RR:IT:VA W547098 ASB
Ms. Teresita V. Sanchez
Import Manager
Foreign Parts Distributors, Inc. P.O. Box 112853
Hialeah, Florida 33011-2853
RE: Ruling request; dutiability of buying commission; commission paid directly to
seller; Moss Manufacturing, Inc. v. United States; Rosenthal-Netter, Inc. v. United States; Generra Sportswear Co v United States; §402(b); §402(b)(4)(A); HQ 542141.
Dear Ms. Sanchez,
This is in response to your letter dated July 31, 1997, which was received in this office on June 1, 1998, requesting a ruling for Foreign Parts Distributing, Inc. ("FPD"). In your letter, you raised the issue of whether the commission paid to Carfel Inc. Taiwan ("Carfel Taiwan") is
included in the transaction value of the goods. Specifically, you are concerned with directly
remitting Carfel Taiwan's commission to one particular seller, Yu Sheng Traffic Parts Co.
("YST'), who includes the commission on its invoice to FPD. We regret the delay in responding to your request.
FACTS:
FPD imports automobile parts. With respect to the parts imported from Taiwan, FPD
utilizes the services of Carfel Taiwan, its purported buying agent. Carfel Taiwan is a wholly
owned subsidiary of Carfel Inc. Miami. FPD and Carfel Taiwan share common ownership, in
that one individual owns 49% of FPD and 100% of Carfel Inc. Miami. Included in FPD's ruling request was the following documentation:
e-mail correspondence between FPD and Carfel Taiwan from September 18th, 21st, and 23rd, in which FPD instructs Carfel Taiwan on which parts to order, determines specifications and modifications for the parts, and sets prices;
a Purchasing Agreement between FPD and Carfel Taiwan, in which Carfel Taiwan agrees to act as FPD's purchasing agent;
three representative entry summaries (CF 7501) for auto parts FPD has imported from YST; and
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the corresponding invoices to the abovementioned entry summaries which show a 3% commission charge listed separately from the price for the parts.
The entry summaries show that YST ships the merchandise C.I.F. Miami to FPD. This means the invoiced price includes the cost of the parts, the cost of transporting the parts from Taiwan to Miami, and the cost of insuring the parts being transported. In YST's case, FPD pays Carfel Taiwan's commission directly to YST and adds the amount of the commission to the value of the goods in the letters of credit FPD opens in favor of YST. YST identifies the commission and the price of the goods separately on its invoice; however, FPD pays YST one lump sum amount for the goods and the commission. In the past, FPD has not deducted the amount of the commission from the total price of the goods on its Customs entry summaries. In other words, FPD has included Carfel Taiwan's commission in the transaction value of the merchandise it
imports from YST.
ISSUE:
Whether the commissions paid by FPD, the buyer, directly to YST, the seller, for Carfel Taiwan's services are dutiable as part of transaction value.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in accordance with §402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("T AA"), codified at 19 U.S.C. 1401a. The preferred method of appraisement is transaction value, which is defined in §402(b) of the TAA as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus certain enumerated additions. The term "price actually paid or payable" is more specifically defined in §402(b)(4)(A) of the TAA as "the total payment (whether direct or indirect... ) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."
FPD has characterized their relationship with Carfel Taiwan as a buying agency. Buying agents represent the importer abroad in the purchase of goods and merchandise. Buying
commissions are not added to the price actually paid or payable because, unlike selling
commissions, buying commissions are not specifically enumerated as an addition to the price
actually paid or payable. Moss Manufacturing, Inc. v. United States, 13 CIT 420, 425, 714 F. Supp. 1223, 1228 (1989); Rosenthal-Netter. Inc. v. United States, 12 CIT 77, 78, 679 F. Supp. 21, 23, aff'd 861 F.2d 261 (Fed. Cir. 1988). Accordingly, FPD has asked Customs to consider whether payment of the commission to the seller, who then remits the payment to the agent,
makes the buying commission dutiable if the seller identifies the buying commission separately on its invoice.
Customs position is that while bona fide buying commissions are not added to the price actually paid or payable, when the payment made to the seller for imported merchandise includes a buying commission, there is no authority to deduct that amount from the price actually paid or payable. Headquarters Ruling Letter HQ 542141. Furthermore, in Moss Manufacturing, the
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Court of International Trade held that, "where a payment for goods is made to a seller with
instructions to disburse part of such funds to the buyer's agent, where the agent assisted in bringing about the sale, such disbursement constitutes a disbursement for the benefit of the seller
within the meaning of 19 U.S. C. § 1401a(b) and is properly included within the price paid for
purposes of valuation." 13 CIT at 427, 896 F. Supp. 1223, 1227-1228 (1989) aff'd 896 F.2d 535 (Fed Cir. 1990).
In an analogous discussion of the dutiability of quota payments, the Court of Appeals
stated that when a payment is made to a seller, whether or not the seller actually benefits is a non-issue, because the statute is written in the alternative: "to, or for the benefit of, the seller."
Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Fed. Cir. 1990). In Generra, the court reasoned that transaction value is based on the actual transaction between the buyer and
the seller. Therefore, transaction value can represent a value greater than the per se value of the
goods. Id.
In this case, transaction value is the price paid by the buyer, FPD, to the seller, YST. This price is reflected on YST's invoice, which separately identifies Carfel Taiwn's 3% commission. Based on the holdings in Moss Manufacturing and Generra, Carfel Taiwan's commission constitutes a disbursement "to or for the benefit of the seller," because FPD pays the commission directly to YST. Moreover, under HQ 542141, Customs has no authority to deduct the commission from the price actually paid or payable. Therefore, the buying commission is dutiable as part of transaction value, even though YST's billing invoice separately identifies the buying commission from the per se value of the goods.
HOLDING:
With respect to the transactions between FPD and YST, Carfel Taiwan's commission is
dutiable as part of the transaction value of the goods, because it constitutes a disbursement “to or for the benefit of the seller” under 402(b)(4)(A) of the TAA.
Sincerely,
Thomas L. Lobred, Chief
Value Branch