us-cbp-cross-rulings-hq-544244•HQ 544244: Request for Ruling on Valuation of Wearing Apparel Purchased Through a Related Buying Agent
HQ 544244: Request for Ruling on Valuation of Wearing Apparel Purchased Through a Related Buying Agent
us-cbp-cross-rulings-hq-544244HQ 544244: Request for Ruling on Valuation of Wearing Apparel Purchased Through a Related Buying AgentGuidance
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 544244
June 16, 1989
CLA-2 CO:R:CV:V 544244 VLB
CATEGORY: Valuation
Frank J. Desiderio, Esquire
Grunfeld, Desiderio, Lebowitz & Silverman
12 East 49th Street
New York, New York 10017
RE: Request for Ruling on Valuation of Wearing Apparel
Purchased Through a Related Buying Agent
Dear Mr. Desiderio:
This is in response to your letter dated September 7, 1988,
requesting a prospective ruling that payments by L.Y.N.S.
Corporation (hereinafter referred to as the "importer") to
Seaphone Company Limited, a Hong Kong entity (hereinafter
referred to as "Hong Kong company") are not includable in the
transaction value of imported merchandise under section 402(b) of
the Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA).
FACTS:
The importer is purchasing wearing apparel from the Far
East. It has entered into a contract with the Hong Kong company
entitled "Buying Agency Agreement". Under the agreement, the
Hong Kong company receives commissions based on the factories'
sale price to the importer, in consideration for performing
enumerated services on behalf of the importer.
You state that eighty percent of the importer's stock is
owned by Mr. Wah Lau. The remaining twenty percent is owned by
Mr. Louis Shen. Additionally, you indicate that Mr. Lau owns a
minority of the Hong Kong company's stock. The remainder of the
stock is owned by an unrelated third party. You also point out
that neither Messrs. Lau, Shen or the other party interested in
the Hong Kong company possess any financial interest in, or
exercise any control over the factories which supply merchandise
to the importer.
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Further, you state that Mr. Lau's family, including certain
distant relatives, owns a number of denim factories which may
sell piece goods to the importer. However, Mr. Lau does not
control or derive any financial benefit from the operation of the
factories. Moreover, the Hong Kong company will use office space
in the same building used by a spinning mill company owned by Mr.
Lau's father and a company controlled by a relative of Mr. Lau.
However, the Hong Kong company maintains its own books, records
and payroll. In addition, the Hong Kong company pays its pro
rata share of the telex, telecopy and rental expenses.
The documentation for the transaction consists of all
manufacturers invoicing the Hong Kong company for the
merchandise. The Hong Kong company then forwards the invoices to
the importer. The Hong Kong company also sends a separate
invoice for its commission and for the expenses incurred in
connection with the purchase and exportation of merchandise on
behalf of the importer. The importer in turn forwards full
payment to the Hong Kong company which remits payments for the
merchandise to the manufacturer.
Finally, you indicate that the Hong Kong company advances
part of its permanent quota to the importer or purchases quota
from time to time, as conditions in the quota market permit, on
behalf of the importer. The importer pays for the quota as used
or reimburses the Hong Kong company for the quota sums advanced
from its permanent quota.
ISSUES:
(1) Whether the amounts paid to the Hong Kong company under
the agreement with the importer are includable in the transaction
value of the merchandise.
(2) Whether the quota charges paid to the Hong Kong company
by the importer are includable in the transaction value of the
merchandise.
LAW AND ANALYSIS:
The preferred method of appraising merchandise is
transaction value which is defined in 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)) as the "price actually paid or
payable" for merchandise when sold for exportation to the United
States, plus certain enumerated additions. There appears to be
no dispute that transaction value is the proper basis of
appraisement in this case.
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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 defined in section 402(b)(4)(A) as:
The total payment (whether direct or indirect . . .)
made, for imported merchandise by the buyer to, or
for the benefit of, the seller.
The importer and the Hong Kong company are related persons
under section 402(g) of the TAA. However, the mere fact that the
parties are related does not preclude a finding that a bona fide
buying agency relationship exists.
To determine whether a bona fide buying agency exists
between an importer and an alleged "buying agent", the primary
consideration is the right of the principal to control the
agent's conduct with respect to matters entrusted to the agent.
B & W Wholesale Co. v. United States , 58 CCPA 92, C.A.D. 1010,
436 F.2d 1399 (1971). Customs also considers the nature of the
services performed by the agent giving rise to the payment to
determine whether the costs should be included in the transaction
value of the merchandise. Jay-Arr Slimwear, Inc. v. United
States, ____ CIT ____, Slip Op. 88-21 (Feb. 18, 1988). As the
court stated in Slimwear, if the expenses are associated with
selling or producing the merchandise, rather than ministerial
functions in procuring the goods, the costs are dutiable.
Customs published a general notice in the Customs Bulletin
dated March 15, 1989, reminding interested parties what evidence
is required to establish a bona fide buying agency relationship.
In the notice, Customs quoted from Headquarters Ruling letter
542141, dated September 29, 1980 (TAA No. 7) establishing that:
. . . 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.
On the basis of the information you have provided regarding
the transactions in question, we are satisfied that the importer
will exercise the requisite degree of control over the Hong Kong
company. However, you have indicated that the Hong Kong company
may be purchasing merchandise from certain factories in which
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some of the agent's family members have an interest. This again
is not an absolute bar to finding a buying agency relationship,
but the importer must demonstrate conclusively that it exercises
absolute control over the buying agent with respect to the
transactions. It is essential that no portion of the commissions
paid to the Hong Kong company inure to the benefit of those
factories in which a family member has an interest.
Paragraph 8 of the Agreement states that the Agent does not
have any financial interest in the factories, and there is no
evidence submitted to the contrary. Therefore, we conclude,
based on the totality of the evidence, that the commissions paid
to the Hong Kong company constitute bona fide buying commissions
which are not includable in the transaction value of the
merchandise.
You have informed us that the importer has begun to enter
merchandise under the proposed arrangement. The import
specialist has notified us that she has requested information to
confirm the entered value of the merchandise. This ruling is
based solely on the information contained in your letter dated
September 7, 1988. Should the import specialist find information
that is inconsistent with the representations in the letter, she
may take the appropriate action.
The second issue you have raised involves whether the quota
charges paid to the Hong Kong company by the importer are
includable in the transaction value of the merchandise. As you
may know, a proposal requiring the dutiability of all quota
charges paid as a prerequisite to the exportation of merchandise
to the U.S. is currently under review. The notice was published
in the Federal Register (53 FR 46626) on November 18, 1988.
Under Customs regulation 19 CFR 177.7(a) "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." Pursuant to this regulation and in light of the outstanding
notice, we have determined that it is inappropriate to issue a
ruling on the quota issue at this time.
HOLDING:
(1) In light of the foregoing, the payments made to the
Hong Kong company are buying commissions under a bona fide buying
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agency agreement. Therefore, the payments are not part of the
transaction value of the merchandise.
(2) In addition, Customs currently is reviewing comments
concerning the dutiability of quota charges. Therefore, it would
be contrary to sound administration of the Customs laws for us to
issue a prospective ruling regarding the dutiability of quota
charges at this time.
Sincerely,
John Durant, Director
Commercial Rulings Division
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