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HQ 544684

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July 31, 1992

VAL CO:R:C:V 544684 TLL/ML

CATEGORY: VALUATION

Richard H. Abbey, Esq.
2121 K Street, N.W.
Washington, D.C. 20037

RE: Dutiability of Payments Made to Related Overseas Employees and The Necessity of Reporting The Payments to Customs

Dear Mr. Abbey:

This is in response to your letter dated March 20, 1991, and pursuant to a meeting on August 1, 1991, held at Headquarters, attended by you and members of my staff. You request a ruling regarding the dutiability of certain monthly payments made by your client, Brenco Apparel Inc. of Dallas, Texas, (hereinafter referred to as the "importer"), to its employees in New Delhi, India, (hereinafter referred to as the "employees"). You further inquire as to the necessity of reporting these payments to Customs. We regret the delay in responding.

FACTS:

You state that the importer is a wholly owned subsidiary of Brenner International, Inc., a publicly traded Delaware corporation, involved in the manufacture of ladies' wearing apparel. The importer is the importing arm of Brenner. The importer has hired a manager, who in turn has hired four other employees in India, all of whom are engaged in activities which you state are normally associated with a "buying agent", yet no written agency agreement exists. On behalf of the importer, the overseas manager and the employees will identify and select manufacturers, obtain prices on samples, survey the market for new styles, assist in the negotiation of prices, execute purchase orders, inspect the finished goods and sign inspection certificates. The staff overseas works exclusively for the importer and it neither manufactures nor buys and sells merchandise independently. Further, purchase orders are executed and letters of credit for merchandise are opened between the importer and the manufacturer of the merchandise.

We note that your letter does not state that the manufacturer is the seller of the exported merchandise. Nonetheless, we have assumed for purposes of this response that the manufacturer is the seller of the exported merchandise. You have stated that none of the parties (manager and employees

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included) are related to the manufacturer. Additionally, no payment, direct or indirect, is made by the manager or through the manager to a manufacturer. (Please note, we are assuming that this last sentence means that none of the payments made to the manager/agent or its employees inures to the benefit of the manufacturer).

You state that the importer transfers money monthly to the manager which is used to pay all of the overseas employees' salaries, the rent, telephone bill and fax bill. Counsel stated that the money is not linked in any way to specific, identifiable importations by the importer.

ISSUE:

Whether payments made by the importer to its employees are a dutiable part of transaction value.

LAW AND ANALYSIS:

The transactions described by counsel are prospective, current and completed transactions as found in ?177.1(a)(1) and (2), Customs Regulations (19 CFR 177.1(a)(1) and (2)). Current or completed transactions will normally be resolved by the Customs Service office involved in that transaction. Therefore, we will respond to counsel's request as it pertains to pending transactions in conformance with the facts as stated above.

For purposes of our response, we are assuming that transaction value, the preferred method of appraisement is appropriate, given counsel's statement that the buyer and seller of the merchandise are unrelated as that term is defined in section 402(g) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401(g)). Transaction value is defined in section 402(b) of the TAA, as "the price actually paid or payable for the merchandise when sold for exportation to the United States", plus certain enumerated additions. The term "price actually paid or payable" is defined in section 402(b)(A) of the TAA 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 has consistently been the position of the Customs Service that all monies paid to the seller or a party related to the seller are part of the "price actually paid or payable" for the imported merchandise. (See, TAA #6) This position was reaffirmed by the court in Generra Sportswear Company v. United States, 905 F.2d 377 (Fed.Cir. 1990). Inasmuch as under the facts presented these payments are not to the seller or a party related thereto,

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they are not part of the price actually paid or payable and under these circumstances are not part of transaction value.

In addition, it should be noted that the stated services to be performed by the employees appear to be typical of those performed by a buying agent and consequently, otherwise nondutiable. (See, New Trends v. United States, 10 CIT 637,645 F. Supp. 957 (1986)) Counsel stated that the invoices (or purchases orders) will be opened between the importer and the manufacturer, consistent with HRL 542141 (TAA #7) dated September 29, 1980. Both factors support our finding the payments made to the employees would not be added to the "price actually paid or payable" under ?402(b)(1)(B). See, 544396, dated May 14, 1990. In sum, these payments are not part of the transaction value of the merchandise.

Finally, under the factual circumstances presented we believe it is appropriate to allow the concerned field officer to decide the question as to whether these payments should be reported to Customs.

HOLDING:

Under the circumstances, payments by the buyer to its employees abroad are not part of transeetion value.

Sincerely,

John Durant, Director
Commercial Rulings Division


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