HQ 544304: Dutiability of commissions paid to foreign company Dear Mr. Katz:

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 544304

                                   March 20, 1989

          CAL-2 CO:R:C:V  544304 DHS

          CATEGORY:  Valuation

          Richard C. Katz, Esq.
          81 Main Street
          White Plains, N.Y.  10601

          RE: Dutiability of commissions paid to foreign company
          Dear Mr. Katz:

                This is in reference to your letter of February 7, 1989,
          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 clients 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.  You also
          inquire as to the dutiability of certain quota charges.

          FACTS:

                You state that your client is the exclusive U.S. importer
          of a specific brand of wearing apparel.  This domestic company is
          contemplating entering into an agreement with it's parent company
          in Japan to assist their company in purchasing merchandise from
          individual manufacturers in Hong Kong, Singapore and Korea.  The
          prospective agent is to perform the services of assisting in
          selecting suppliers; transmitting purchase orders; negotiating
          the most favorable prices on behalf of the importer; assisting in
          financing transactions and transmitting payment for goods from
          the domestic company to the overseas suppliers; arranging for
          shipping; and translating.  The Japanese parent company may also
          engage sub-agents to facilitate contact with the individual
          factories in Hong Kong, Singapore and Korea.  You state that the
          factories will manufacture merchandise pursuant to your clients
          purchase orders.  They will invoice your client directly for the
          finished merchandise.  Your client will remit the factory invoice
          price of the goods to the factory through its agent.  The
          manufacturers of the merchandise are not related to the Japanese
          parent or the sub-agent.  You have not submitted a buying agency
          agreement or any other documentation.

                The commissions to be received by the agent are not
          expected to exceed ten percent of the factory invoice price for
          the goods.  The duties performed by the sub-agents are to be
          compensated through the payment of commissions by the domestic
          company.  











                                        - 2 -

                With respect to the quota charges, you state that in
          certain instances the quota will be purchased from unrelated
          parties other than the actual manufacturers/sellers of the goods.
          In those instances, the domestic company will be invoiced
          directly by the quota holder for quota purchases.  Payment for
          quota will be made through the Japanese parent.

          ISSUES:

                a) Can a parent corporation act as an agent for its
          subsidiary corporation?

                b) From the facts presented, does a bona fide buying agency
          relationship exist?

                c) Are payments for quota part of the "price actually paid
          or payable" for the imported merchandise when sold for
          exportation to the United States?

          LAW AND ANALYSIS:

                With respect to the fact that the Japanese parent and the
          importer are related, we note that the circumstances surrounding
          such related party transactions are subject to close scrutiny in
          determining whether a commission is a bona fide buying
          commission.  Bushnell v. United States, C.A.D. 110 (1973).  This,
          however, does not preclude the existence of a buying agency.

                The comment to section 14M, Restatement of the Law of
          Agency (ALI, 1958) provides that, in the absence of fraud or
          other illegal conduct:

                    ...a subsidiary may become an agent for the
                    corporation which controls it or the corporation
                    may become the agent of the subsidiary.

                This conclusion is further supported by New York Air Brake
          Company v. International Steam Pump Co., 64 Misc, 347, 120 NYS
          683 (1909), aff'd 136 App. Div. 931, 120 NYS 1137, and Park
          Avenue Imports v. United States, 62 Cust. Ct. 1035, ARD 255
          (1969).

                In C.S.D. 83-107, dated June 28, 1983 (Headquarter's Ruling
          Letter 542912), the importer was established as a subsidiary of
          the foreign parent corporation.  The same individual served as
          president of both companies and was the major stockholder in the
          buyer.  We sustained the conclusion that the relationship of the















                                        - 3 -

          firms does not preclude a buyer-agent relationship, even when the
          agent is the parent of the corporation.  Based upon the
          supporting facts of that case, we found a buying agency existed.

                We now address the second issue regarding the existence of
          a buying agency under the facts presented by your client.

                For purposes of this prospective ruling request, we are
          assuming that transaction value will be applicable as the 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.  As stated
          in Headquarter ruling 542141 (TAA #7), dated September 29, 1980,
          "...an invoice or other documentation from the actual foreign
          seller to the agent would be required to establish that the agent
          is not a seller and to determine the price actually paid or
          payable to the seller.  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."

                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
                    the other only if it is agreed that he is to act
                    primarily for the benefit of the other and not for
                    himself.



















                                        - 4 -

                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 terms of the
          buying agency agreement are identical to those outlined in your
          letter and set forth above and the actions of the parties also
          conform, the importer will exercise the requisite degree of
          control over the buying agent.  The actual determination as to
          the existence of a buying agency will be made by the appraising
          officer at the applicable port of entry upon the presentation of
          the proper documentation as described in TAA #7.  Based upon
          these considerations, we conclude that the commissions to be paid
          to the buying agent constitute bona fide buying commissions which
          will not be dutiable under transaction value.


















                                        - 5 -

                Finally, with respect to the dutiability of the quota
          charges we are unable to issue a ruling at this time since a
          proposal requiring all quota charges paid as a prerequisite to
          the exportation of foreign merchandise to the United States to be
          dutiable, is currently under review.  This notice was published
          in the Federal Register (53 FR 46626) on November 18, 1988.
          The legal authority requiring Customs to refrain from acting is
          found in section 177.7(a), Customs Regulations (19 CFR 177.7(a)),
          which provides, in  part, "...no ruling letter will be issued
          ...in any instance in which it appears contrary to the sound
          administration of the Customs and related laws to do so."

          HOLDING:

                In view of the foregoing, it is our conclusion that the
          commissions to be paid to the prospective company to perform the
          services of assisting in the purchase of merchandise from the
          foreign manufacturers are to be considered bona fide buying
          commissions as long as the considerations discussed above are
          followed.

                Additionally, because we are presently reviewing comments
          regarding the dutiability of quota charges, it would be contrary
          to the sound administration of the Customs laws for us to issue
          any rulings regarding the dutiability of quota charges at this
          time.



                                        Sincerely,




                                        John Durant, Director,
                                        Commercial Rulings Division