United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 546681 - HQ 560114 > HQ 547176

Previous Ruling Next Ruling
HQ 547176





October 23, 1998

VAL RR:IT:VA 547176 DWS

CATEGORY: VALUATION

Mr. David M. Murphy
Grunfeld, Desiderio, Lebowitz & Silverman LLP 245 Park Avenue
New York, NY 10167-3397

RE: Buying Commissions

Dear Mr. Murphy:

This is in response to your letter of September 3, 1998, on behalf of Ex Officio, Inc. ("Ex Officio"), requesting a ruling determining that commissions to be paid by Ex Officio to an unrelated Taiwanese corporation, Bright Wear Ltd. ("Bright Wear"), in consideration for buying agency services performed by Bright Wear, are bona fide buying commissions.

FACTS:

Ex Officio is a U.S.-based importer and vendor of wearing apparel and related articles. To further Ex Officio's business interests, Ex Officio entered into a buying agency agreement (Agreement) with Bright Wear on July 13, 1998 (amended on August 24, 1998), to act as its buying agent in Taiwan and elsewhere in the Far East.

Under the Agreement, Bright Wear is to perform certain services on behalf of Ex Officio as especially set forth in sections 2 and 3 of the Agreement. These services include the following: surveying potential markets to obtain the best available merchandise; obtaining and submitting samples to Ex Officio; negotiating prices on behalf of Ex Officio at Ex Officio's express direction; placing orders with manufacturers only at Ex Officio's direction; negotiating for Ex Officio in the recovery of any monies due Ex Officio from the manufacturer as a result of defective merchandise, shortages, etc.; and acting as an inspection agent for Ex Officio.

According to the Agreement, Bright Wear shall act only upon the specific instructions of Ex Officio, and shall never act without such explicit instructions. Bright Wear will never act as a seller in any transaction involving Ex Officio. Bright Wear is to always instruct a manufacturer to prepare commercial invoices for each shipment reflecting the fact that Ex Officio is the buyer, and these invoices will be provided to Ex Officio by Bright Wear. Bright Wear certifies that it does not have an ownership or financial interest in, or control over, the manufacturer(s)/seller(s) making the commodities which are purchased by Ex Officio with Bright Wear's assistance.

In return for their services, as stated in section 4 of the Agreement, Bright Wear will charge Ex Officio a buying commission which will be billed on a separate invoice. The specific commission amount is set out in the Agreement and may be changed upon mutual agreement between the parties. While we do not normally consider commission amounts in the determination of a bona fide buying agency relationship, we note, however, that the higher the commission amount, the more scrutiny will be placed on whether such a relationship exists. Ex Officio shall also reimburse Bright Wear for all expenses incurred on Ex Officio's behalf for the costs of inland freight, hauling, lighterage, etc.

The Agreement is for the term of 1 year commencing on the date of execution of the Agreement, and will be renewed for additional 1-year terms automatically. The Agreement will remain in effect until cancellation by either party upon giving written notification at least 90 days prior to the date of such cancellation or upon mutual agreement to cancel the Agreement.

ISSUE:

Whether certain payments made by Ex Officio to Bright Wear constitute buying commissions such that they are not added to the price actually paid or payable under 19 U.S.C. 1401a(b).

LAW AND ANALYSIS:

Merchandise imported into the U.S. is appraised in accordance with the provisions of Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a; TAA). The preferred basis of appraisement is transaction value, defined as "the price actually paid or payable for merchandise when sold for exportation to the United States." 19 U.S.C. 1401a(b)(1). Accordingly, we have assumed for the purposes of this ruling that transaction value is the appropriate basis of appraisement.

The term "price actually paid or payable" is defined 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." 19 U.S.C. 402(b)(4). As a general matter, bona fide buying commissions are not added to the price actually paid or payable. Pier 1
Imports, Inc. v. U.S., 708 F. Supp. 351, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v. U.S., 679 F. Supp. 21, 12 CIT 77 (1988); Jay-Arr Slimwear, Inc. v. U.S., 681 F. Supp. 875, 12 CIT 133 (1988).

The existence of a bona fide buying commission depends upon the relevant factors of the individual case. J.C. Penney Purchasing Corp. v. U.S., 451 F. Supp. 973 (Cust. Ct. 1978). In this regard the importer has the burden of proving the existence of a bona fide agency relationship and that payments to the agent constitute bona fide buying commissions. Rosenthal-Netter, 679 F.Supp.21, 23; New Trends, Inc. v. U.S., 645 F. Supp. 957, 10 CIT 637 (1986); B.W. Wholesale Co., Inc. v. U.S., 462 F. Supp. 1399, 1403, 58 CCPA 92, C.A.D. 1010, (1971).

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. Jay-Arr Slimwear, 681 F. Supp. 875, 879. The degree of discretion granted the agent is a further consideration. New Trends Inc. v. U.S., 645 F. Supp. 957 (1986). The existence of a buying agency agreement, moreover, has been viewed as supporting the existence of a buying agency relationship. Dorco Imports v. U.S., 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 agent was responsible for the shipping and handling and the costs thereof; whether the language used in the commercial invoices was consistent with a principal-agent relationship; whether the agent bore the risk of loss for damaged, lost or defective merchandise; and whether the agent was financially detached from the manufacturer of the merchandise. New Trends, 645 F. Supp. 957.

The Agreement between Ex Officio and Bright Wear provides that Bright Wear shall act upon the specific instructions of Ex Officio, and Bright Wear shall never act, within the terms of the Agreement, without such explicit instructions. Bright Wear may negotiate and quote prices and place orders with manufacturers on behalf of Ex Officio, but only at Ex Officio's direction. Factors such as these have been considered to be indicative of control by a principal over the purchasing process, and thus as evidence of the existence of an agency relationship. Rosenthal-Netter, 679 F.Supp. 21, 24.

Furthermore, Bright Wear performs services on behalf of Ex Officio which are characteristic of those rendered by a buying agent, such as compiling market information, gathering samples, procuring merchandise, inspecting merchandise, and arranging for shipment and payment. Jay-Arr Slimwear, 12 CIT 133, 137.

An agent must be financially detached from the manufacturer of the merchandise, and must show that none of the commission inures to the benefit of the manufacturer. New Trends, 645 F.Supp. 957, 962. In the subject Agreement, Bright Wear certifies that it does not have an ownership or financial interest in, or control over, the manufacturer(s)/seller(s) making the commodities that are purchased by Ex Officio with Bright Wear's assistance. Bright Wear further certifies that the manufacturer(s)/seller(s) have no ownership or interest in, or control over, Bright Wear. Also, the Agreement states that Bright Wear shall never act as a seller in any transaction involving Ex Officio.

Based on the above considerations, we find that the terms of the Agreement are consistent with a bona fide agency. Therefore, provided the actions of the parties comply with the terms of the Agreement, the commissions to be paid to Bright Wear by Ex Officio for its services constitute bona fide buying commissions.

Please note, however, that the existence of a buying agency relationship is factually specific. The actual determination as to the existence of a buying agency will be made by the appraising officer at the applicable port of entry and will be based on the entry documentation submitted. The totality of the evidence must demonstrate that the purported agent is in fact a bona fide buying agent and not a selling agent nor an independent seller. See 23 Cust. B. & Dec., No 11 General Notice, dated March 15, 1989, at 9; HQ 542141, dated September 29, 1980. In addition, the analysis and the determinations of this ruling regarding buying agents will apply only to the factual situation presented herein.

HOLDING:

Based on the information submitted, we are satisfied, provided that the parties' actions conform to the terms of the Agreement submitted, that Bright Wear is a bona fide buying agent. We conclude, therefore, that the agency commissions paid by Ex Officio to Bright Wear for its services constitute bona fide buying commissions, and consequently are not added to the price actually paid or payable.

Sincerely,

Sandra L. Bell, Director
International Trade Compliance Division

Previous Ruling Next Ruling