VAL RR:IT:VA 546284 CRS
Area Director
New York/Newark Area
U.S. Customs Service
Hemisphere Center
Room 200
Routes 1 & 9 South
Newark, NJ 07114
RE: Internal Advice 23/95; buying agency; commissions
Dear Madam:
This is in reply to a request for internal advice forwarded to
this office through the Customs Information Exchange, N.Y., under
cover of a memorandum dated February 23, 1996, from the Process
Owner, Trade Compliance Division. The internal advice request was
initiated by counsel Follick & Bessich on behalf of Stage II
Apparel Corporation. Counsel met members of my staff at Customs
Headquarters on March 10, 1996, to discuss this matter and
subsequently filed an additional submission dated April 4, 1996.
We regret the delay in responding.
FACTS:
The internal advice request was prompted by a Customs audit
covering Stage II's consumption entries for the years 1990-1993.
The audit concluded, among other things, that certain commissions
paid by Stage II in 1990-1991, but which were not declared, should
be included in the appraised value of the imported merchandise.
However, since the statute of limitations has expired with respect
to 1990 entries, the internal advice request only relates to the
commissions paid in 1991.
In 1991, Stage II paid commissions totaling [$******] to its
wholly owned agent, Stage II Apparel Corporation of Hong Kong, Ltd.
There is no issue in respect of these payments since it is your
position that these amounts are bona fide buying commissions and,
therefore, not dutiable. In addition, however, Stage II paid
additional amounts for the same shipments to the following agents:
South Asian Apparel Resources; Nabila Enterprises (Pvt) Ltd.; Edin
Textiles; Mulchand Lokumal; and Eastern Stretch, Inc. The
additional amounts also totaled [$*****] and were booked to Stage
II's purchase commission account.
Counsel for Stage II maintains that these duplicate payments
are also bona fide buying commissions and should not be included in
the appraised value of the imported merchandise. In support of
this, counsel has submitted Stage II's buying agency agreements
with South Asian Apparel Resources and invoices for Mulchand
Lokumal and Eastern Stretch.
Your office contends that the documentation submitted is
insufficient to support Stage II's claim that the duplicate
payments are bona fide buying commissions and that, consequently,
the payments should be included in the appraised value of the
imported merchandise. In this regard, you note that Stage II is
unable to provide invoices or other documentation for the bulk of
the duplicate payments. In addition, contradictory information was
provided, e.g., amounts which on one occasion were described as
agent's fees were subsequently identified as sample fees.
ISSUE:
The issue presented is whether amounts in question constitute
bona fide buying commissions such that they should not be included
in the appraised 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 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 additions including any selling commissions incurred by
the buyer with respect to the imported merchandise. 19 U.S.C.
1401a(b)(1). In the instant case, no information has been provided
to support the use of transaction value; however, assuming that
transaction value is determined to be the appropriate basis of
appraisement, the following constitutes our position in respect of
the payments at issue.
Pursuant to section 402(b)(4) of the TAA, 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). Bona fide buying
commissions, however, are not an addition to the price actually
paid or payable. Pier 1 Imports, Inc. v. United States, 708 F.
Supp. 351, 354, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v.
United States, 679 F. Supp. 21, 23, 12 CIT 77, 78 (1988); Jay-Arr
Slimwear, Inc v. United States, 681 F. Supp. 875, 878, 12 CIT 133,
136 (1988).
The existence of a bona fide buying commission depends upon
the relevant factors of the individual case. E.g., J.C. Penney
Purchasing Corp. v. United States, 451 F. Supp. 973, 983, 80 Cust.
Ct. 84, 95, C.D. 4741 (1978). However. the importer has the burden
of proving the existence of a bona fide agency relationship and
that the payments to the agent constitute bona fide buying
commissions. Rosenthal-Netter, 679 F. Supp. 21, 23; New Trends,
Inc. v. United States, 645 F. Supp. 957, 960, 10 CIT 637 (1986).
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. J.C. Penney, 451 F. Supp. 973, 983. The existence of a
buying agency agreement has been viewed as supporting the existence
of a buying agency relationship. Dorco Imports v. United States,
67 Cust. Ct. 503, 512, R.D. 11753 (1971). In addition, the courts
have examined such factors as: the transaction documents; whether
the purported agent's actions were primarily for the benefit of the
principal; whether the importer could have purchased the
merchandise directly from the manufacturers without employing an
agent; whether the intermediary was operating an independent
business, primarily for its own benefit; and whether the purported
agent was financially detached from the manufacturer of the
merchandise. Rosenthal-Netter, 679 F. Supp. 21, 23 (1988); New
Trends, 645 F. Supp. 957, 960-962.
Evidence submitted to Customs must clearly establish the fact
of a bona fide buying agency. Headquarters Ruling Letter (HRL)
544610 dated February 23, 1991. Customs has consistently held that
an invoice or other documentation from the actual foreign seller to
the agent is required in order to establish that the agent is not
the seller, as well as to determine the price actually paid or
payable to the seller. HRL 542141 dated September 29, 1980 (TAA
No. 7). In HRL 542357 dated March 31, 1987, we stated that even if
the actual sellers are listed on the invoice submitted to Customs,
a separate invoice from the seller which establishes the price
actually paid or payable is required. See also HRL 542662 dated
February 16, 1982; HRL 543171 dated June 20, 1984; HRL 543148 dated
June 26, 1985; HRL 543625 dated February 4, 1986. Furthermore,
while the existence of a buying agency agreement tends to support
a finding a "bona fide" buying agency relationship, it is Customs
position that "having legal authority to act as a buying agent and
acting as a buying agent are two separate matters and Customs is
entitled to examine evidence which proves the latter. General
Notice, 23:11 Cust. B. & Dec. 9 (March 15, 1989). See also, HRL
544965, dated February 22, 1994.
The information submitted in connection with in the instant
internal advice request is insufficient to support the existence of
a bona fide agency relationship. First, no information has been
provided regarding the services performed by the purported agents
on behalf of Stage II. Second, there is no evidence that Stage II
exercised control over the purported agents with respect to the
matters entrusted to them. Similarly, there is no evidence, for
example, that the purported agent's acted primarily for the benefit
of Stage II, nor that the purported agents were financially
detached from Stage II nor that Stage II could have purchased
directly from the manufacturers of the imported merchandise.
Counsel has submitted a buying agency agreement between Stage
II and South Asian Apparel Resources. While a written buying
agency agreement supports the notion of a bona fide agency
relationship, it is merely evidence that the parties intended to
create an agency relationship and is not dispositive as to the
existence thereof. Rosenthal-Netter, 679 F. Supp. at 26, 12 CIT at
83, citing J.C. Penney, 451 F. Supp. at 985, C.D. 4741 at 98.
Although counsel has provided commission invoices for, inter alia,
Mulchand Lokumal and Eastern Stretch, as noted above, the
information submitted is insufficient to support the existence of
a bona fide agency relationship.
HOLDING:
In conformity with the foregoing, and assuming that
transaction value is the proper basis of appraisement, the amounts
in question should be included in the appraised value of the
imported merchandise.
This decision should be mailed by your office to the internal
advice requester no later than sixty days from the date of this
letter. On that date the Office of Regulations and Rulings will
take steps to make the decision available to Customs personnel via
the Customs Rulings Module in ACS and to the public via the
Diskette Subscription Service, the Freedom of Information Act and
other public access channels.
Sincerely,
Acting Director
International Trade Compliance Division