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HQ 546284

July 14, 1997



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.


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.


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.


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.


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.


Acting Director
International Trade Compliance Division

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