HQ 546037 - Application for Further Review of Protest 1401-95-100127; paper and paper products; bona fide sale; Dorf International; J.L. Wood; selling commission; HRL 544907; price actually paid or payable; international freight; insurance; U.S. duties; 19 CFR ?152.103(i); HRLs 545538, 543827 and 542467; discount; 19 CFR ?152.103(a)(1); Allied International; HRLs 545659, 544907, 543302, 543537, and 543662 - United States International Trade Commision Rulings

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HQ 546037

January 31, 1996

RR:IT:VA 546037 KCC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
101 E Main Street
Norfolk, Virginia 23510

RE: Application for Further Review of Protest 1401-95-100127; paper and paper products; bona fide sale; Dorf International; J.L. Wood; selling commission; HRL 544907; price actually paid or payable; international freight; insurance; U.S. duties; 19 CFR ?152.103(i); HRLs 545538, 543827 and 542467; discount; 19 CFR ?152.103(a)(1); Allied International; HRLs 545659, 544907, 543302, 543537, and 543662

Dear Port Director:

This is in regards to the Application for Further Review of Protest 1401-95-100127, concerning the transaction value of paper products imported by WWF Paper Corporation pursuant to ?402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. ?1401a(b). Comments made by WWF's counsel in letters dated May 16, and August 17, 1995, were taken into consideration in rendering this decision.

FACTS:

The merchandise at issue is light weight coated paper which was appraised pursuant to transaction value, ?402 (b) of the TAA, based on the invoice provided at the time of entry. The invoice from KNP LEYKAM, the foreign manufacturer, to WWF Paper Corporation (WWF), the importer, indicates that the terms of sale were "FREE DELIVERED DUTY PAID" to Donnelly R.R. in Glasgow Kentucky. The price of the imported merchandise on the invoice was listed as $181,117.37. After a deduction for an "agent's commission" in the amount of $4,980.73 or 2.75% of the price of the imported merchandise, the total invoice amount was listed as $176,136.64. The invoice also listed a value for "international freight/handling charge" of $27,816.65 and for "insurance" of $704.55. The invoice payment terms stated:

PAYMENT IN OUR POSSESSION WITHIN 45 DAYS AFTER DATE OF INVOICE BY T.T. LESS 2% OR 60 DAYS NETT AFTER DATE OF INVOICE.

You determined that the price actually paid or payable of the merchandise included the agent's commission as a selling commission. This position is based on a letter you received from WWF's V.P. Adm., Gloria Gregg, dated June 21, 1993, with regards to a previous transaction which states that:

Agents commission is our commission on this sale and is deducted from the KNP invoice. WWF is the agent. There is no contract.

You determined that the transaction value of the imported merchandise was $181,117.37.

In a protest timely filed on May 2, 1995, WWF contends that the agent's commission is actually a discount which should not be included in the price actually paid or payable. Moreover, they state that the terms of sale were Free Delivered Duty Paid and that Customs failed to make the proper deductions from the invoice price. Moreover, WWF states that it receives an additional 2% discount for invoices paid within 45 days which they pay on a regular basis. As evidence of this payment, WWF submitted copies of wire transfers from previous transactions which showed that they do take advantage of the 2% "45 day discount."

WWF's Counsel has described WWF' business in the following manner. WWF buys paper products from foreign paper producers and suppliers ("foreign producers") and sells these paper products to U.S. paper consumers ("U.S. customers"). WWF is not related to either the foreign producers or the U.S. customers. As an example of a typical transaction, Counsel in its August 17, 1995, letter has submitted a set of purchase orders and invoices between WWF, KNP Leykam, a foreign producer, and Shenendoah Valley Press (Judd's, Inc.), a U.S. customer.

Counsel states that WWF locates the foreign producers and directly buys merchandise from the foreign producers for WWF's own account. Thus, Counsel states that WWF takes title to, assumes risk of loss, and is the importer of record for the imported merchandise. Some of WWF's purchases are made to fill pre-existing orders from U.S. customers. In this situation, the foreign producers know who WWF's U.S. customers are but do not know the price which WWF sells to the U.S. customers. Other purchases are made for WWF's inventory which is later resold by WWF to U.S. customers. In this situation, the foreign producers do not know the U.S. customers nor the price which WWF sells to its U.S. customers. In all cases, you state that the price which WWF sells to its U.S. customers is negotiated solely by WWF and WWF's U.S. customers are not aware of the price which WWF pays to the foreign producers.

Counsel states that the invoices from foreign producers to WWF sometimes show a discount listed as a "rebate", "commission", or other similar terms, which is subtracted from the gross price to yield a net price. Counsel contends that the word "commission" is a misnomer and that it is merely a discount from the foreign producer's base price. WWF pays the foreign producer the net price and provides the foreign producer with no other consideration, nor provides any consideration to anyone on behalf of the foreign producer. Additionally, Counsel states that WWF's U.S. customers do not provide any consideration to WWF's foreign producers or to anyone on behalf of WWF. WWF has no contracts or agreements with the foreign producers, other than the purchase order agreements which lead to the importations of the merchandise, and performs no services for the foreign producers. WWF receives no payments from the foreign producers. Moreover, WWF has no contracts or agreements with its U.S. customers other than the purchase order agreements which are its sales to U.S. customers. WWF receives no payment from its U.S. customers except the amount WWF invoices its U.S. customers for the imported merchandise.

ISSUE:

1. Whether WWF has proffered sufficient evidence to prove that it is operating other than as a selling agent and, consequently, that the transaction value of the imported merchandise should not include an addition for a selling commission?

2. Whether deductions should be made for international freight, insurance and U.S. duties from the price actually paid or payable?

3. Whether the 2% "45 day discount" should be deducted from the price actually paid or payable?

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to ?402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. ?1401a. ?402 (b)(1) of the TAA 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 certain enumerated additions, including selling commissions incurred by the buyer. 19 U.S.C. ?1401a(b)(1).

1. Selling Commission

Counsel's statements appear to contend that the "agent's commission" is not a selling commission, because a bona fide sale occurs between WWF and both KNP and the U.S. customer. In determining whether a bona fide sale takes place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968). Customs recognized the term "sale," as articulated in the case of J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be defined as: the transfer of property from one party to another for consideration.

However, several factors may indicate whether a bona fide sale exists between a potential buyer and producer. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

In determining whether the relationship of the parties to the transaction in question is that of a buyer/seller, where the parties maintain an independence in their dealings, as opposed to that of a principal-agent, where the former controls the actions of the latter, Customs will consider whether the potential buyer:
a. provides (or could provide) instructions to the seller; b. was free to sell the items at any price he or she desired; c. selected (or could select) his or her own customers without consulting the seller; and d. could order the imported merchandise and have it delivered for his or her own inventory.

Based on the information provided by Counsel, it would appear that the WWF is acting as a buyer/seller, as opposed to a selling agent. Counsel states that WWF buys paper from the foreign producer for its own account, taking title to the paper and assuming risk of loss. In this regard, Counsel advised that WWF independently negotiates its price with its U.S. customers and the price it pays the foreign producer for the merchandise. Counsel states that the foreign producer may know to whom the imported merchandise will be delivered, but does not know the price the U.S. customer is paying for the imported merchandise. Moreover, the U.S. customers do not know the price WWF paid the foreign producer for the merchandise. Additionally, Counsel states that the U.S. customers pay WWF for the merchandise; no consideration is exchanged between the U.S. customers and the foreign producer. Moreover, Counsel states that WWF does not receive any consideration from the foreign producer; WWF only pays the foreign producer for the merchandise. WWF does not have any agreements between the foreign producer and the U.S. customers except for the purchase or sale of the merchandise.

In Headquarters Ruling Letter (HRL) 544907 dated April 13, 1992, we determined that an invoiced amount qualified as a selling commission as opposed to a trade discount. In that decision, it was explained that an agency relationship was found to exist between the parties, based on the admission of the parties and their labeling the invoiced amounts as a commission, and that insufficient evidence was proffered to indicate that the amount was anything other than a selling commission.

Based on the all the information contained in this file, it appears that WWF operates as a selling agent. Based on WWF's own admission, although there is no written contract, WWF is a selling agent for KNP. The amounts deducted from the invoice are WWF's commission for arranging the sale. Moreover, the terms of sale provided on the invoice imply that property or ownership of the imported merchandise was not transferred to WWF. The invoice terms of sale were Free Delivered Duty Paid (DDP) which means deliver duty paid to the named place of destination. In DDP shipments the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods cleared for importation. See, International Chamber of Commerce, Incoterms, at 92 (1990). Thus, contrary to Counsel's statement that WWF takes title to and assumes risk of loss for the imported merchandise which is directly shipped from KNP to the U.S. customer, it appears that the shipping terms obligate KNP to bear risk of loss for the merchandise until it reaches the U.S. customer's place of business. Therefore, the terms of sale provided on the invoice indicate that property or ownership was not transferred to WWF, but remained with KNP.

We are not satisfied from the evidence available that the amount at issue is other than a selling commission. Therefore, under ?402(b)(1)(B) of the TAA the "agent's commission" is added to the price actually paid or payable in determining transaction value of the imported merchandise.

2. International Freight, Insurance and U.S. duties

The term "price actually paid or payable" is defined in

...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 from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

As regards costs that are incurred after the merchandise has been imported, ?402(b)(3) of the TAA states that:

The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1):

(B) The customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable.

See also, ?152.103(i), Customs Regulations (19 CFR ?152.103(i). The above cited statutory provision clearly states that the transaction value of imported merchandise does not include any reasonable cost incurred for customs duties of the imported merchandise that is identified separately from the price actually paid or payable.

Additionally, transportation costs and insurance costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. The costs associated with transportation and U.S. duty are not the estimated costs, but the actual costs paid to Customs and the freight forwarder, transport company, etc.

In HRL 544538, issued December 17, 1992, Customs acknowledged that pursuant to ?402(b)(4)(A) the cost of international transportation is to be excluded from the price actually paid or payable for imported merchandise. However, Customs explained that in determining the cost of the international transportation or freight, it always looked to documentation from the freight company, as opposed to the documentation between the buyer and the seller which often contains estimated transportation costs or charges. In essence, Customs requires documentation from the freight company because the actual cost, and not the estimated charges, for the freight is the amount that Customs excludes from the price actually paid or payable. See also HRL 543827, issued March 9, 1987, in which Customs determined that the proper deduction from the price actually paid or payable for marine insurance was the amount actually paid to the insurance company by the seller, as opposed to the amount paid by the related importer/buyer; and HRL 542467 dated August 13, 1981.

The invoice describes the terms of sale as DDP. As stated previously, in DDP shipments the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods cleared for importation. See, International Chamber of Commerce, Incoterms, at 92 (1990). Thus in DDP shipments, the invoice price normally includes charges for international freight, insurance and duties. The charges for international freight and insurance are listed on the invoice and, therefore, should be deducted from the price actually paid or payable. However, the charges for international freight and insurance should be the actual charges for these costs and not estimated charges. Moreover, it is our position that the U.S. duties are also to be deducted from the price actually paid or payable. The DDP terms of sale include U.S. duties. Since the duties of the country of importation are by their nature distinguishable from the price actually paid or payable, they do not form part of the value of the imported merchandise. Thus, it is our position that the international freight, insurance costs and U.S. duties are to be excluded from the price actually paid or payable for the imported merchandise.

3. 2% "45 day discount"

?152.103(a)(1), Customs Regulations (19 CFR ?152.103(a)(1)), provides that the price actually paid or payable "...will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula...." A discounted price must be agreed to and effected prior to importation for it to constitute the price actually paid or payable. See, Allied International v. United States, 16 CIT 545, 795 F. Supp. 449 (1992); Headquarters Ruling Letter (HRL) 545659 dated October 25, 1995; HRL 544907 dated April 13, 1992; HRL 543302 dated November 1, 1984; HRL 543537 dated February 14, 1986; and HRL 543662 dated January 7, 1986.

In this case, WWF did not submit evidence showing that it took advantage of the 2% "45 day discount." We note that WWF did submit wire transfers showing that they have taken advantage of the "45 day discount", but with regards to the entry at issue no evidence of payment at the 2% "45 day discount" was presented. Consequently, the 2% "45 day discount" is not excluded from the price actually paid or payable.

HOLDING:

Based on the evidence available, WWF has proffered insufficient evidence to prove that it is operating other than as a selling agent. Consequently, under ?402(b)(1)(B) of the TAA the "agents's commission" is added to the price actually paid or payable in determining transaction value of the imported merchandise. The actual costs for international freight, insurance and U.S. duties are to be excluded from the price actually paid or payable for the imported merchandise. However, the 2% "45 day discount" is not excluded from the price actually paid or payable.

The protest should be GRANTED IN PART and DENIED IN PART. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the 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 the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director

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