the
manufacturer arise, Teen states that it would most definitely
assist the importer in resolving disputes regarding the quality
of the merchandise.
ISSUE:
Will buying agency commissions be treated as nondutiable
when the agent participates in manufacturers' rebate programs?
LAW AND ANALYSIS:
For the purpose of this prospective ruling request, we are
assuming that transaction value will be applicable as the basis
of appraisement.
Transaction value is defined in section 402(b)(1) of the
TAA. This section 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 the items enumerated in
section 402(b)(1). Buying commissions are not specifically
included as one of the additions to the "price actually paid or
payable." The "price actually paid or payable" is more
specifically defined in section 402(b)(4)(a) 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 is clear from the statutory language that in order to
establish transaction value one must know the identity of the
seller and the amount actually paid or payable to him. As stated
in Headquarters Ruling Letter (HRL) 542141 (TAA #7), dated
September 29, 1980, "...an invoice or other documentation from
the actual foreign seller to the agent would be required to
establish that the agent is not a seller and to determine the
price actually paid or payable to the seller. Furthermore, the
totality of the evidence must demonstrate that the purported
agent is in fact a bona fide buying agent and not a selling agent
or an independent seller.
In order to view the relationship of the parties as a bona
fide buying agency, Customs must examine all the relevant
factors. J.C. Penney Purchasing Corporation et al. v. United
States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F.Supp. 973
(1983); United States v. Knit Wits (Wiley) et al., 62 Cust. Ct.
1008, A.R.D. 251 (1969). The primary consideration, however, "is
the right of the principal to control the agent's conduct with
respect to the matters entrusted to him." Dorf Int'l Inc., et
al. v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F.Supp.
690 (1968). The degree of discretion granted the agent is an
important factor. New Trends Inc. v. United States, 10 CIT 637,
645 F. Supp. 957 (1986). The plaintiff bears the burden of proof
to establish the existence of a bona fide agency relationship and
that the charges paid were bona fide buying commissions. Monarch
Luggage Company Inc., v. United States, 13 CIT , Slip Op. 88-91
(1989).
The Court of International Trade in the case of New Trends
Inc., supra, set forth several factors upon which to determine
the existence of a bona fide buying agency. These factors
include: whether the agent's actions are primarily for the
benefit of the importer, or for himself; whether the agent is
fully responsible for handling or shipping the merchandise and
for absorbing the costs of shipping and handling as part of its
commission; whether the language used on the commercial invoices
is consistent with the principal-agent relationship; whether the
agent bears the risk of loss for damaged, lost or defective
merchandise; and whether the agent is financially detached from
the manufacturer of the merchandise.
The above-stated factors have been determining factors
applied by the courts to deny the existence of a buying agency
relationship in New Trends, Inc., supra, Jay-Arr Slimwear Inc.,
v. United States, 12 CIT , 681 F. Supp. 875 (1988), Rosenthal-
Netter,Inc. v. United States, 12 CIT , Slip Op. 88-9 (1988), 679
F. Supp. 21 (1988).
Under the facts provided, the services to be performed by
Teen are indicative of those generally provided in a buying
agency relationship. The agent might be visiting factories,
negotiating favorable prices, arranging for shipping, inspecting
the goods, but all at the behest of the importer. It appears
that Teen is acting primarily at the specific direction of the
importers, as is necessary in an agency relationship. In keeping
with the principles of an agency relationship, the importers
will, in all instances, be apprised of any rebates to be paid to
Teen by the manufacturers of their merchandise. The Restatement
(Second) of Agency 14K (1958). Additionally, Teen will not bear
the risk of loss of the goods as "it is uncharacteristic of an
agency relationship to allow the intermediary to bear the risk
for damaged, lost, or defective merchandise." Rosenthal-Netter,
12 CIT at , 679 F. Supp. at 26.
Whether a commission is a bona fide buying commission
depends in each instance on the facts of each particular case.
J.C. Penney, 80 Cust. Ct. at 95, 451 F. Supp. at 983; Nelson Bead
Co., 42 CCPA at 183. In the instant case, a buying agency is
further supported by Teen's separately breaking out the amounts
for commissions on the invoices or, by their preparing separate
invoices which they will issue directly to the importers.
On the basis of the information you have provided regarding
the prospective transactions in question, if the actions of the
parties conform to your letter and the terms of the agency
agreement the importer will exercise the requisite degree of
control over the buying agent. Note, however, that the degree of
control asserted over the agent is factually specific and could
vary with each importation. The actual determination as to the
existence of a buying agency will be made by the appraising
officer at the applicable port of entry upon the presentation of
the proper documentation as described in TAA No. 7. Based upon
these considerations, we conclude that the commissions to be paid
to the buying agent constitute bona fide buying commissions which
will not be dutiable under transaction value.
An additional point to be addressed is the matter of the
rebate programs between the agent and the manufacturers. As the
rebates will not impact on the importer's " price actually paid
or payable", it will have no effect on the nondutiability of the
agent's commissions. This will continue to be the case as long
as the agent works primarily for the benefit of the importer,
finding the best price/quality deal as designated by the
importer.
HOLDING:
In view of the foregoing, it is our conclusion that the
commissions to be paid to Teen to perform the services of
purchasing merchandise from manufacturers are to be considered
bona fide buying commissions; and therefore, not to be added to
the price actually paid or payable.
We further conclude that any rebates received by the agent
from the manufacturers will not impact on the nondutiability of
buying commissions as long as the agent continues to work at the
direction of his importers with the importers maintaining the
requisite degree of control over the actions of it's agent.
Sincerely,
John Durant, Director
Commercial Rulings Division