HQ 544265: Buying Commissions

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 544265
                        February 7, 1990
                                
CLA-2 CO:R:C:V  544265 DHS

CATEGORY:  Valuation

RE:  Buying Commissions

Michael R. Spano
el greco, Inc.
2 Harbor Park Drive
Port Washington, New York  11050

RE:  Buying Agency:  19 U.S.C. 1401a(b)
  
Dear Mr. Spano:

     This is in response to your letter, dated November 17, 1988,
and your FAX, dated November 15, 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 contemplated
transactions to be entered into by your client's company.  You
request a binding ruling regarding the dutiability of certain
commissions to be paid to a foreign company in exchange for
services in aiding in the purchase of merchandise from a foreign
manufacturer related to the purported agent.  Please accept our
apologies for the delay in responding to your inquiry.  
  
FACTS:

     You state that el greco has been utilizing the services of a
company located in Brazil and the U.S. in order to perform
general buying agency services.  There has never been a buying
agency agreement drafted between the parties.  Your concern is
primarily with the importation from one manufacturer who is
related to the agent.  You have verbally stated that the
merchandise in question has been and will continue to be imported
into the ports of JFK and the New York Seaport.  Before obtaining
knowledge of this relationship these ports have until this time
treated this relationship as one of buyer and agent.    

     You state that the proposed agent purchased an interest in a
related factory in 1983.  One of the partners of the agent has
been a director of quality control and a partial owner.  You
state however, that the proposed agent does not direct or control
the manufacturer except to the extent that it requires a level of
production and quality as an agent.  You further state that the
agent will not share the commission paid to it by the importer
with the manufacturer.

     The information in your letter states that the purported
buying agent is to perform the services of researching the market
and providing information regarding the factories which could
produce the shoe; transmitting the factory(s) offer price and ex-
factory date according to the importers requirements to the
importer; providing market information; assisting in direct
import buying activities, and collecting on occasion samples
which the importer expresses an interest; accompanying the
importer on visits to the factory; submitting to the importer a
weekly report concerning samples requested and open order status
highlighting the delays in production; arranging trips for the
importer; arranging appointments for the importer with the
foreign suppliers; inspecting the quality and quantity; and
drafting the paperwork for the exportation of the merchandise.
 
     The agent is to receive a 5 percent commission from the
subsidiary based on the cost of merchandise delivered in Hong
Kong.  In the event that the merchandise is improperly
manufactured the agent is not paid a commission.  You state that
the importer has used the services of the buying agent involving
services of over 10 different Brazilian factories over the last
five years.  The proposed agent is not the exclusive agent of the
importer, or the only agent of the importer in Brazil.

     You have provided an invoice from a past transaction setting
forth a price for the merchandise from the manufacturer with a
separate amount indicated as the commission.  You have also
presented a document from the agent clarifying the agent's
interest in the manufacturer and the activities performed by the
agent. 

ISSUES:

     Are the activities performed by an agent who is related to
the manufacturer sufficient to conclude that a buying agency
exists? 

LAW AND ANALYSIS:
     
     For the purpose 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 HRL 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."

     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 business ties between the
manufacturer and the agent are not necessarily determinative of
the status of the commissions the importer paid the agent but the
question must be determined by the full circumstances as revealed
by the evidence at hand.  Bushnell v. United States, C.A.D. 110
(1973).  The plaintiff bears the burden of proof to establish the
existence of a bona fide agency relationship and that the charges
paid were bona fide buying commissions.  Monarch Luggage
Company., Inc., v. United States, 13 CIT ___, Slip. Op. 88-91
(1989).

     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 agent's 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 manufacturer 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).

     The newly disclosed facts indicate that the agent and the 
manufacturer are related.  The burden is therefore, on the
importer to establish that the agent acted solely on behalf of
the importer and that the relationship of the agent and the
manufacturer does not encroach upon the principal-agent
relationship.  In the instant case, the services to be performed
by the agent are indicative of those generally provided in a
buying agency relationship.  Further, you have presented evidence
which supports the fact that the commissions paid to the agent by
the importer have not in the past inured to the benefit of the
manufacturer.  You further state that the future actions of the
agent will conform to the past actions of the agent.

     Based upon the treatment of the past transactions by the
import specialist and the information you have provided regarding
the prospective transactions, the relationship in question
appears to be a bona-fide buying agency.  Note however, 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 No. 7. 
     
HOLDING:

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



                                   Sincerely,




                                   John Durant, Director,
                                   Commercial Rulings Division