HQ 545174 - Protest and Application for Further Review No. 2809-92-101397; buying agent; payments not bona fide commissions - United States International Trade Commision Rulings

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HQ 545174

September 7, 1994

VAL CO:R:C:V 545174 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
P.O. Box 2450
San Francisco, CA 94126

RE: Protest and Application for Further Review No. 2809-92-101397; buying agent; payments not bona fide commissions

Dear Sir:

This is in reply to your memorandum dated December 11, 1992, under cover of which you forwarded the above-referenced Protest and Application for Further Review dated August 13, 1992, filed by counsel George R. Tuttle, P.C., on behalf of Playhouse Import & Export, Inc. (hereinafter the "buyer"). We regret the delay in responding.

FACTS:

The buyer is an importer and distributor of parts and accessories for collectible dolls such as shoes, eyeglasses, violins, eyes and limbs. The buyer purchases these items from cottage industry producers in the Republic of China (ROC). In order to assist it in locating suppliers and placing orders, the buyer employs the services of a buying agent, Jon Universal Commercial Co. (the "agent").

The agent locates potential suppliers in the ROC and arranges for the buyer to meet with them. The agent acts as interpreter during these meetings since the manufacturers generally do not speak English. During the meetings the buyer examines merchandise manufactured by the producers and discusses pricing; however orders are not usually placed at this time. When orders are placed the agent assists in their submission to include the issuance of shipping instructions and the performance of quality control inspections. In return for its services the buyer pays the agent a commission. While the buyer has employed the services of the agent since 1986, the arrangement was only reduced to writing in 1992 with the signing of a buying agency agreement (the "agreement"). A signed copy of the agreement was attached to the protest and application for further review.

Prior to December 1991, the agent issued two invoices to the buyer. One was identified as a "credit" invoice; the other as a "real" invoice. The "real" invoice identified the merchandise shipped, its quantity, and its unit price and price in New Taiwan dollars and its conversion value in U.S. dollars. The unit price of each item included a percentage for the agent's commission. The "credit" invoice identified the merchandise shipped, its quantity, and its unit price and total price in U.S. dollars only, but did not contain an amount for the agent's commission. The "credit" invoice was supplied to Customs for use in appraisement and the amount of the commission was not reported.

After December 1991, the buyer revised its invoicing procedures. The agent now issues only one invoice to the buyer. This invoice describes the merchandise shipped and identifies the seller's price in U.S. dollars. In addition, the invoice identifies the name of the seller and itemizes the agent's commission of fifteen percent of the total invoice price. The imported merchandise is packed in cartons bearing the buyer's shipping mark. Counsel states that the sellers do not issue commercial invoices but, instead, return an acknowledged copy of the agent's purchase order.

Payment is made by the buyer to the agent by means of wire transfer for the full amount of a shipment in U.S. dollars, including the commission. The agent then pays the individual sellers in New Taiwan dollars. Prior to January 1992, payments to the sellers were made in cash; however, since then payments have been made by check payable in New Taiwan dollars. Counsel notes that given the circumstances of the transaction, the agent must continue to be the party to make payment to the sellers.

ISSUE:

The issue presented is whether commissions paid to the agent constitute bona fide buying commissions such that they are not included in the transaction value of the imported merchandise.

LAW AND ANALYSIS:

Merchandise imported in 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 preferred method of appraisement is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain statutorily enumerated additions. 19 U.S.C. ? 1401a(b)(1). For the purposes of this ruling only we have assumed that the appropriate basis of appraisement is transaction value.

Bona fide buying commissions 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 (Cust. Ct. 1978). 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).

In determining whether an agency relationship exists, the primary consideration 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: whether the purported agent's actions were primarily for the benefit of the principal; whether the principal or the agent was responsible for the shipping and handling and the costs thereof; whether the importer could have purchased 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.

Finally, 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. Headquarters Ruling Letter (HRL) 542141 dated September 29, 1980 (TAA No. 7). Moreover, in HRL 542357 dated March 31, 1987, we stated that even if the actual sellers are listed on the invoice submitted to Customs, a separate invoice from the seller which establishes the price actually paid or payable is required. See also HRL 542662 dated February 16, 1982; HRL 543171 dated June 20, 1984; HRL 543148 dated June 26, 1985; HRL 543625 dated February 4, 1986. Where no separate invoice for the commission was provided and where the commission was calculated on the total invoice value, Customs has held that commission paid to an agent are included in the transaction value of the imported merchandise. E.g., HRL 544668 dated July 15, 1991.

However, in regard to the instant protest the buyer has not provided a separate invoice from the actual foreign seller. Instead, in order to attempt to establish that the agent was not the seller the buyer has merely supplied a copy of the agent's invoice allegedly stamped by the seller. In addition to the fact that there is no separate invoice, the commission is calculated on the basis of the total invoice value of the merchandise. The documentation in this case is insufficient to support the contention that the commissions paid to the agent constitute bona fide buying commissions. Consequently, we do not reach the issue of whether the relationship between principal and agent otherwise constitutes a bona fide buying agency relationship. Other issues concerning the imported merchandise were raised in Playhouse Import & Export, Inc. v. United States, 28:7 Cust. Bull. & Dec. 70, No. 92-08-00587, slip op.94-14 (January 28, 1994), reh'g denied, 28:23 Cust. Bull. & Dec. 25, No. 92-08-00587, slip op. 94-79 (May 13, 1994).
HOLDING:

Based on the information presented, the commissions paid to the agent do not constitute bona fide buying commissions. Accordingly, you are directed to deny the protest in full. A copy of this decision should be sent to the protestant together with the Form 19 Notice of Action.

In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to the mailing of the decision. Sixty days from the date of this 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 to the public vis the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

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