us-cbp-cross-rulings-hq-544234•HQ 544234: Tariff Act of 1930
HQ 544234: Tariff Act of 1930
us-cbp-cross-rulings-hq-544234HQ 544234: Tariff Act of 1930Guidance
Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.
HQ 544234
January 24, 1989
CLA-2 CO:R:C:V 544234 DHS
CATEGORY: Valuation
John B. Pellegrini, Esq.
Ross & Hardies
529 Fifth Avenue
New York, New York 10017-4608
RE: Tariff Act of 1930
Dear Mr. Pellegrini:
This is in reference to your letter of August 23, 1988,
regarding the effect of section 402(b) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.
1401a(b)), on certain contemplated transactions to be entered
into by your company. You request a binding ruling regarding the
dutiability of certain commissions to be paid to a related
foreign company in exchange for services in aiding in the
purchase of merchandise from foreign manufacturers.
FACTS:
You state that your client, Reebok International, Ltd. (the
company), is contemplating developing a wholly-owned subsidiary
agent to perform the functions generally performed by an
exclusive buying agent. These services include: identifying new
manufacturers; arranging for the manufacture of products;
surveying the potential markets; providing quality control
services; providing quality assurance and other technical
services; aiding the manufacturers of products in correcting
manufacturing problems by providing technical advice; providing
guidance to the manufacturers to acquire raw materials; arranging
for the necessary documentation for the shipment of the products;
arranging for shipping, insurance, export control and customs
services and proper quota for export to the country of
destination. Each activity performed by the agent is to be in a
manner directed by the principal and in the best interest of the
principal.
The commissions to be received by the agent will be 7.2
percent of the sellers' ex-factory prices. The principal will
reimburse the agent for any expenses other than those required
under the agreement. Any duties performed by a sub-agent are to
be at the expense of the agent. Title and risk of loss will pass
to the principal in accordance with an FOB contract. No sample
documentation has been provided, although a draft buying agency
agreement has been submitted.
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The merchandise purchased through the agent will be
invoiced to the Company by sellers and payment will be made by
letter of credit opened by or on behalf of the Company. At
entry, the merchandise will be accompanied by the sellers'
invoices, which we assume will reflect a FOB sale.
ISSUE:
Are commissions to be paid in exchange for a related
corporation's services in the purchase of merchandise from
foreign manufacturers considered a buying commission?
LAW AND ANALYSIS:
For purposes of this prospective ruling request, we are
assuming that transaction value will be applicable as a basis of
appraisement.
Transaction value is defined in section 402(b)(1) of the
TAA. This section provides, in pertinent part, that the
transaction value of imported merchandise is the price actually
paid or payable for the merchandise plus amounts for the items
enumerated in section 402(b)(1). Buying commissions are not
specifically included as one of the additions to the "price
actually paid or payable". The "price actually paid or payable"
is more specifically defined in section 402(b)(4)(a) 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 is clear from the statutory language that in order to
establish transaction value one must know the identity of the
seller and the amount actually paid or payable to him. Whether
or not the purported agent is the seller is to be determined by
the documents presented. Furthermore, the totality of the
evidence must demonstrate that the purported agent is in fact a
bona fide buying agent and not a selling agent or an independent
seller. See TAA No. 7, dated September 29, 1980 (542141). The
fact that the firms are related does not preclude a buyer-agent
relationship.
The Restatement (Second) of Agency section 14K (1958)
defined an agent as:
One who contracts to acquire property from a third
person and convey it to another is the agent of
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the other only if it is agreed that he is to act
primarily for the benefit of the other and not for
himself.
In order to view the relationship of the parties as a bona
fide buying agency, Customs must examine all the relevant
factors. J.C. Penney Purchasing Corporation et al. v. United
States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F. Supp. 973
(1983); United States v. Knit Wits (Wiley) et al., 62 Cust. Ct.
1008, A.R.D. 251 (1969). The primary consideration, however,
"is the right of the principal to control the agent's conduct
with respect to the matters entrusted to him." Dorf Int'l,
Inc., et al. v. United States, 61 Cust. Ct. 604, A.R.D. 245,
291 F. Supp. 690 (1968). The degree of discretion granted the
agent is an important factor. New Trends Inc. v. United
States, 10 CIT _, 645 F. Supp. 957 (1986).
The Court of International Trade in the case of New Trends
Inc., supra, set forth several factors upon which to determine
the existence of a bona fide buying agency. These factors
include: whether the agents actions are primarily for the
benefit of the importer, or for himself; whether the agent is
fully responsible for handling or shipping the merchandise and
for absorbing the costs of shipping and handling as part of its
commission; whether the language used on the commercial
invoices is consistent with the principal-agent relationship;
whether the agent bears the risk of loss for damaged, lost or
defective merchandise; and whether the agent is financially
detached from the manufacturers of the merchandise.
The above-stated factors have been determining factors
applied by the courts to deny the existence of a buying agency
relationship in New Trends, Inc., supra, Jay-Arr Slimwear Inc.
v. United States, _CIT_, Slip Op. 88-21 (1988), Rosenthal-
Netter, Inc. v. United States, _CIT_, Slip Op. 88-9 (1988).
On the basis of the information you have provided regarding
the prospective transactions in question, if the actions of the
parties conform to the terms of the buying agency agreement and
those outlined in your letter and set forth above, the
Company will exercise the requisite degree of control over the
agent. Therefore, we conclude that the commissions to be paid
to the agent constitute bona fide buying commissions and will
not have to be included in the determination of the transaction
value.
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HOLDING:
In view of the foregoing, it is our conclusion that the
commissions to be paid to the agent to perform the services of
assisting in the purchase of merchandise from the foreign
manufacturers are to be considered bona fide buying
commissions; and therefore, not to be added to the price
actually paid or payable.
Sincerely,
John Durant, Director
Commercial Rulings Division
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