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HQ 546691





September 8, 1997
RR:IT:VA 546691er
CATEGORY: VALUATION

Area Port Director
Anchorage, AK

RE: Request for Internal Advice; Commissions; Sale for Exportation.

Dear Area Port Director:

This is in response to your request for internal advice, dated March 7, 1997, forwarding the request for internal advice submitted by counsel, dated November 26, 1996, on behalf of their client, Owatonna Recognition , Inc. (“Owatonna”) regarding the dutiability of certain commissions. We regret the delay in responding.

FACTS:

According to your memorandum, upon receiving a request for information from Customs, Owatonna supplied Customs with proof of payment and a billing invoice which were approximately three times the value of the invoice upon which duties were paid. Owatonna explained the difference as being a buying commission payment and therefore not dutiable. Owatonna was subsequently referred to the Anchorage Office of Investigations. Counsel’s submission and request for internal advice are the result of a Request for Production of Records.

Owatonna imports metal lapel pins from Taiwan. After orders from customers in the U.S. are received from Owatonna, Owatonna in turn faxes the orders to May Wang, a purported buying agent. There is no written buying agency agreement between Owatonna and May Wang. Nonetheless, according to your memorandum, May Wang provides many of the services normally provided by a buying agent, such as translating, placing orders based on Owatonna’s instructions, and inspecting, procuring and packing the merchandise. Copies of customer purchase orders and correspondence between Owatonna and May Wang were submitted with counsel’s submission.

After May Wang receives the orders, she places the orders with factories. May Wang purportedly translates Owatonna production orders into Chinese and furnishes them to the factories. According to counsel, May Wang and the factories are not related parties. For purposes of this decision we will also assume that the importer is not related to any of the factories.

According to counsel, the factories know the lapel pins are being manufactured for U.S. customers; however, they do not know Owatonna’s identity. The finished merchandise is delivered to May Wang’s home on the date she plans to ship it to the U.S. You note in your memorandum, that counsel’s submission neither identifies the manufacturers nor the country of manufacture of the imported merchandise, nor does the submission indicate whether Owatonna knows the identity of the manufacturers. No copies of correspondence or records of conversations between May Wang and the factories were provided with counsel’s submission. Nor were any copies of factory invoices provided. You also point out that neither the invoices which May Wang presented to Customs nor May Wang’s billing invoices identify a buying commission.

In the event Customs finds the commissions paid to May Wang are not bona fide buying commissions, counsel has asked for appraisement of the merchandise based on the transaction between May Wang and the factories.

ISSUE:

(1) Whether the commissions paid by the importer to May Wang are bona fide buying commissions?

(2) In the alternative, whether the transactions between May Wang and the factories may form the basis of appraisement for the imported merchandise?

LAW AND ANALYSIS:

Merchandise imported into 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 under the TAA is transaction value, defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus five enumerated statutory additions in section 402(b)(1), including selling commissions. The “price actually paid or payable” is defined in section 402(b)(4) 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. 1401a(b)(4).

Buying commissions are fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued. It has been determined that bona fide buying commissions are not added to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 13 CIT 161, 164, 708 F. Supp. 351, 353 (1989); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23; 12 CIT 77, 78 aff’d., 861 F.2d 261 (Fed. Cir. 1988); Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875, 878, 12 CIT 133, 136 (1988). The importer has the burden of proving that a bona fide agency relationship exists and that payments to the agent constitute bona fide buying commissions. Rosenthal-Netter, supra, New Trends, Inc. v. United States, 10 CIT 637, 645 F. Supp. 957, 960 (1986); Pier 1 Imports, Inc., supra.

In deciding whether a bona fide agency relationship exists, all relevant factors must be examined and each case is governed by its own particular facts. J.C Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). Although no single factor is determinative, the primary consideration is the right of the principal to control the agent’s conduct with respect to the matters entrusted to him. See, Jay-Arr Slimwear, Pier 1 Imports, Inc., J.C. Penney, and Rosenthal-Netter, supra. In addition, the courts have examined such factors as: whether the purported agent’s actions are primarily for the benefit of the principal; whether the principal or the agent is responsible for the shipping and handling and the costs thereof; whether the language used in the commercial invoices is consistent with a principal-agent relationship; and whether the agent is financially detached from the manufacturer of the merchandise. The degree of discretion granted the agent is a further consideration. See, New Trends, supra. The existence of a bona fide buying commission is to be determined by the totality of the circumstances. HRL 542141, September 29, 1990 (TAA No. 7). Whether a commission is a bona fide commission depends on the facts of each particular case.

While you point out that May Wang provides many of the services normally provided by a buying agent, such as translating, placing orders based on Owatonna’s instructions, and inspecting, procuring and packing the imported merchandise, you also point out that Owatonna has not met its burden of proof with regard to the control element of proving that a bona fide agency relationship exists and that the payments to May Wang constitute bona fide buying commissions. Specifically, it has not been shown that the importer controls who manufacturers the goods or even knows the identities of the factories manufacturing the goods. Without such knowledge, the importer cannot be said to have control over May Wang or the importation of the merchandise.

We also note that in an informed compliance publication entitled “Buying and Selling Commissions”, Vol. 30/31 Cust. Bull. No. 52/1 (January 1997), Customs stated that in order to receive a determination that commissions were bona fide buying commissions:

At a minimum, an invoice or other documentation from the seller, showing who the seller is, and establishing the price actually paid or payable for the imported goods must be submitted at the time of entry or upon demand by Customs if not requested at the time of entry. Any buying commissions should be shown separately from the price actually paid or payable for the imported merchandise.

As described above, no invoice was provided from the factory and the commissions were not separately identified to Customs. Based on the facts presented and in the absence of supportive documentation to the contrary we find that the commissions paid to May Wang are not bona fide buying commissions.

In the event the commissions paid to May Wang are determined not to be bona fide buying commissions, counsel has claimed in the alternative that two sales exist: one between the importer and May Wang and the other between May Wang and the factories. Counsel has accordingly asked whether in such a multi-tiered transaction, the transaction between May Wang and the factories may form the basis for appraisement. In Nissho Iwai American Corp. v. United States, 786 F. Supp.1002 (Ct. Int’l Trade 1992), rev’d in part, aff’d in part, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there is more than one sale which may be considered to be for exportation to the United States. In so doing, the court stated that Customs' former policy of basing transaction value on the sale which most directly caused the merchandise to be exported to the United States proceeded from an invalid premise. Nissho Iwai, 982 F.2d 505, 511. Instead, the court reaffirmed the principle of E.C.McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that the manufacturer's price, rather than the middleman's price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In reaffirming the McAfee standard, the court stated that in a three-tiered distribution system:

The manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the United States, and the manufacturer and the middleman deal with each other at arm's length, absent any non-market influences that affect the legitimacy of the sales price... [T]hat determination can only be made on a case-by-case basis.

Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. , Slip Op. 93-5 (Ct. Int'l Trade January 12, 1993).

As a general matter Customs presumes that the price paid by the importer is the basis of transaction value. See, e.g., HRL 545603 dated March 10, 1995. However, in order to rebut this presumption and establish that the transaction between a manufacturer and a middleman, or some other sale, forms the basis of transaction value the importer must, in accordance with the court's standard in Nissho, provide evidence that establishes that at the time it purchased, or contracted to purchase, the imported merchandise, the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at "arm's length". Customs has held that it is the importer's responsibility to demonstrate that the standard set forth in Nissho and Synergy has been met. See, e.g. HRL 545144 dated January 19, 1994. In the instant case, the presumption is therefore that transaction value is based on the price paid by the importer, Owatonna.

As pointed out in T.D. 96-87, 30/31 Cust. Bull No. 52/1 (January 1997):

In order for an importer to rebut the presumption [that transaction value is based on the price paid by the importer] ..., certain information and documentation must be provided. Specifically, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided [footnote omitted]. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g. correspondence) which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States... What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction [footnote omitted].

In the instant case, the importer has not proved that the transaction between May Wang and the factories constitutes a sale, much less a sale for exportation. As noted above, we have not been presented with copies of invoices from the factories, purchase orders or other correspondence between May Wang and the factories which might indicate that the transaction is a sale. Nor have we been furnished with any proof of payment or anything resembling a complete set of transaction documents establishing a paper trail. Under these circumstances, the importer has not overcome the presumption that transaction value is based on the price actually paid or payable by the importer.

Accordingly, the merchandise should be appraised under transaction value based on the price actually paid or payable by the importer plus the commissions paid to May Wang, which, for the reasons explained above, are not bona fide buying commissions.

HOLDING:

Based on the information provided, it is our determination that

(1) the commissions paid to May Wang are not bona fide buying commissions, and (2) the importer has not overcome the presumption that transaction value is based on the price actually paid or payable by the importer.

Accordingly, the merchandise should be appraised under transaction value based on the price actually paid or payable by the importer, plus the commissions paid to May Wang.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date 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,
International Trade Compliance Division.


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