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 > 2001 HQ Rulings > HQ 470154 - HQ 561623 > HQ 547286

Previous Ruling Next Ruling
HQ 547286





March 8, 2000

RR:IT:VA 547286 MMC

CATEGORY: VALUATION

Ms. Sandra L. Friedman
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016

RE: Buying Agency; Related Parties

Dear Ms. Friedman:

This is in response to your January 22, 1999, letter on behalf of AGENT (agent), requesting a prospective ruling concerning the dutiability of certain buying commissions. We regret the delay in responding.

You have requested that certain specifically identified information submitted in connection with this matter be treated as confidential. After reviewing the information in question, we have granted your request for confidentiality pursuant to section 177.8(a)(3), Customs Regulations (19 C.F.R. § 177.8(a)(3)). Therefore, this decision omits specific reference to the identified information.

FACTS:

The agent acts as a buying agent for various buyers who seek to import wearing apparel from various manufacturers located primarily in the Middle East and Asia. In the subject transaction, agent is procuring merchandise for PRINCIPAL (principal) from SELLER (seller). While the agent and seller are related in this transaction, the agent purchases merchandise from various sellers, both related and unrelated, for this principal, as is demonstrated by the fact seniario ruled upon in Headquarters Ruling Letter (HRL) 547058 dated May 19, 1998.

In HRL 547058, we ruled upon a transaction where this principal used this agent to purchase from an unrelated seller. We held that under the circumstances presented, a valid buying agency existed between the subject agent and principal and as such the payments made between the two constituted buying commissions that were not additions to the price actually paid or payable under 19 U.S.C. §1401a(b). The
decision made in HRL 547058 was based on an undated and unsigned buying agency agreement.

In your January 22, 1999, letter, you enclosed a signed copy of a June 15, 1998, buying agency agreement between the agent and principal. In the agreement the agent acts as a non-exclusive buying agent for the principal and in its dealings on behalf of the principal, acts only as the principal’s agent. The agent’s duties include:

Providing the principal with invoices and other receipts from the manufacturers which verify the amounts shown on the export invoices.

Agent cannot combine the principal’s order with other party whom the agent represents.

Agent cannot satisfy any of the principal’s orders by delivering merchandise held in an inventory owned by the agent.

Agent certifies that it does not sell raw materials to the factories making the merchandise nor does the agent guarantee raw material costs over a period of time.

Agent does not furnish to the factories making the merchandise any accessories i.e., snaps, zippers, hangtags, dies, moulds, patterns, art work, printing plates, engineering work, financial assistance, or otherwise assist in production of the goods without the advance approval of the principal.

Additionally, the agent acknowledges in the agreement that it is related to the seller, a supplier of wearing apparel to principal, and that the agent will be receiving a selling commission on all transactions involving the sale of wearing apparel by seller to principal. Agent warrants that its activities are totally separate and independent of seller’s and that its activities are not controlled by seller’s. Agent further warrants that all of its actions under the agreement will be conducted under exclusive direction and control of the principal.

Furthermore, the agent has indemnified the principal from any loss, claim, action, etc. incurred in connection with any representation the principal makes to US Customs regarding the dutiability of the agent’s commission or any US Customs decision that there does not exist between principal and agent a bona fide buying agency relationship for Customs purposes, if such a determination is made based upon a failure by the agent to follow the terms of the agreement.

For its services, the agent will be paid a buying agency commission of 8 percent of the selling price of the goods, F.O.B. port of export. This commission is billed separately. Counsel has submitted agent invoices and corresponding seller invoices to the principal for 19 different transactions. The agent’s invoice for the commissions include the corresponding invoice, pruchase order and style numbers from the seller’s invoice as well as the quantity and total amount owed on the seller’s invoice. As such, no commissions are included in the unit cost or total price of merchandise as shown on the seller’s invoices sent to the principal. The commission is the sole consideration to be paid for the agent’s services. The agent is prohibited from rebating any portion of its commission to the principal’s stores or any of its employees.

In addition to the buying agency agreement and agent and seller invoices, counsel for the agent has provided copies of proof of payment from the principal to the agent and a separate proof of payment from the principal to the seller.

Finally, counsel has provided examples of the agent representing principal’s interests when dealing with the related seller concerning issues such as quality control, specifications, shipping schedules and delays, labeling, and fabric color.

ISSUE:

Whether the described relationship between agent and seller prevents a determination that payments made to the agent by the principal constitute buying commissions such that they are not additions to the price actually paid or payable under 19 U.S.C. §1401a(b).

LAW AND ANALYSIS:

HRL 547058 concerned a transaction where this principal used this agent to purchase from an unrelated seller. We held, that under the circumstances presented, a valid buying agency existed between the subject agent and principal and as such the payments made between the two constituted buying commissions that were not additions to the price actually paid or payable under 19 U.S.C. §1401a(b). The decision made in HRL 547058 was based on an undated and unsigned buying agency agreement which varies from the June 15, 1998, buying agency agreement submitted with this ruling request. As the decision in HRL 547058, concerned a materially different buying agency agreement and unrelated parties, HRL 547058 while instructive, is not controlling.

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, supra; 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).

You indicate that the buying agent and one of the foreign sellers are related parties. This does not in itself bar commissions from being non-dutiable. Bushnell International, Inc. v. United States, 477 F.2d 1402, 1406; 60 CCPA 157, 161 (1973). Headquarters Ruling Letter (HRL) 547058 dated May 19,1999. However, such a transaction will be subject to closer scrutiny. In several rulings involving a purported buying agency relationship, Customs has reviewed the evidence and found that purported buying agents were not in fact buying agents or that the evidence was inconclusive. See HRL 545661, March 3, 1995; HRL 545550, September 13, 1995; HRL 545938, June 5, 1996; and HRL 546262, November 29, 1997. Consequently, as part of the closer scrutiny described above, Customs requires review of the relevant documentation before making any findings. See HRL 547058, May 19, 1998.

You state the following with regard to the relationships involved in this case:

Principal will control agent;

In all purchase transactions, agent will hold itself out as the buying agent of principal;

Agent may act as a buying agent for several purchasers and will deal with unrelated sellers in addition to related seller;

Agent will invoice principal for commissions earned in connection with purchases made on behalf of principal;

Seller will separately invoice principal for merchandise;

Principal has been notified of agent’s relationship with seller and manufacturing facility;

The commissions of agent will not be shared with seller or with any of the factories which will be producing the merchandise;

Agent warrants that its activities are totally separate and independent of seller’s and that its activities are not controlled by seller’s;

Agent has indemnified the principal from any loss, claim, action, etc. incurred in connection with any representation the principal makes to US Customs regarding the dutiability of the agent’s commission or any US Customs decision that there does not exist between principal and agent a bona fide buying agency relationship for Customs purposes, if such a determination is made based upon a failure by the agent to follow the terms of the agreement; and

No portion of the buying commissions will inure to the benefit of seller or any unrelated seller.

Finally, concerning issues such as quality control, specifications, shipping schedules and delays, labeling, and fabric color the documentary evidence provided demonstrates that the agent represents only the principal’s interests when dealing with the related seller.

In light of the foregoing, and provided that the actions of the parties comport to the foregoing and any future agreements specifically document such actions, the information submitted supports a finding that commissions paid to agent constitute bona fide buying commissions even though this agent and seller are related. Consequently, the commissions would not be added to the price actually paid or payable. See HRL 545177, dated June 28, 1993; and HRL 544657, dated July 1, 1991.

Please note that the existence of a buying agency relationship is factually specific. The actual determination will be made by the appraising officer at the applicable port of entry and will be based upon the entry documentation submitted.

HOLDING:

The June 15, 1998, buying agency agreement together with agent commission invoices and seller merchandise invoices, as well as the agent’s additional documentation demonstrating its relationship with the principal and the related seller, supports a finding that commissions paid to the agent by the principal constitute bona fide buying commissions. Consequently, the commissions would not be added to the price actually paid or payable as buying commissions. As provided above, this finding remains subject to any determinations that may be made by the appraising officer at the applicable port of entry, based upon the documentation and evidence submitted at that time.

Sincerely,

Thomas L. Lobred
Chief, Value Branch


Previous Ruling Next Ruling