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HQ 544676

July 24, 1991

VAL CO:R:C:V 544676 ML


RE: Dutiability of Buying Agency Commissions.

This is in response to your letter dated March 12, 1991, regarding the effect of section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)), on certain contemplated transactions to be entered into by your client. You request a ruling regarding the dutiability of certain commissions to be paid by importers to their agent, ---. Apparel ---------. (hereinafter referred to as the "agent"), in view of the agent's contemplated receipt of compensation from some unrelated manufacturers of the imported merchandise.


You state that your client, the agent, will act as a buying agent for various buyers seeking to import wearing apparel from manufacturers located in the Far East. Typically the agent will act in accordance with the terms of a buying agency agreement; act only upon the explicit instructions of the buyer; quote ex- factory prices exclusive of commission to the buyer; assist the buyer in arranging for the exportation of the merchandise to the United States; and negotiate on behalf of the buyer in the event defective goods are received.

For these services, the agent will receive a commission of approximately 8% of the ex-factory price. In addition to the above, the agent proposes, with the full knowledge and acquiescence of the buyer, to perform certain services on behalf of some of the manufacturers and receive compensation from these manufacturers. These services will consist of:

1) locating materials needed by the manufacturer to meet the requirements of the buyer;

2) providing quality control and inspection services;

3) advising the manufacturer of U.S. requirements for importing the merchandise, such as advice on invoicing, visas, etc.;

4) providing ministerial services requested by the manufacturer which will facilitate importation of the merchandise into the United States.

You state that none of the parties will be related and that none of the commissions paid to the buyer will inure to the benefit of any of the manufacturers.


Will buying agency commissions be treated as nondutiable when the agent receives compensation from unrelated manufacturers for essentially ministerial functions.


For the purpose of this prospective ruling request, we are assuming that transaction value will be applicable as the basis of appraisement.

Transaction value is defined in section 402(b)(1) of the TAA. This section provides, in pertinent part, that the transaction value of imported merchandise is "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus amounts for the items enumerated in section 402(b)(1). Buying commissions are not specifically included as one of the additions to the "price actually paid or payable." The "price actually paid or payable" is more specifically defined in section 402(b)(4)(A) 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.

It is clear from the statutory language that in order to establish transaction value one must know the identity of the seller and the amount actually paid or payable to him. As stated in Headquarters Ruling Letter (HRL) 542141 (TAA #7), dated September 29, 1980, "...an invoice or other documentation from the actual foreign seller to the agent would be required to establish that the agent is not a seller and to determine the price actually paid or payable to the seller. Furthermore, 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.

In order to view the relationship of the parties as a bona fide buying agency, Customs must examine all the relevant factors. J.C. Penney Purchasing Corporation et al. v. United States, 80 Cust. Ct. 84, C.D. 4741 (1978), 451 F.Supp. 973 (1978); United States v. Knit Wits (Wiley) et al., 62 Cust. Ct. 1008, A.R.D. 251 (1969). The primary consideration, however, "is the right of the principal to control the agent's conduct with respect to the matters entrusted to him." Dorf Int'l Inc., et al. v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F.Supp. 690 (1968). The degree of discretion granted the agent is an important factor. New Trends Inc. v. United States, 10 CIT 637, 645 F. Supp. 957 (1986). The plaintiff bears the burden of proof to establish the existence of a bona fide agency relationship and that the charges paid were bona fide buying commissions. Monarch Luggage Company Inc., v. United States, 13 CIT , Slip Op. 88-91 (1989).

The Court of International Trade in the case of New Trends Inc., supra, set forth several factors upon which to determine the existence of a bona fide buying agency. These factors include: whether the agent's actions are primarily for the benefit of the importer, or for himself; whether the agent is fully responsible for handling or shipping the merchandise and for absorbing the costs of shipping and handling as part of its commission; whether the language used on the commercial invoices is consistent with the principal-agent relationship; whether the agent bears the risk of loss for damaged, lost or defective merchandise; and whether the agent is financially detached from the manufacturer of the merchandise.

The above-stated factors have been determining factors applied by the courts to deny the existence of a buying agency relationship in New Trends, Inc., supra, Jay-Arr Slimwear Inc., v. United States, 12 CIT , 681 F. Supp. 875 (1988), Rosenthal- Netter,Inc. v. United States, 12 CIT , Slip Op. 88-9 (1988), 679 F. Supp. 21 (1988).

Under the facts provided, the services to be performed by the agent are indicative of those generally provided in a buying agency relationship. The agent might be visiting factories, negotiating favorable prices, arranging for shipping, inspecting the goods, but all at the behest of the importer. It appears that the agent is acting primarily at the specific direction of the importers, as is necessary in an agency relationship. In keeping with the principles of an agency relationship, the importers will, in all instances, be apprised of any payments to be paid to the agent by the manufacturers of their merchandise. The Restatement (Second) of Agency 14K (1958). Additionally, the agent will not bear the risk of loss of the goods as "it is uncharacteristic of an agency relationship to allow the intermediary to bear the risk for damaged, lost, or defective merchandise." Rosenthal-Netter, 12 CIT at , 679 F. Supp. at 26.

Whether a commission is a bona fide buying commission depends in each instance on the facts of each particular case. J.C. Penney, 80 Cust. Ct. at 95, 451 F. Supp. at 983; Nelson Bead Co., 42 CCPA at 183. HRL 544452, dated September 11, 1990, contained substantially similar facts as those involved in the instant case. In HRL 544452, the agent performed services for its principle such as obtaining the best available merchandise; visiting factories and placing orders; arranging for payment terms as per specific instructions; arranging for inland freight; facilitating acquisition of necessary documentation when importing into the United States; acquiring trim; and assisting in the return of defective merchandise. The agent also participated in rebate programs with manufacturers whereby it would receive rebates from the factories for supplemental quality control and inspection activities; providing U.S. Customs compliance advice services; and other ministerial services designed to facilitate procurement of goods. In that case, Customs found that bona fide buying commissions existed where an agent participated in a manufacturers rebate program with the full knowledge of its principal.

Consistent with our finding in HRL 544452, the services to be provided by the agent are typical of a bona fide buying agent and will not be negated by the agents furnishing of essentially ministerial services to manufacturers, given the full disclosure and acquiescence by the imports. In the instant case, a buying agency is further supported by agents separately breaking out the amounts for commissions on the invoices or, by their preparing separate invoices which they will issue directly to the importers. As long as the payments by the manufacturers do not impact on the importer's "price actually paid or payable", it will have no effect on the nondutiability of the agents's commissions. This will continue to be the case if the agent is working primarily for the benefit of the importer, finding the best price/quality deal as designated by the importer.

On the basis of the information you have provided regarding the prospective transactions in question, if the actions of the parties conform to your letter and the terms of the agency agreement the importer will exercise the requisite degree of control over the buying agent. Note, however, that the degree of control asserted over the agent is factually specific and could vary with each importation. The actual determination as to the existence of a buying agency will be made by the appraising officer at the applicable port of entry upon the presentation of the proper documentation as described in TAA No. 7. Based upon these considerations, we conclude that the commissions to be paid to the buying agent constitute bona fide buying commissions which will not be dutiable under transaction value.

Please note, that the approval of these buying arrangements in no way authorizes the acceptability of an 8% buying agency fee. The appraising officer will determine whether the percentage exceeds the percent commission that is normal in the trade for bona fide buying agents. Documentary evidence detailing the extent of additional services provided beyond those normally performed by such agents would need to be presented to the appraising officer.


In view of the foregoing, the commissions to be paid to the agent to perform the services of purchasing merchandise from manufacturers are to be considered bona fide buying commissions; and therefore, not to be added to the price actually paid or payable.

The received by the agent from the manufacturers for performing the services described above will not impact on the nondutiability of buying commissions as long as the agent continues to work at the direction of his importers with the importers maintaining the requisite degree of control over the actions of it's agent.


John Durant, Director

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