HQ 546520 - Request for a Ruling Regarding Buying Commission Agreement; dutiability of commissions. - United States International Trade Commision Rulings

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HQ 546520

August 11, 1997

RR:IT:VA 546520 er
CATEGORY: VALUATION

Ms. Linda Waits
Import Manager
Expeditors International
4275-B Arco Lane
North Charleston, SC 29418

RE: Request for a Ruling Regarding Buying Commission Agreement; dutiability of commissions.

Dear Ms. Waits:

This is in response to your letter dated October 8, 1996, requesting a ruling on behalf of your client, Waccamaw Corporation (“Waccamaw”), regarding the dutiability of certain commissions paid pursuant to a Buying Commission Agreement. We regret the delay in responding.

FACTS:

Waccamaw imports various housewares and other products. You submitted a copy of a buying commission agreement between Waccamaw and Alphonse R. Nahum, EBC International, Ltd. of Italy (“Representative”). The agreement is dated June 1, 1996 and provides that Waccamaw appoints Representative as a non-exclusive representative for Waccamaw to solicit suppliers and assist with purchasing the products. The agreement references Exhibit A as listing the products involved; however Exhibit A was not included with your submission.

The agreement sets forth the duties of Representative which include many of the duties typically associated with those performed by a buying agent for its principal. The Representative’s primary duty is to use its best efforts to obtain the most favorable prices and other terms and conditions for the products purchased on behalf of Waccamaw. Other duties to be performed by the Representative upon Waccamaw’s request include providing assistance in negotiating with suppliers and resolving any disputes that may arise, including mediating disputes relating to shortages in orders or damaged or defective goods and collecting reimbursement for claims made against the supplier by Waccamaw. The Representative is to assist with the shipping and inspection of the goods and to assist the suppliers in understanding and complying with the specifications for each product to Waccamaw and to ensure that each product complies with any samples that have been provided to Waccamaw. The Representative is also to assist Waccamaw in the preparation of all documents necessary for the importation of the products including bills of lading, other shipping documents and customs documents. The Representative may obtain samples of the products from suppliers for review and inspection by Waccamaw and the Representative is obligated to keep Waccamaw promptly informed of market trends and new products being planned or offered by suppliers.

The Representative is entitled to receive commissions from Waccamaw for its services in an amount equal to 6% of the net invoice price of the merchandise. The net invoice price means the actual invoice price of a given product less all related costs and charges such as freight and insurance charges, taxes, import and export duties and related charges, and governmental fees. Waccamaw may pay commissions to the agent through the use of a letter of credit issued by Waccamaw in connection with the purchase of the products.

Regarding the status of the Representative Article 7.9 of the agreement states the following:

The relationship between Company and Representative is solely that of principal and independent contractor, and nothing in this Agreement shall constitute Representative as the agent, employee, or legal representative of Company for any purpose whatsoever; nor shall Representative hold itself out as such. Representative shall have no authority to bind or commit Company in any manner or for any purpose but rather shall act and conduct itself in all respects as an independent contractor. This Agreement creates no relationship of joint venturers, partners, associates, or principal and agent between the parties, and all parties agree that they are acting as principals. (Emphasis added)

ISSUE:

Whether a bona fide buying agency relationship exists between Waccamaw and its Representative, such that the commissions paid to the Representative represent non-dutiable buying commissions.

LAW AND ANALYSIS:

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 preferred 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 statutory additions in section 402(b)(1), including selling commissions. The “price actually paid or payable” is defined in section 402(b)(4) 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).

Buying commissions are fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued. It has been determined that bona fide buying commissions are not added to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 13 CIT 161, 164, 708 F. Supp. 351, 353 (1989); Rosenthal-Netter, Inc. v. United States, 679 F. Supp. 21, 23; 12 CIT 77, 78 aff’d., 861 F.2d 261 (Fed. Cir. 1988); Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875, 878, 12 CIT 133, 136 (1988). 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. Rosenthal-Netter, supra, New Trends, Inc. v. United States, 10 CIT 637, 645 F. Supp. 957, 960 (1986); Pier 1 Imports, Inc., supra.

In deciding whether a bona fide agency relationship exists, all relevant factors must be examined and each case is governed by its own particular facts. J.C Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). Although no single factor is determinative, the primary consideration is the right of the principal to control the agent’s conduct with respect to the matters entrusted to him. See, Jay-Arr Slimwear, Pier 1 Imports, Inc., J.C. Penney, and Rosenthal-Netter, supra. In addition, the courts have examined such factors as: whether the purported agent’s actions are primarily for the benefit of the principal; whether the principal or the agent is responsible for the shipping and handling and the costs thereof; whether the language used in the commercial invoices is consistent with a principal-agent relationship; and whether the agent is financially detached from the manufacturer of the merchandise. The degree of discretion granted the agent is a further consideration. See, New Trends, supra. The existence of a bona fide buying commission is to be determined by the totality of the circumstances. HRL 542141, September 29, 1990 (TAA No. 7). Whether a commission is a bona fide commission depends on the facts of each particular case.

Very little information was provided regarding the nature of the import transactions, including whether the Representative is related to the manufacturer within the meaning of 402(g) of the TAA; whether the Representative ever assumes the risk of loss for the imported merchandise or acquires title; or whether the commissions to be paid to the Representative are separately invoiced. However, based on a review of the buying commission agreement, the duties to be performed by the Representative appear to be those typically performed by a bona fide buying agent with the Representative’s primary function being to find the best price/quality deal for the buyer.

However, because the agreement also contains the language in Article 7.9, quoted above, we cannot rule that the arrangement between the parties represents a bona fide buying agency. The agreement expressly states that the relationship between the parties is that of principal and independent contractor. The agreement also expressly states that nothing in the agreement shall constitute the Representative an agent of Waccamaw; rather each respective party acts as a principal. Under these circumstances, as expressly stated in the agreement, the parties have agreed that their relationship cannot be construed as an agency relationship. Accordingly, the commissions paid to the Representative are not bona fide buying commissions and are dutiable as part of the price actually paid or payable for the imported merchandise.

HOLDING:

Based on the information presented and for the reasons discussed above, a bona fide buying agency relationship does not exist between Waccamaw and its Representative. Accordingly, the commissions paid by Waccamaw to its Representative are not bona fide buying commissions. Under these circumstances, the commissions are dutiable as part of the price actually paid or payable for the imported merchandise.

Sincerely,

Acting Director,
International Trade Compliance Division

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