OT:RR:CTF:VS H326813 RMC
Peter S. Klestadt
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
599 Lexington Ave. Fl. 36
New York, NY 10022-7648
RE: Consulting Fees; Buying Commissions; Transaction Value
Dear Mr. Klestadt:
This is in response to your letter, dated July 28, 2022, on behalf of Triburg Design Studio LLP (“Triburg”). In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on whether consulting fees are buying commissions that should be excluded from the transaction value of imported merchandise.
According to the information provided, Triburg will perform consulting services for unrelated importers in the United States in connection with the sourcing and importation of Indian textiles and home furnishings. You submitted a copy of the “consultancy agreement” that Triburg will enter into with U.S. importers, which contains the following relevant terms:
Company appoints Triburg as Company’s non-exclusive Product Development Consultant for Product Categories Textiles/Homewares, in India (the “Territory”) to perform the following services as Company may require from time to time (the “Services”):
Consultant shall conduct market research and attend trade shows in the Product environment to ensure market transparencies.
Consultant shall provide information related to monthly fashion forecasts, emerging fashion trends in textiles and other related materials.
Consultant will advise Company regarding prices and sources of merchandise available for exportation to Company.
Consultant shall advice Company of supply & manufacturing aspects of Company’s proposed purchases of merchandise to be imported by Company into USA.
You state that all orders for imported merchandise will be placed directly with the unrelated foreign suppliers, and the importers will pay the foreign suppliers directly. The consultancy agreement contemplates that the U.S. importers will provide Triburg with a monthly statement containing a list of all products that it obtained using Triburg’s advisory/consulting services. The importers will then pay Triburg a “consulting fee,” which you characterize as a buying commission, that is calculated as 3% of the FOB value of all imported goods identified in the monthly statement.
The consultancy agreement also contains statements that Triburg will not take title or risk of loss on any imported merchandise, that Triburg does not sell raw materials to the manufacturers or sellers, and that Triburg is not related to any manufacturers or sellers of merchandise. If Triburg obtains an interest in a manufacturer or seller, it is required to inform the U.S. importer immediately. Failure to do so will result in Triburg forfeiting its commission on any merchandise purchased from the related manufacturers or sellers.
Whether the consulting fees are buying commissions that should be excluded from the transaction value of the imported merchandise.
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 primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus five enumerated additions. 19 U.S.C. § 1401a(b)(1). The term “price actually paid or payable” is defined in pertinent part 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).
We assume for purposes of this ruling that transaction value is the appropriate method of appraisement. Here, the information provided states that the U.S. importers will not pay the consulting fees either to, or for the benefit of, the foreign sellers. Instead, the U.S. importers will pay the fees to Triburg, an unrelated third-party service provider. As a result, the fees will not be part of the price actually paid or payable for the imported merchandise.
Although the consulting fees will not be part of the price actually paid or payable for the merchandise, they may be part of the transaction value if they constitute an addition enumerated in 19 U.S.C. § 1401a(b)(1). Relevant here, 19 U.S.C. § 1401a(b)(1)(B) provides that “any selling commission incurred by the buyer with respect to the imported merchandise” must be added to the price actually paid or payable if not already included in the price and if sufficient information is available. A “selling commission” is any commission paid to the seller’s agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller. 19 C.F.R. § 152.102(b). Bona fide buying commissions, however, are not included in transaction value as part of the price actually paid or payable or as an addition thereto. See, e.g., Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23 (CIT 1988), aff’d, 861 F.2d 261 (Fed. Cir. 1988). “The distinction [between a buying commission and a selling commission] is whether the expense is associated with selling or producing the merchandise, rather than some ministerial function in procuring the goods.” Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875, 878 (CIT 1988) (citing Norco Sales Co. v. United States, 319 F. Supp. 1399 (Cust. Ct. 1970)).
The existence of a bona fide buying commission depends upon the relevant factors of each particular case. J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973 (Cust. Ct. 1978); Nelson Bead Co., 42 C.C.P.A. 175, 183 (1955). 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. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 354 (CIT 1989); Rosenthal-Netter, 679 F. Supp. at 23; and New Trends, Inc. v. United States, 645 F. Supp. 957, 960 (CIT 1986). 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 Headquarters Ruling (“HQ”) 542141, dated September 29, 1980, also cited as TAA No. 7.
In determining whether an agency relationship exists, the primary consideration is the right of the principal to control the agent’s conduct with respect to those matters entrusted to the agent. Jay-Arr Slimwear, 681 F. Supp. at 879. The degree of discretion granted the agent is a further consideration. New Trends, 645 F. Supp. at 960. The existence of a buying agency agreement, moreover, has been viewed as supporting the existence of a buying agency relationship. Dorco Imports v. United States, 67 Cust. Ct. 503 (1971). In addition, the courts have examined such factors as whether the purported agent’s actions were primarily for the benefit of the principal; whether the agent was responsible for the shipping and handling and the costs thereof; whether the language used in the commercial invoices was consistent with a principal-agent relationship; whether the agent bore the risk of loss for damaged, lost or defective merchandise; and whether the agent was financially detached from the manufacturer of the merchandise. New Trends, 645 F. Supp. at 961-62.
Activities characteristic of those rendered by a buying agent include compiling market information, gathering samples, translating, placing orders based on the buyer’s instructions, procuring the merchandise, assisting in factory negotiation, inspecting and packing merchandise and arranging for shipment and payment. See id.
Here, you argue that the services that Triburg will provide to U.S. importers are “nearly identical” to those offered by the buying agent in HQ H109699, dated July 19, 2010. In that case, Walmart entered into an agreement with a buying agent that performed the following services in exchange for a commission: 1) identifying manufacturers and suppliers of merchandise for Walmart’s consideration; 2) making available market research and intelligence on new manufacturers, suppliers, products, supply base trends, market trends, and pricing; 3) facilitating Walmart’s buying trips; 4) supporting Walmart’s buyers activities relating to purchase of merchandise; 5) visiting manufacturing sites; and 6) where as directed by Walmart buyers, assisting with order placement.
In concluding that the payments to the agent were nondutiable buying commissions, we noted that the agent performed services on behalf of the buyer, Walmart, that are typically performed by a bona fide buying agent. We also emphasized the control that Walmart exercised over the agent, the fact that the buying agent did not receive any part of the payments that Walmart made to the vendors (or receive any payment from the manufacturers or vendors), and the fact that the buying agent never held title to the merchandise.
Based on the responsibilities of Triburg as outlined in the written consultancy agreement, we agree that it will perform services that are very similar to those performed by the buying agent in HQ H109699. Moreover, the consultancy agreement contemplates a degree of control over Triburg’s conduct that is consistent with the existence of a bona fide buying agency. Although Triburg will advise importers on the prices and sources of merchandise available for exportation, it has no control or decision-making authority over the purchasing process. With respect to any merchandise purchased, the U.S. importers will submit orders and make payment directly to the foreign seller. Any consulting fees due to Triburg are calculated, invoiced, and paid separately on a monthly basis. As in HQ 109699, the purported agent therefore will not receive any part of the payments that the buyer makes to the seller or receive any payment from the sellers/manufacturers.
Other provisions of the agreement also support a finding that a bona fide buying agency exists. For example, under the terms of the agreement, Triburg will not take title or risk of loss on any imported merchandise, which demonstrates that it will not act as a seller of the merchandise. Furthermore, the agreement provides that Triburg will not sell raw materials to the manufacturers or sellers, and that Triburg is not related to any manufacturers or sellers of merchandise. This demonstrates Triburg’s financial detachment from the manufacturers and further supports the conclusion that it works for the benefit of the buyers, rather than the sellers. Accordingly, the consulting fees are bona fide buying commissions that will not be included in the transaction value of the imported merchandise.
The consulting fees are bona fide buying commissions that will not be included in the transaction value of the imported merchandise.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction
Monika R. Brenner, Chief
Valuation and Special Programs Branch