OT:RR:CTF:VS H298982 JK
Teresa A. Gleason, Esq.
Meredith A. DeMent, Esq.
Baker & McKenzie, LLP
815 Connecticut Avenue, N.W.
Washington, DC 20006-4078
RE: Dutiability of Buying Commissions
Dear Ms. Gleason and Ms. DeMent:
This is in response to your letter, dated May 28, 2018, on behalf of [ ] (“the Company”). In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 concerning the dutiability of certain potential commissions to be paid by the Company to [ ] (“the Agent”) for products imported into the United States. You have attached a copy of the buying agency agreement for our review.
In addition, you attached a sample statement that will be included with each vendor invoice indicating that the invoiced amount will be subject to a buying commission. You requested that we confirm the sufficiency of the statement with respect to the requirement that all commissions be declared to CBP at the time of importation.
You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in your request will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The Company is a membership warehouse club that sells a wide variety of merchandise and services at membership warehouses. The Company recently entered into a buying agency agreement with the Agent to act as its global, non-exclusive buying agent. You state that no transactions have yet taken place subject to the agreement.
Pursuant to the buying agency agreement, the Agent will perform a number of services on behalf of the Company, for which the Agent will receive buying commissions. The amount of the buying commission will be calculated as a percentage of the purchase price paid by the Company to each vendor. The services that the Agent has agreed to perform on behalf of the Company include the following:
Sourcing Strategy: familiarize itself with the Company’s sourcing needs, provide market information, assist in the recommendation, review and selection of potential vendors, coordinate buying trips, and curate product assortment and development;
Vendor Management: onboard new vendors, negotiate favorable pricing and other purchase order terms, assess production capacity; manage sample submissions; facilitate compliance with the Company’s Code of Conduct, and assist with the enforcement of contracts and purchase order terms against vendors as needed;
Order Management: assist with pre-production visits and communications, perform quality control inspections, monitor production status, and collaborate with the Company to develop operational processes;
Assist with logistics coordination and provide shipment updates upon request;
Facilitate vendor payment by delivering documents to the bank and responding to bank inquiries;
Assist with handling defective merchandise and returns.
The buying agency agreement specifies that when the Company desires to purchase merchandise, it will issue purchase orders directly to overseas vendors, with copy to the Agent. The purchase orders will identify the vendor, the details regarding the products to be manufactured and purchased, and the required delivery date and shipping terms. Once the purchase orders are issued, the Agent will negotiate export prices in accordance with the Company’s instructions. The Company alone will be responsible for paying the purchase price directly to the vendors. The purchase price will not include amounts for buying commissions. Buying commissions will be invoiced separately by the Agent to the Company on a monthly basis, which the Company will pay directly to the Agent.
In addition to these terms, the buying agency agreement sets forth the following terms:
The Agent is a bona fide buying agent and acting solely for the benefit of the Company.
The Agent is not authorized to act independent of the Company’s instructions. The Agent may not take any action, engage any vendor, forward any purchase term orders or otherwise place orders for products without express instruction from the Company as provided in the agreement.
The Agent may not receive selling commissions from any vendor related to any orders under the agreement.
The Agent must notify the Company of any legal relationship between itself and potential vendors.
The Company is not obligated to use the Agent’s services or place any orders through the Agent.
The Agent does not take title to or assume the risk of loss for the merchandise. The Agent assumes no liability to the Company for defects in ordered merchandise or delay in their shipment.
Though the Agent may provide advisory or ancillary business services to vendors, those vendors must bear the cost of those services and the agent is prohibited from providing agency services to and receiving commissions from any vendor in connection with merchandise ordered by the Company and subject to the agreement.
In addition to the buying agency agreement, the Company also provided a sample statement that it intends to attach to each vendor invoice indicating that the invoiced amount is subject to a buying commission, identifying the item number, purchase order number, and amount of the commission. You indicated that the Company also intends to declare the amount of the applicable buying commission as a non-duitable charge on each electronically submitted entry.
ISSUE:
Whether the Agent will be acting as a bona fide buying agent under the terms of the buying agency agreement so that the commissions paid by the Company to the Agent are non-dutiable as bona fide buying commissions.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in accordance with the provisions of 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 basis of appraisement is transaction value, defined as "the price actually paid or payable for merchandise when sold for exportation to the United States." 19 U.S.C. § 1401a(b)(1). For purposes of this ruling, we assume that transaction value is the appropriate basis of appraisement.
The term "price actually paid or payable" is defined 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. § 402(b)(4). As a general matter, bona fide buying commissions are not added to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 12 CIT 77 (1988); Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875, 12 CIT 133 (1988).
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 CCPA 175, 183 (1955). However, 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, 13 CIT at 164; Rosenthal-Netter, 12 CIT at 78; and New Trends, Inc. v. United States, 645 F. Supp. 957, 960, 10 CIT 637, 640 (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 Rulings (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, 512, R.D. 11753 (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.
Based on the responsibilities of the Agent as outlined in the buying agency agreement and your submission, the Agent will be performing services on behalf of the Company that are typically performed by a bona fide buying agent, such as compiling market information, managing sample submissions, assisting in price negotiations, performing quality control inspections, and arranging for shipment and payment. See Jay-Arr Slimwear, 681 F. Supp. at 878.
Moreover, the buying agency agreement contemplates a degree of control over the Agent’s conduct that is consistent with the existence of a bona fide buying agency. While the Agent will assist in the review and selection of vendors, the Company retains ultimate control and decision making authority over the purchasing process, as demonstrated by the agreement’s provisions that require the Company to issue purchase orders directly to vendors that identify the merchandise to be produced, specifications, quantity, as well as the shipment terms and delivery dates. The Agent is also required to give the Company written notice of any legal relationship between it and potential vendors before either party enters into negotiations with those potential vendors. Furthermore, the Company maintains control over the payment process, as it alone is responsible for paying the purchase price directly to vendors. The agreement provides that the Company will pay buying commissions to the Agent under a separate invoice. In addition, while the Agent will help arrange the shipment of merchandise, the Company is responsible for appointing the relevant logistics service provider, setting the shipping terms and delivery dates, and paying for all shipping, handling and related charges to the vendor.
The agreement contains further indications of control over the conduct of the Agent that would support the finding that a bona fide buying agency exists. Under the terms of the agreement, the Agent does not take title to the merchandise and will assume no liability for defects in ordered merchandise or a delay in their shipment. In the event that a claim exists against a vendor, the Agent will pursue such claims for and on behalf of the Company, but only when authorized by the Company on a case by case basis. The Agent is required to immediately remit any recovery from such claims to the Company. In addition, the agreement specifies that in no circumstances will the Agent receive selling commissions from any vendor in connection with the agreement. Finally, the agreement provides that the Agent is the Company’s non-exclusive buying agent, and that the Company is not obligated to use the Agent’s services or place any orders through the Agent.
We note that, pursuant to the agreement, the Agent may, at its own discretion, provide advisory or ancillary business services to vendors, provided that the vendors bear the cost of those services and the Agent does not provide agency services to the vendors that would entail it receiving a commission in connection with the merchandise ordered by the Company. The agreement provides that such vendor services may include services relating to original design development, product life cycle management, LEAN manufacturing, manufacturing engineering support, market research and intelligence, capacity building, environmental and sustainability advisory services and any other services relating to the manufacture or supply of any goods by vendors.
When an intermediary performs services on behalf of both the buyer and the seller, CBP has found that a bona fide buying agency is not precluded where the services performed by the intermediary are primarily for the benefit of the buyer, the services provided to the seller are limited in scope, and the intermediary informs the buyer about the nature of the services to be performed for the seller and the amount of compensation to be received. See, e.g., HQ 548135, dated July 30, 2002; HQ 546543, dated August 6, 1997. Accordingly, we find that the agreement’s provision permitting the Agent to provide advisory or ancillary business services to vendors is consistent with a bona fide buying agency, as long as the Agent, if and when it does provide such services, adheres to the principle described above.
Consequently, based upon the buying agency agreement, we are satisfied that the Agent will be a bona fide buying agent for the Company. Therefore, it is our position that any commissions paid by the Company to the Agent are bona fide buying commissions and are not a part or an addition 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; HQ 545660, dated February 10, 1995.
With regard to your question on the sufficiency of the sample statement to be attached to each vendor invoice, the regulations provide that when filing entry electronically, all transactions filed must fully disclose any commissions. See 19 C.F.R. § 143.36. However, the regulations do not specify the manner in which such commissions must be disclosed. Based on our review of the submitted sample statement, along with the importer’s declaration of the amount of the applicable buying commission as a non-duitable charge on each electronically submitted entry, we find that this would be a sufficient disclosure of the Company’s buying commissions paid to the Agent for transactions under the agreement.
HOLDING:
Based on the information submitted, we find, provided that the parties' actions conform to the terms of the submitted buying agency agreement, the Agent would be a bona fide buying agent of the Company. We conclude, therefore, that the agency commissions paid by the Company to the Agent constitute bona fide buying agency commissions and would not be included in the transaction value of any merchandise imported into the United States.
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed with a copy, this ruling letter should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch