VAL CO:R:C:V 545660 LR
Sandra Liss Friedman, Esq.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, N.Y. 10016
RE: Dutiability of Buying Agency Commissions; purported buying
agent also performs some services on behalf of manufacturer
Dear Ms. Friedman:
This is in response to your letter dated May 20, 1994, requesting
a ruling on behalf of your client, Jonathan Stone Ltd. ("Jonathan
Stone"), regarding a proposed buying agency agreement. Additional
information was submitted in a letter dated January 23, 1995. We regret
the delay in responding.
Jonathan Stone intends to act as a buying agent for various buyers
seeking to import wearing apparel from various manufacturers located in
the Far East. A copy of a proposed unsigned buying agency agreement was
submitted. You indicate that such agreement fully reflects the
relationship which Jonathan Stone will enter into with prospective
buyers/importers of wearing apparel. Some of the functions to be
performed by Jonathan Stone on behalf of the buyer include locating
sources of supply, negotiating with the various manufacturers to obtain
the most favorable prices for buyer, visiting the manufacturers,
obtaining samples of merchandise and submitting samples to the buyer,
quoting F.O.B. prices exclusive of commissions at which the buyer can
purchase merchandise from the manufacturer; placing orders on behalf of
the buyer upon explicit instruction of the buyer, assisting the buyer in
obtaining quota; and, assisting the buyer in arranging for the
exportation of the merchandise to the United States.
You indicate that Jonathan Stone will receive a commission of
approximately 10% of the f.o.b. price which will be billed separately,
or set out separately on the commercial invoice. In addition to the
above services to be provided on behalf of the buyer, the proposed
agreement indicates that Jonathan Stone may perform certain services on
behalf of the manufacturer for which it will receive compensation from
the manufacturer. As provided in the proposed agreement, these services
will consist of locating materials needed by the manufacturer to meet
the requirements of the buyer; providing supplemental quality control
and inspection services; advising the manufacturer of the U.S.
requirements for importing the merchandise, such as advice on invoicing,
visa, etc.; and providing ministerial services requested by the
manufacturer which will facilitate importation of the merchandise into
the United States.
You indicate that Jonathan Stone will not necessarily provide
services to the manufacturer in all cases. These instances will be
limited to only those transactions where the manufacturer decides it
cannot fill the order in accordance with the buyer's specifications
without the assistance of Jonathan Stone. You indicate that in such
cases, the buyer will be informed that these services are being provided
by its agent. The buyer will not, however, be informed of the precise
amount of such compensation.
In your January 23, 1995 submission you provided the following
additional information regarding the transactions. First, you indicate
that the buyers can deal directly with the manufacturer. You indicate
that the direct dealing is evidenced by the fact that purchaser opens a
letter of credit directly to the manufacturer. You also indicate that
the manufacturer ships the goods directly to the buyer in the United
States and that Jonathan Stone does not have possession of the goods at
any time. You indicate that the buyer, and not Jonathan Stone, is the
importer of record. Finally, you advise that payment for the goods is
via letter of credit from the buyer to the manufacturer and that the
agent's commission is separately invoiced by Jonathan Stone to the
purchaser. You advise that Jonathan Stone does not open a letter of
credit for these goods.
It is your position that Jonathan Stone should be recognized as a
bona fide buying agent. The fact that it will, in certain cases, also
provide limited services to a manufacturer for which it will be
compensated, should not change this result, provided that the
buyer/importer is made fully aware of these circumstances and agrees to
have the agent compensated by the manufacturer. In support of your
claim you cite Headquarters Ruling Letter ("HRL") 544452, September 11,
1990 and HRL 544676, July 24, 1991.
For purposes of this ruling, we assume that none of the parties
are related and that none of the commissions to be paid by the
buyer/importer to Jonathan Stone will inure to the benefit of any of the
Whether Jonathan Stone will be acting as a bona fide buying agent
under the terms of the proposed agency agreement notwithstanding the
fact that it will, in some instances, receive compensation from the
manufacturer for services provided to the manufacturer.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in
accordance with section 402 of the Tariff Act of 1930, as amended by the
Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). The preferred
method of appraisement under the TAA is transaction value, defined as
"the price actually paid or payable for the merchandise when sold for
exportation to the United States," plus five enumerated statutory
additions in section 402(b)(1), including selling commissions. The
"price actually paid or payable" is defined in section 402(b)(4) 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."
19 U.S.C. 1401a(b)(4).
Buying commissions are fees paid by an importer to his agent for
the service of representing him abroad in the purchase of the goods
being valued. It has been determined that bona fide buying commissions
are not added to the price actually paid or payable. Pier 1 Imports,
Inc. v. United States, 13 CIT 161, 164, 708 F. Supp. 351, 353 (1989);
Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23; 12 CIT
77,78 aff'd., 861 F.2d 261 (Fed. Cir. 1988); Jay-Arr Slimwear, Inc. v.
United States, 681 F. Supp. 875, 878, 12 CIT 133,136 (1988). The
importer has the burden of proving that a bona fide agency relationship
exists and that payments to the agent constitute bona fide buying
commissions. Rosenthal- Netter, supra, New Trends, Inc. v. United
States, 10 CIT 637, 645 F. Supp. 957, 960, (1986); Pier 1 Imports, Inc.,
In deciding whether a bona fide agency relationship exists, all
relevant factors must be examined and each case is governed by its own
particular facts. J.C. Penney Purchasing Corp v. United States, 80
Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). Although no
single factor is determinative, the primary consideration is the right
of the principal to control the agent's conduct with respect to the
matters entrusted to him. See Jay-Arr Slimwear, Pier 1 Imports, Inc.,
J.C. Penney, and Rosenthal-Netter, supra. In addition, the courts have
examined such factors as: whether the purported agent's actions are
primarily for the benefit of the principal; whether the principal or the
agent is responsible for the shipping and handling and the costs
thereof; whether the language used in the commercial invoices is
consistent with a principal-agent relationship; and whether the agent is
financially detached from the manufacturer of the merchandise. The
degree of discretion granted the agent is a further consideration. See
New Trends, supra. The existence of a bona fide buying commission is to
be determined by the totality of the circumstances. HRL 542141,
September 29, 1990 (TAA No. 7). Whether a commission is a bona fide
buying commission depends on the facts of each particular case.
In the situation you describe, the services to be provided by
Jonathan Stone on behalf of the buyer are those typically performed by a
bona fide buying agent. Its primary function is to find the best
price/quality deal for the buyer. The terms of the agency agreement
clearly provide that such services are to be performed under the
direction and control of the buyer. For example, as set forth in
paragraph 2c of the draft buying agency agreement, the agent will place
orders only upon the specific instructions of the principal. Paragraph
2d provides that the agent will arrange for payment terms to the
manufacturer upon the explicit instruction of the buyer.
The method of payment for the imported goods is consistent with a
bona fide agency relationship. You advise that payment for the goods is
via letter of credit from the buyer to the manufacturer, that the
agent's commission is separately invoiced by Jonathan Stone to the
buyer, and that Jonathan Stone does not open a letter of credit for
these goods. Finally, the draft agreement indicates that the buyer, and
not the agent, is also responsible for shipping and insurance costs.
The only point of contention concerns the services Jonathan Stone
is to provide on behalf of the manufacturer for which it will be
compensated by the manufacturer. The issue to be resolved is whether
Jonathan Stone is precluded from being considered a bona fide buying
agent under such circumstances.
When examining whether a purported agent is a bona fide buying
agent, closer scrutiny is warranted where special circumstances exist.
For example, closer scrutiny is required where the agent and the seller
are related. Such relationship does not, however, automatically
preclude the existence of a bona fide buying agency. See HRL 545177,
June 28, 1993, HRL 544657, July 1, 1991.
Likewise, closer scrutiny is warranted where the purported buying
agent also performs services on behalf of the manufacturer. However, as
determined in HRL 544676, July 24, 1991, this fact does not
automatically preclude the purported agent from being considered a bona
fide buying agent. In that case, the agent was to perform certain
functions on behalf of the buyer and the seller. We ruled that the
services to be performed on behalf of the seller did not preclude the
agent from being considered a bona fide buying agent based on the
following considerations: the functions to be performed by the agent
were primarily for the benefit of the buyer; the functions performed on
behalf of the seller were ministerial functions (they included locating
materials needed by the manufacturer; providing quality control and
inspection services, advising the manufacturing of U.S. importing
requirements); and, the buyer was aware of and acquiesced to its agent
performing services on behalf of the seller. The decision indicates
that as long as the payment by the manufacturer does not impact on the
importer's "price actually paid or payable", it will have no effect on
the nondutiability of the agents' commissions. See also HRL 544452,
September 11, 1990.
In the present case, based on the information provided, it appears
that the services to be performed by Jonathan Stone are primarily for
the benefit of the buyer; that is, to find the best price/quality deal
as designated by the importer. The functions Jonathan Stone is to
perform on behalf of the manufacturers are similar to those involved in
HRL 544676, supra which Customs characterized as "ministerial"
(locating materials, providing quality control, assisting in importation
requirements, etc.). Also, you advise that Jonathan Stone will provide
such services with the full knowledge and acquiescence of the buyer. In
these circumstances we find that the services Jonathan Stone is to
provide to some manufacturers does not preclude us from considering it a
bona fide buying agent.
We find that the evidence presented supports the finding that the
commission to be paid to the agent by the buyer constitutes a bona fide
buying commission. Provided the actions of the parties comport with the
terms of the buying agency agreement, and provided that the payment by
the manufacturer does not impact on the importer's "price actually paid
or payable", the commission to be paid to the agent by the buyer is not
added to the "price actually paid or payable".
Please note, however, that the existence of a buying agency
relationship is factually specific. The actual determination as to the
existence of a buying agency will be made by the appraising officer at
the applicable port of entry and will be based on the entry
documentation submitted. The totality of the evidence must demonstrate
that the purported agent is in fact a bona fide buying agent and not a
selling agent nor an independent seller. See 23 Cust. B. & Dec., No.
11, General Notice dated March 15, 1989 at 9; HRL 542141.
In this case, the appraising officer must also be satisfied that
the services performed by Jonathan Stone are primarily for the benefit
of the buyer; that the functions Jonathan Stone performed on behalf of
the manufacturers do not exceed the ministerial functions described in
the draft agreement, and that the buyer is fully aware that its agent
provided services for the seller for compensation.
Based on the facts presented and subject to the provisos set forth
above, Jonathan Stone will be acting as a bona fide buying agent under
the terms of the proposed buying agency agreement notwithstanding the
fact that it will, in some instances, receive compensation from
unrelated manufacturers for ministerial services provided to the
John Durant, Director
Commercial Rulings Division