RR:IT:VA W548173 AH
Category: Valuation Port Director [ ]
U.S. Customs Service
RE: Application for Further Review of protest no. 4909-02-100041; bona fide sale; selling commissions
Dear Sir or Madam:
This is in response to your July 10, 2002 memorandum forwarding an Application for Further Review submitted by Collier Shannon Scott, PLLC ("counsel") on behalf of [ ]and [ ]. Counsel is protesting the liquidation of 11 eleven entries in which [ ] Customs added a [ ] commission received by [ ] to the price of the subject imported merchandise, [ ] . Counsel asserts that [ ) Customs improperly included the commission paid to [ ] in the transaction value of the subject merchandise and that the proper appraisement of the merchandise is [ ] invoice price to [ ], as adjusted after importation.
Given the confidential nature of the information contained in this Application for Further Review, counsel requests that we accord confidential treatment to the documents and discussions involved in this case. To this end, counsel has provided us with a redacted version of its submission to provide guidance in ascertaining information requiring confidential treatment. We are accordingly bracketing this information in our response. All bracketed information will be redacted from the public version of this response and will be identified as confidential in our file.
FACTS:
E
[ ], a major distributor of [ ] in [ ] served as the importer of record for the eleven subject entries. [ ] has been selling products produced by [ ] to numerous [ ] manufacturers in [ ] since the 1980s.
[ ] is a multinational, diversified [ ] company producing and selling [ ] products, [ ], and [ ]. The [ ] products at issue were produced by [
]'s subsidiary in [ ]. Counsel notes that although [ ] is not the importer of record for the subject entries, it is nonetheless obligated to pay all duties
and fees related to the subject [ ] importations and thus is an interested party in this application for further review.
The Joint Sales Representative and Distributorship Agreement
The Joint Sales Representative and Distributorship Agreement ("Agreement") governing the subject importation transactions between [ ] and [ ] creates a dual role for [ ] in selling [ ] products in the United States. In Section 1.1 of the Agreement, [ ] appoints and authorizes [ ] to perform as a non-exclusive sales representative and an exclusive distributor of [ ]'s products in the United States, principally in [ ].
Section 5 of the Agreement sets forth [ ]'s compensation in regard to both types of transactions. When acting as a sales representative,
Section 5.1 states that [ ]'s sole compensation shall be the payment of a [ ] commission based upon the net amount of [ ] invoice price for each sale to which [ ] made a contribution. This section further sets out the method of payment, stating that commissions will be payable to [ ] via price discounts at the time of [ ] invoicing. For sales which are not invoiced by [ ], the [ ] commission payable to [ ] is paid by means of a check mailed to [ ], according to Section 5.1.
As for transactions in which [ ] functions as a distributor, Section 5.2 of the Agreement states that [ ]'s sole compensation shall be the payment of a [ ] commission. Section 5.2 determines the commission will be payable to [ ] via price discounts at the time of [ ] invoicing.
According to Section 5.2 of the Agreement, when acting as a distributor, the price paid by [ ] to [ ] is determined by [ ] on an [ ] based upon a [ ]. Apart from this provision, the Agreement does not provide any further detail on the calculation of the price paid by [ ] or the manner in which the parties ensure that [ ]'s sole compensation in these sales is the [ ] commission.
The Declaration of [ ], a statement from a representative of [ ], and the Declaration of [ ] a statement from a representative of [ ], provide further elucidation of the parties' interpretation of the Agreement. The two declarations are similar in substance, however, the [ ] Declaration provides the most detailed account of the procedures agreed upon and followed by the parties in determining the price received by [ ]. According to the [ ] Declaration,
[
] The [ ] Declarations further explain that the actual resale price to [ ] the may [ ]. Therefore, pursuant to an
established procedure, according to the [
] and [
] Declarations,
[
].
Finally, as regards the calculation of [ ]'s commission, the [ ] and [
] Declaration note, although the agreement states that [ ] is entitled to [ ] of [ ]'s invoice to [ ], [ ] and [ ] have interpreted and agreed that this provision means that the basis for [ ]'s commission is the [ ].
In addition, the Declarations explain the processes followed in the commercial dealings between [ ] and [ ]. As explained, [ ] processes orders and invoices with [ ] in one of two ways. For transactions in which [
] is performing as [ ]'s sales representative, [ ] invoices the U.S. [ ] company at the negotiated contract price and [ ] ships the order directly to the [ ] company. When [ ] functions as [ ]'s distributor, [ ] purchases
the product from [ ], stores it in its warehouse, and then resells the product to the U.S. customer at a later date. The [ ] Declaration states that
virtually all imports of [ ] from [ ] since 1997, the year in which the aforementioned Agreement went into effect, have been distributorship sales to [ ].
Section 6.3, applicable to either of [ ]'s roles, establishes that [ ] shall market [ ]'s products in accordance with an annual marketing plan which shall be developed in mutual consultat ion with [ ] and mutually agreed upon by the parties. The marketing plan must include an analysis of market conditions, sales forecasts, targeted customers, and plans for advertising, promotion, and sale of the [ ]'s products.
Counsel's Position Regarding the Dutiability of Commissions Received by [ 1
Counsel avers that [ ] Customs improperly added commissions received by [ ] to the transaction value of the merchandise. Counsel argues that according to Customs valuation law, dutiable selling commissions are incurred by the buyer, not paid to the buyer.
Counsel maintains that [ ], the recipient of the commission, is the buyer and therefore, the subject commissions cannot be categorized as dutiable selling commissions. In order for such commissions to be considered dutiable selling commissions, argues Counsel, these commissions would have to be incurred by [ ] to fit into the statutory language governing additions to transaction value.
In support of its argument, counsel argues that the transaction between [ ] and [ ] contains the indicia of a bona fide sale insofar as [ ] takes title and risk for the merchandise at the place of shipment, according to the terms of the parties' sale and [ ] purchases the imported merchandise for its own account. Counsel asserts that [ ] holds title to the merchandise and stores it in its facilities until its eventual resale in the United States to various [ ] companies. Counsel notes that [ ] retains physical possession of the merchandise until a purchase order is received from a [ ] company. Counsel also maintains that [ ] does not assume a role in the negotiations between [ ] and the U.S. [ ] companies and does not determine the price paid by these entities to [ ].
Counsel urges that [ ] is an independent buyer of [ ]'s imported product when assuming its role as [ ]'s exclusive distributor and that the aforementioned facts substantiate [ ]'s independence. In sum, counsel contends the transaction between [ ] and [ ] constitutes a bona fide sale for exportation made between unrelated parties at arms-length.
Accordingly, Counsel argues the acceptability of utilizing [ ]'s invoice price to [ ], exclusive of [ ]'s earned commissions as an acceptable transaction value for Customs valuation purposes.
In addition, counsel argues that [ ]'s sale of the imported merchandise to the [ ] companies is a bona fide U.S. sale, not made until after the products are imported into the United States, an assertion which counsel notes provides further proof that [ ] is an independent buyer and seller, not a selling agent in the subject transactions.
Counsel's Position Regarding Post-Importation Price Adjustments
Counsel's contention is that appraisement of the subject merchandise based on [ ]'s invoice price to [ ] as adjusted after importation is appropriate in this case. Counsel avers that although the subject entries are subject to post-importation price adjustments, prior Customs rulings support the usage of a particular transaction value as adjusted pursuant to a predetermined pricing formula.
Counsel contends that the sale between [ ] and [ ] is a bona fide sale for exportation made between unrelated parties and that the final price paid by [ ] to [ ] is established under an agreement determined prior to importation of the merchandise, thereby fulfilling the requisite criteria for the acceptance of post-importation price adjustments to the transaction value of imported merchandise.
In addition, counsel argues that the commissions paid to [ ] constitute downward price adjustments made pursuant to a pre-established formula. Counsel regards this as additional justification for determining that
commissions received by [ ] do not constitute an additional component of the dutiable transaction value of the subject merchandise.
In the event that Customs determines that post-importation price adjustments to the transaction value of the imported merchandise do not constitute fixed formula price adjustments as envisioned in Customs regulations and precedent, counsel requests that Customs still apply these post-importation adjustments when appraising the imported merchandise as an established alternative method of appraisement , so-called "modified transaction value".
ISSUES:
Whether the importer functioned as the buyer of the subject merchandise or as a selling agent on behalf of the foreign seller.
Whether the commissions received by the importer are included in the transaction value of the imported merchandise under 19 U.S.C.
§1401a(b)(1)(8).
Whether the foreign seller's invoice price to the importer, as adjusted subsequent to importation of the merchandise , may serve as transaction value pursuant to 19 C.F.R. §152.103(a)(1 ).
Whether the imported merchandise should be appraised pursuant to 19
U.S.C. §1401a(f) taking into account post-importation adjustments to the entered value of the merchandise.
LAW AND ANALYSIS:
The primary method of appraising imported merchandise is
transaction value. The transaction value of imported merchandise is defined as the price actually paid or payable for merchandise when it is sold for exportation to the United States plus certain statutorily enumerated items contained in the Trade Agreements Act of 1979 (TAA; 19 U.S.C.
§1401a(b)(1)). Selling commissions incurred by the buyer with respect to the imported merchandise is one such item that is included in the transaction value. 19 U.S.C. §1401a(b)(1)(B).
Counsel argues that the language of 19 U.S.C. §1401a(b)(1)(8) limits the addition of selling commissions to transaction value to those instances in which the buyer incurs the cost of the commission, unlike here where the commission is actually paid to the buyer.
Invoking Headquarters Ruling Letter (HRL) 546110 (dated March 2, 1999), counsel avers that Customs precedent comports with this view.
Counsel asserts that the facts of the instant case are akin to those of HRL 546110 where Customs ruled that a commission paid to a buyer cannot be added to transaction value.
We do not disagree with counsel's argument that commissions paid to a buyer do not fall into the category of dutiable selling commissions falling within the TAA's additions to transaction value. However, we also note that counsel's argument presupposes that [ ] is in fact the "buyer" of the
imported merchandise in this case. A finding that [ ] is not in fact the buyer in this case but actually [ ]'s selling agent would support the inclusion of these commissions in the dutiable value of the subject merchandise.
Accordingly, a determination of the first issue at hand, namely whether [ ] was an independent buyer of the imported merchandise will determine the conclusion as to the second issue in this case, whether the commissions are included in the transaction value of the imported merchandise.
We note at this juncture that a presumption of correctness attaches to Customs appraisement of imported merchandise, which the importer bears the burden of overcoming through the submission of sufficient evidence.
See Synergy Sport international, Ltd. v. United States 17 C.l.T. 18, 19 (1993); HRL 545804 dated February 27, 1996. Accordingly, the protestants, in this case, [ ] and [ ], bear the burden of presenting sufficient evidence establishing that [ ] performed as an independent buyer, thereby disqualifying its commissions as dutiable additions to the transaction value of the merchandise. In addition, they must provide adequate evidence that post-importation adjustments to the price paid to [ ] constitute adjustments made pursuant to a formula fixed before importation of the goods.
Bona fide Sale
The central issue in the instant case is whether the transactions between [ ] and [ ] constitute bona fide sales. A determination that a bona fide sale occurred in which [ ] performed as an independent buyer would support the exclusion of [ ]'s commissions from the dutiable transaction value of the merchandise. However, in the event that the evidence supports a finding that [ ] performed merely as selling agent on behalf of [ ], [ ]'s commissions will constitute a dutiable addition to the transaction value of the merchandise. In this regard, we will examine the particular importation transactions at issue for the requisite indicia of a bona fide sale.
A sale for Customs purposes, in its basic form, is defined as a transfer of title of ownership in property from one party to another for a consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). In addition to the transfer of title, a key determinant of a bona fide
sale is whether the buyer of the merchandise has assumed the risk of loss for the imported merchandise. Headquarters Ruling Letter (HRL) 545506 dated November 30, 1995. Other factors indicating the occurrence of a bona fide sale include the issuance of a purchase order by the buyer to the seller and, in return, an invoice by the seller to the buyer, followed by payment against the invoice by the buyer. HRL 546553, dated March 31, 1997.
However, in ascertaining that a bona fide sale has taken place no single factor is determinative. Rather, the relationship of the potential buyer and seller should be considered with an overall evaluation of the roles of the parties and the structure of the transaction. Dorf lnternational, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968).
Whereas here the importer assumes dual roles in relation to its transactions with ( ) and the sale of its products in the United States - performing often as a selling agent on behalf of [ ] but at other times as a distributor of [ ]'s products - a thorough examination of the relevant transactions taking into account not only the dealings between [ ] and [ ], but also the transactions between [ ] and the ultimate U.S. purchasers of the imported merchandise is necessary in order to ascertain the occurrence of a bona fide sale between [ ] and [ ].
In order to establish that a bona fide sale has taken place, sufficient documentary evidence must be evaluated so as to ascertain the substance of the alleged sale. In this regard, sales contracts between the parties, purchase orders, invoices, and proof of payment against invoices are crucial pieces of evidence.
Submitted Documentary Evidence
As an addendum to its original Memorandum In Support of Protest And Application For Further Review, counsel provided certain documents relating to the transactions between [ ] and [ ] in addition to more limited documentation concerning the transactions between [ ] and the U.S. purchasers. Included among these documents were purchase orders from [
] to [ ] along with [ ]'s sales invoice to [ ] followed by evidence of [ ]'s payments made against these sales invoices. Also, included were the sales invoices issued from [ ] to the U.S. purchases along with evidence pertaining to payments made to [ ] against these invoices.
Given the circumstances of the varying commercial relationships between [ ] and [ ] in relation to sales of [ ]'s products in the United States we requested additional information pertaining to the domestic transactions between [ ] and [ ]. In particular, we requested the sales contracts between [ ] and the U.S. purchasers which were referred to in
counsel's submission in addition to the purchase orders issued from the
U.S. purchaser to [ ].
Our particular areas of interest in these documents include the sales terms between the parties and the manner in which the "domestic sales" were conducted, factors of important consideration that were communicated to counsel. In response, Counsel provided a supplemental submission, dated October 23, 2002, which contained the purchase orders issued from the [ ] companies. In its supplemental submission, counsel explained that sales between [ ] and the U.S. purchasers are not made pursuant to long term agreements. Counsel further explains that [ ] typically provides a quotation to the U.S. customer which submits either a regular or open purchase order to [ ]. Counsel explains in its submission that although [ ] and the [ ] companies do not enter into formal sales agreements, they treat the issuance of purchase orders and their acceptance as the manifestation of the agreement of the parties.
[ I 1 Transaction
Terms of Sale: Transfer of Title and Risk of Loss
As discussed, the transfer of title from a seller to a purported buyer and the assumption of risk by the alleged buyer for the loss of the goods are basic determinants of a bona fide sale. The terms of sale between the parties will establish these two determinants. Generally, Customs will consider the parties' usage of INCOTERMS sales terms such as FOB to establish at which point title and risk of loss are transferred from the seller to the buyer. The location designation following the FOB will establish the point at which these transfers occur. FOB shipment point terms of sale establish that the buyer takes title and risk when the goods pass the ship's rail from the seller's possession.
As regards the transactions between [ ] and [ ] we note that the sales invoices from [ ] to [ ] indicate that the terms of sale are FOB [ ], which would normally mean that title and risk of loss for the imported merchandise passed from [ ] to [ ] at the ship's rail in [ ]. These terms suggest, as counsel argues, that a bona fide sale occurred between [ ] and [ ].
[ ] Transactions
Given the circumstances of this case, namely [ ]'s selling agent relationship with [ ] and the various parties involved in these transactions, it is necessary to examine not only the transaction between [ ] and [ ] but also the domestic transaction between [ ] and the U.S. [ ] in order to gain a full and accurate picture of [ ]'s role in the ultimate sale of the product in
the United States and its relationship to each party, namely whether it is an agent, acting on behalf of [ ] or an independent buyer and seller of the merchandise.
Counsel attempts to assuage our reservations regarding the "domestic sale" in its supplemental submission. In this submission, counsel argues that the U.S. [ ] companies' purchase orders support the following conclusions: 1) [ ] obtained and retained title to [ ] imports from [ ], 2) [
] assumed the risk of loss from the time it took title in [ ], until the time it sold and delivered the product to purchasers in [ ], 3) [ ] maintained possession of the subject [ ] imports at its warehouse in [ ] before selling the products to various [ ] companies, 4) [ ] independently negotiated the actual price paid by the customer to [ ], quantity and delivery terms with each [ ] purchaser according to standard purchase order agreements, 5) [
] acted as independent distributor of the subject [ ] imports, and 6) [ ]'s sale of the subject [ ] to [ ] companies was a bona fide sale, not made until after the products were imported.
Terms of Sale: Transfer of Title and Risk of Loss
Although the terms contained in [ ]'s sales invoices to [ ] suggest there may have been a bona fide sale between [ ] and [ ], our inquiry must extend further. In a case such as this one, Customs approach is to determine the terms of sale between the importer and the U.S. customer, for in the event that the terms indicate that title and risk of loss pass to the importer and the U.S. purchaser simultaneously at the point of shipment, then Customs will conclude that a bona fide sale to the importer never actually occurred. HRL 543708, dated April 21, 1988. In this regard, it is necessary to prove that the importer held title and risk of loss for a tangible period of time before it passed to the U.S. customer. Id. If not, then the
bona fide sale will be found to have occurred between the seller and the ultimate U.S. customer. Id.
We note the particular sales terms contained in these purchase orders from the U.S. purchasers to [ ] include FOB delivered, FOB shipping point, Destination Freight Prepaid, and FOB our plant. We find these particular sales terms to be vague and unrevealing as to the point at which title and risk of loss for the imported merchandise passes to the U.S. purchaser. First, these sales terms do not contain location terms designating the geographical point at which title and risk transfers. In
Addition, we are not aware of any significant trade usage or legal meaning to these sales terms which is necessary for us to accord any weight or attach any legal significance to this language in terms of the passage of ownership in goods. In addition, we note that a few purchase orders from the U.S. purchasers to [ ] lack any reference to the sales terms between the parties.
As the purchase orders are the only documents indicating the terms of sale between [ ] and the U.S. purchasers - [ ]'s sales invoices do not contain reference to the terms of sale between the parties- we are unable to make a determination as to the passing of title between [ ] and the U.S. purchasers. With that in mind, contrary to counsel's assertions, we are
unable to conclude that a bona fide sale occurred between [ ] and the U.S. purchasers.
Independent Buyer/Seller Relationship
Buyer/Seller v. Principal/Agent Relationships
In distinguishing between a buyer/seller relationship and a principal/agent relationship, the principal consideration is the independence of the alleged buyer, vis a vis the seller. The more control the seller wields over the buyer with respect to the importation transactions, the less likely a
buyer/seller relationship can be found to exist. In making this determination, certain factors become relevant, namely whether the buyer:
provided (or could provide) instructions to the seller;
was free to sell the items at any price he or he desired;
selected (or could select) his or her own customers without consulting the seller; and
could order the imported merchandise and have it delivered for his or her own inventory.
In ascertaining the role of each party to a transaction Customs will examine the totality of the parties' dealings and the way in which they function in order to determine if they are performing as a true buyer and seller. In making this examination, Customs will accord more weight to the way in which the parties in fact deal with one another than the titles and designations given to their roles. In addition, although sales agreements and resultant pricing formulas established and assented to by the parties serve as essential evidence in making its determinations , Customs will, in addition, examine the manner in which the parties actually execute their transactions.
Sales Documentation
The passing of title and the risk of loss to the buyer of imported merchandise, as previously noted, are not the sole determinants of a bona fide sale. In order to demonstrate that a bona fide sale occurred between the parties, a complete paper trail of the transaction's execution is
Necessary, including purchase orders, sales invoices and proof of payments. HRL 546553, dated March 31, 1997. These documents should elucidate the
role assumed by the purported buyer, thereby establishing the occurrence of a bona fide sale.
As to the submitted documents, we note areas of concern. First, we note that the paper trail evidencing the various stages of the transact ions at issue is incomplete insofar as certain sales invoices issued by [ ] to the [
] companies lack corresponding purchase orders from these U.S. purchasers just as certain purchase orders issued from the U.S. [ ] companies lack corresponding sales invoices. Other irregularities include the submission of a purchase order from a U.S. customer for products other than those at issue. In addition, we also note that certain purchase orders issued by the U.S. [ ] companies predate [ ]'s purchase order to [ ) for the merchandise. Finally, a point of inconsistency bearing special importance to our analysis is the submission of certain purchase orders from a U.S. [ ] company issued to [ ] c/o [ ] followed by a payment
instrument made payable to [ ] c/o [ ]. Despite the slight variation of [ ]'s name, it seems apparent that the purchaser is referring to [ ].
The implications of the above findings undercut counsel's argument
in regard to the role assumed by [ ] in the relevant importation transactions and serve as an incomplete and therefore less compelling foundation for counsel's arguments. First, any missing links in the paper trail weakens the argument that in all instances [ ] was performing as an independent buyer vis a vis [ ] and an independent seller vis a vis the U.S. [ ] company purchasers. Second, the discovery of U.S. purchase orders predating [ )'s purchase orders to [ ] contradicts counsel's assertions that [ ] purchased merchandise from [ ] for its own account and inventory before the occurrence of the bona fide sale to the U.S. purchaser. Instead, this discovery suggests that [ ] was placing an order with [ ] specifically to fill
U.S. orders a role more akin to that of a selling agent.
Raising the most doubt in this case are those purchase orders issued to [ ] c/o [ ] and the corresponding payment instrument issued to [ ] c/o [ ]. This evidence does not support counsel's assertions as well as those contained in both Declarations that [ ] acted independently in two separate bona fide sales, the sale for exportation and the domestic sale. The issuance of purchase orders and payment to [ ] c/o [ ] strongly suggests that [ ] was assuming the role of sales facilitator, i.e. selling agent.
The Agreement
Counsel attempts to draw a distinction between [ ]'s role in the subject importation transactions from its role as sales representative in sales of [ ]'s products produced domestically in the United States. Counsel asserts that the two divergent roles assumed by [ ] are specific to the type of transact ion at issue - domestic or importation. In response we take note
of the Agreement between [ ] and [ ] and its delineation of [ ]'s relationship to [ ].
Although the Agreement carves out seemingly distinct roles for [ ] a closer review of the Agreement terms reveals that [ ]'s two roles are not as distinct from another as counsel suggests. Apart from Section 1.3 of the Agreement which states that [ ] is authorized to sell [ ]'s products either by purchasing the products from [ ] and reselling them to customers in the United States - defined as [ ]'s role as distributor - or to seek orders from customers to be placed directly with [ ] - defined as [ ]'s actions as sales representative - the Agreement does not provide further clarification or delineation of the separate roles. Moreover, the remaining provisions in the Agreement usually do not define the role to which they apply, presumably applying to both roles. Overall, the Agreement appears to muddle the roles, making it less convincing that [ ] at times assumes an independent buying position vis a vis [ ], the seller.
The most apparent distinction between the roles is found in Section 5 of the Agreement pertaining to [ ]'s compensation. When performing as a sales representative, [ ] is assured a [ ] commission on sales, while it earns [ ] when performing as a distributor. However, this difference in compensation can easily be explained by [ ]'s heightened costs as regard importation transactions in that the goods are often times temporarily stored at [ ]'s facilities until their delivery to the U.S. purchaser .
Provisions regarding [ ]'s compensation, moreover, are as revealing of the similarities between the two allegedly different roles as they are differences. Section 5.1 provides that commissions shall be paid to [ ) via price discounts at the time of [ ] invoicing when [ ] is acting as a sales representative. The provision goes on further to state for sales in the United States which are not invoiced by [ ] and [ ] is acting as a sales representative, the [ ] commission payable to [ ] shall be paid by means
of a check mailed to [ ]. This provision reveals that often [ ) is invoiced by [ ] and in turn invoices the U.S. purchaser even when acting as sales representative. The phrasing of this provision also suggests that in most cases [ ] is invoiced by [ ] and only "when" it is not will it receive direct payment in the form of a check.
Since, even when acting as a sales representative, [ ] often invoices [ ] which in turn invoices the U.S. purchaser, presumably payment flows from the U.S. customer to [ ], followed by payment from [ ] to [ ], a sales process identical to that which occurs when [ ] is a distributor. This observation undercuts counsel's arguments that evidence of [ ]'s invoicing to [ ] and [ ]'s invoicing of the customer demonstrates that [ ] is acting independently as a distributor, for the same invoicing practice is followed when [ ] is acting as the sales representative.
We also take note of certain incongruities between the Agreement's provisions and the manner in which the commercial relations between [ ] and [ ] are in fact executed. As previously noted, the Agreement states that when acting as a sales representative, [ ] shall be compensated in the form of a [ ] commission to be contrasted with its compensation of a [ ] commission when acting as a distributor. However, counsel notes in its Memorandum that "[ ] pays a [ ] commission for direct shipments to [ ] companies that are not the subject of this AFR. [ ] may act as a distributor or sales representative for such shipments." If this is true then, at times, [ ] receives a [ ] commission when it is acting as a distributor, a fact which further undermines the distinction between [ ]'s roles. The logical inference to be drawn from this statement is that the true determinant of [
]'s compensation is not its formal designation but rather whether or not it is warehousing the products on behalf of [ ], thereby warranting a slightly higher commission rate.
[ l’s Autonomy
As discussed, the degree of freedom a seller accords a purported buyer in regard to the buying and selling of the seller's merchandise is a fundamental consideration in ascertaining whether a buyer/seller relationship exits rather than a seller/agent. In this regard, Customs will examine an importer's freedom in determining its pricing and marketing policies for its U.S. sales of the imported merchandise. If a purported buyer is granted independence in determining its own pricing and marketing policies for the sale of the merchandise in the United States, an independent buyer/seller relationship will more likely be found. See HRL 545506, dated November 30, 1995.
As previously noted, the Agreement's provision regarding [ ]'s marketing strategy in the United States contained in Section 6.3 dictates that [ ] shall only market [ ]'s products in the United States in accordance with an annual marketing plan to which [ ] must assent. This marketing plan encompasses not only [ ]'s marketing tactics but also [ ]'s targeted customers. Lacking a reference to which role this provision applies, presumably these marketing constraints pertain to both [ ]'s distributorship and sales representative role.
This provision further weakens the claim that [ ] maintains autonomy in its selling operations in the United States. Not only does the agreement not accord for differences in [ ]'s role insofar as the prescribed the manner in which [ ] is to carry out its role and its freedom in selling [
]'s products in the United States but it also underscores the fact that [ ] exerts control and oversight of [ ]'s operations. These observations are not indicative of an independent buyer/seller relationship.
Moreover, a fundamental aspect of buying and selling for one's own account is the buyer's prerogative to negotiate pricing terms with its customers so as to reap its desired profit. In the instant case, the purported buyer's "profit" in reselling the merchandise in the United States is not determined based on the outcome of its negotiations with its customers but rather is determined before the merchandise is imported into the United States, as the Agreement predetermines [ ]'s compensation level. By these terms [ ] is guaranteed this predetermined compensation for its efforts but also is precluded form earning profits beyond this level. As the [
] and [ ] Declaration make clear, [ ] is required, based on an understanding with [ ], to remit any excess profits earned on U.S. sales above the [ ] commission level.
Furthermore, we cannot conclude that the evidence submitted in counsel's supplemental submission, as counsel argued, supports the conclusion that [ ] independently negotiated the actual price paid by the customer to [ ] as we do not have evidence manifesting these negotiations. In addition we are unable to differentiate the negotiation of the sales price to U.S. customers when [ ] is acting as distributor from when its if performing as a sales representative.
In sum, based on the evidence submitted and the totality of circumstances in this case, we are unable to conclude that [ ] functioned as an independent buyer in these importation transactions and, therefore, cannot find that a bona fide sale has occurred between [ ] and [ ]. In
addition, contrary to counsel's contention we conclude that the actual buyers in this case are the U.S. customers with [ ] performing as a selling agent on behalf of [ ]. Therefore, the appropriate transaction value in this case is the price paid by the U.S. purchasers of the merchandise. We further note that the selling commission is included in the price paid by the U.S. purchaser of the imported merchandise, thereby making appraisement based on the price paid by the U.S. customer appropriate in this case.
Post-Importation Price Adjustments
As counsel has recognized, post importation price adjustments may only be considered in those instances in which a bona fide sale for exportation has occurred between the parties. In the instant case, we have concluded that the transaction between [ ] and [ ] did not constitute a bona fide sale, therefore post-importation price adjustments to this transaction value are irrelevant.
Alternative Methods of Appraisement
Similarly, we conclude that consideration of these post importation price adjustments pursuant to 19 U.S.C. §1401a(f) is inappropriate in this
case. This alternative method of appraisement is available for those instances in which preferred methods of appraisement are not feasible. In our case, we have determined that the appropriate transaction value for Customs purposes is the price paid by the U.S. purchasers for the imported merchandise. Therefore, since transaction value is available, it is both unnecessary and inappropriate to employ this alternative appraisement method.
HOLDING:
Based on the evidence provided it is our conclusion that the transaction between [ ] and [ ] did not constitute a bona fide sale. Furthermore, we have concluded that [ ] did not function as an independent buyer of the imported merchandise, but rather as a selling agent on behalf of [ ]. Therefore, commissions received by [ ] in this case constitute dutiable selling commissions.
Having concluded that the bona fide sale for exportation in fact occurred between the U.S. purchasers and [ ] , we further conclude that the price paid by the U.S. purchasers, which already includes the selling commission, is the appropriate transaction value to be used for Customs valuation purposes.
As the subject entries were liquidated using the price paid by [ ] to [
], adding the [ ] selling commission, we assume that liquidation using the price paid by the U.S. customer, which includes this selling commission would yield the same result. Nonetheless, in the event that application of this ruling results in a difference large enough to necessitate reliquidation , we hereby order reliquidation at the price paid by the U.S. purchasers.
Accordingly, this Application for Further Review is DENIED.
Sincerely,
Virginia L. Brown Chief, Value Branch