HQ 545744 - Internal Advice request on whether commissions paid to an alleged "buying agent" are dutiable; invoicing requirements - United States International Trade Commision Rulings

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HQ 545744

January 19, 1995

VAL CO:R:C:V 545744 RSD

CATEGORY: VALUATION

District Director of Customs
Dallas/Ft Worth District
PO Box 619050
1205 Royal Lane
Dallas/Ft Worth Airport, Texas 75261

RE: Internal Advice request on whether commissions paid to an alleged "buying agent" are dutiable; invoicing requirements

Dear Sir:

This is in response to your memorandum dated August 8, 1994, regarding a request for internal advice from the Customs Broker, Evans and Woods, on behalf of Hobby Lobby, Stores Inc., on the dutiability of alleged "buying commissions" paid to Peter Trading Company. Accompanying your memorandum were a copy of an agency agreement, an invoice, a purchases order, and entry documents. We regret the delay in responding.

FACTS:

The importer, Hobby Lobby Stores, Inc., imports merchandise from China. The merchandise is described on the purchase order as glass bottles, glass jars, and glass preserving jars. The importer uses the services of the Peter Trading Company to procure this merchandise and to import it into the United States. Hobby Lobby claims that Peter Trading Company is a bona fide buying agent and any commissions paid to it should be non-dutiable.

In response to a request for further information, Hobby Lobby submitted a purchase order and commercial invoices. The purchase order is made out to Peter Trading Company and shows Peter Chien as salesman, but no mention is made of a manufacturer or other seller. The invoices are made for the account of Hobby Lobby and are prepared by Peter Trading Company. The invoice lists the Chinese Art Co. as the manufacturer. The invoice shows that a 7% "buying commission" is added to price of the merchandise. There are no separate invoices from the manufacturer.

The file contains an agency agreement which is prepared on stationery with Peter Trading Company letterhead, dated September 15, 1991. The agreement specifies that the Peter Trading Company acts in the capacity as a buying agent for the Hobby Lobby Stores, Inc. Under the agreement, the buyer designates the articles to be purchased; the quantity and the desired shipping dates. The buying agent is supposed to negotiate with various manufacturers to obtain pricing, quality terms, and acceptable delivery. The agent also places orders with the manufacturers, arranges for all shipments, inspects the goods to insure conformance with specifications. It also prepares all necessary invoices, packing lists, GSP Forms, special Customs invoices, inspection certificates and other documentation as required. Furthermore, the agent is also supposed to act on behalf of the buyer should claims arise from the delivery of substandard goods to the buyer.

The agreement also states that it is understood that the buying agent does not act as a seller to the buyer. All charges from the factories such as inland freight to the shipping port, insurance for the steamer and storage are to be covered by the buyer, but these charges will be paid by the buying agent and added to the invoice. For the services provided, the buying agent is to receive a commission of ten percent of the ex-factory price, which is added to the invoice along with the shipping charges.

ISSUE:

Whether commissions paid to the Peter Trading Company should not be part of the price actually paid or payable of the imported merchandise because they are "bona fide" buying commissions?

LAW AND ANALYSIS:

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

As you know, transaction value is defined in section 402(b)(1) of the TAA. This section provides, in the pertinent part, that the transaction value of imported merchandise is "the price actually paid or payable for merchandise when sold for exportation to the United States," plus amount 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 to 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 buying commission. 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 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.

In Jay-Arr Slimwear Inc., v. United States, 12 CIT----, 681 F.Supp 875 (1988), the Court of International Trade cited examples of services which are characteristic of those rendered by a buying agent. These services 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.

Evidence submitted to Customs must clearly establish the fact of a bona fide buying agency. Headquarters Ruling Letter (HRL) 544610 dated February 23, 1991. Moreover, "an invoice or other documentation from the actual foreign seller to the agent [is] required to established that the agent is not a seller and to determine the price actually paid or payable to the seller." HRL 542141 dated September 29, 1980, also cited as TAA No.7.

The existence of a buying agency agreement tends to support a finding a "bona fide" buying agency relationship. Although a buying agency agreement was presented in this case, it is the position of Customs 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. U. S. Service General Notice, 11 Cus. Bull. & Dec. 15 ( March 15, 1989). See HQ 544965, 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. There is no documentation that demonstrates the importer exercised control over the Peter Trading Company, the purported buying agent. No invoices from the manufacturer to the purported agent were submitted. The only invoices submitted are from the Peter Trading Company. Payment is made to the Peter Trading Company . Although the manufacturer's name appears on the invoices, payment to the manufacturer is not mentioned. The purchase order is made out to Peter Trading Company and shows Peter Chien as the salesmen. Based on the information presented, the commissions are part of the price actually paid or payable and are dutiable.

HOLDING:

The commissions in question constitute part of the price actually paid or payable pursuant to 19 U.S.C. 1401a(b).

Sincerely,

John Durant, Director
Commercial Rulings Division

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