us-cbp-cross-rulings-hq-544119•HQ 544119: Non-dutiable buying commissions
HQ 544119: Non-dutiable buying commissions
us-cbp-cross-rulings-hq-544119HQ 544119: Non-dutiable buying commissionsGuidance
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 544119
May 25, 1988
CLA-2 CO:R:CV:V 544119 DH
CATEGORY: Valuation
John P. Donohue, Esq.
Donohue and Donohue
421 Chestnut Street
Fifth Floor, The Bank Building
Philadelphia, Pennsylvania 19106
RE: Non-dutiable buying commissions
Dear Mr. Donohue:
This is in response to your letters of December 16, 1987 and
May 13, 1988 (your file 151-01), requesting a ruling as to
whether an agreement to be entered into between two companies is
a bona-fide buying agency agreement and whether commissions to be
paid to the foreign corporation are non-dutiable buying
commissions.
FACTS:
You state that your client is contemplating entering into a
buying agency agreement with a domestic corporation. The
responsibilities described below are those encountered in the
prospective buying agency agreement received on May 13, 1988.
Although this agreement is unsigned, we have assumed these to be
the applicable facts.
The agent is to locate manufacturers of tile in several
countries. The agent may only obtain merchandise from factories
and manufacturing facilities as are approved by the importer.
They have the additional responsibility of negotiating for the
benefit of the importer, the price, supply, product quality,
packing requirements, and product warranties on terms most
commercially favorable to the importer. The importer will have
the exclusive authority to accept or reject contracts for the
purchase of the merchandise. The agent is to keep the importer
informed of the shipping schedules of approved suppliers and
other information regarding shipping, transportation, insurance
and related costs in the supplier's country. They are
responsible for negotiating with steamship lines and airlines on
behalf of the principal. The agent agrees to assign to the
principal those product warranties which it receives from the
manufacturers, to the extent not already granted by the
manufacturer. The agent is to use its best efforts to settle any
product claim for the benefit of the principal. Any claim amount
which is not honored by the manufacturers, together with costs,
is to be shared equally between the principal and agent.
However, the portion to be paid by the agent is not to exceed in
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any one calendar year, an amount equal to 10% of the compensation
payable to the agent. Periodic visits to the manufacturing
facilities are to be made by the agent. It is the additional
responsibility of the agent to inspect all aspects affecting the
quality, production, delivery, packaging and transportation of
the merchandise from the port of export to the port of arrival in
the United States. Preparation of all documents required for
export from the country of origin are the responsibility of the
agent. The agent will invoice the principal promptly for all
transactions. All invoices are to confirm that agency status of
the agent by stating directly, or in substance, that the
consummated sale is between the principal and the foreign
supplier, with the agent acting as a buyer's agent. The agent is
to act under the control and direction of the principal. It will
engage in no conduct which is inconsistent with its status as an
agent.
ISSUE:
Does a bona-fide buying agency relationship exist between the
alleged principal and agent?
LAW AND ANALYSIS:
As you may know, transaction value is defined in section 402,
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA:19 U.S.C. 1401a), as the price actually paid or payable
for the merchandise when sold for exportation to the United
States, plus amounts for the items specifically enumerated in
section 402(b)(1) of the TAA. Although selling commissions are
one of the items listed therein, buying commissions are not
included as an item to be added to the price actually paid or
payable. The term "price actually paid or payable" is defined in
section 402(b)(4)(A) as:
...the total payment (whether direct or indirect,
and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and
related services incident to the international
shipment of the merchandise from the country of
exportation to the place of importation in the
United States) made, or to be made, for imported
merchandise by the buyer to, or for the benefit
of, the seller.
-3-
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 Restatement (Second) of Agency section 12K(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.
In order to continue 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.
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 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 cost 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.
These have been the 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).
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On the basis of the information you have provided regarding
the prospective transactions in question and the prospective
buying agency agreement, we believe that the responsibilities to
be assumed by the parties portray those type of activities which
are indicative of a buying agency relationship. If the actions
of the parties conform to the buying agency agreement, the
importer will exercise the requisite degree of control over the
buying agent.
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 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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