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HQ 546727

November 25, 1997

VAL RR:IT:VA 546727 EK


Ms. Lori Aldinger
Import Coordinator
Rite Aid Corporation
P.O. Box 3165
Harrisburg, PA 17011

RE: Prospective Ruling Request; Buying Commissions - Rite Aid Corporation

Dear Ms. Aldinger:

This is in reference to your letter of April 1, 1997, regarding the ruling request you submitted on behalf of Rite Aid Corporation. You are requesting a ruling regarding the dutiability of certain commissions paid by Rite Aid pursuant to a buying agency agreement. We regret the delay in responding.


You have submitted a buying agency agreement that will be entered into between Rite Aid Corporation as principal, and Liss Brothers, as a buying agent. Rite Aid is an importer of merchandise for its stores in the United States. Liss Brothers has access to foreign manufacturers that produce the merchandise required by Rite Aid.

The agreement authorizes Liss Brothers to act as exclusive buying agent for Rite Aid in various countries. In the agreement, Rite Aid has reserved the right to place direct orders with manufacturers, suppliers and trading companies without the representation of any agent.

Regarding its obligations, Liss Brothers will visit manufacturers and suppliers and examine products. Upon request, Liss Brothers will submit samples, specifications, prices, proposed terms of payment, and availability of goods to Rite Aid. Liss Brothers will report regularly to Rite Aid on the market situation on various lines of merchandise in which Rite Aid has an interest. When directed, Liss Brothers will assist in the negotiation of prices and obtain price quotations for Rite Aid. The price quotations will be based on ex-factory, ex-designated warehouse, ex-loading facilities, or FOB prices.

In paragraph 2.2. of the submitted agreement, Liss Brothers agrees to act only upon instruction from Rite Aid, and will place orders for the account of Rite Aid with manufacturers in Rite Aid=s name. Liss Brothers will submit written order confirmations to Rite Aid, and will inspect merchandise on a random sampling basis using a specified standard that conforms with Rite Aid=s purchase order requirements. In addition, Liss Brothers agrees to return or reject merchandise that does not meet Rite Aid=s specifications and will negotiate at Rite Aid=s direction for settling claims arising from rejected merchandise. Liss Brothers will prepare necessary documents, ensure that merchandise is properly packed for export, and supervise shipments at the loading facilities or loading warehouse with instructions for delivery to Rite Aid=s designated distribution center.

Liss Brothers is to send Rite Aid a written report on the status of all open orders every two weeks, or other specified time intervals as agreed to between the parties. Liss Brothers is to remain in contact with each manufacturer subsequent to the completion of a contract on behalf of Rite Aid.

In exchange for these services, Rite Aid agrees to pay Liss Brothers a commission of a specified percentage of FOB invoiced amounts of shipped merchandise. The agreement provides that commission fees will be inclusive in the documentary letter of credit and payable when the manufacturer submits its invoicing for payment. You explain that Rite Aid will apply for a letter of credit from its bank in Pittsburgh in an amount equal to the cost of the merchandise being purchased, plus the commissions due. The letter of credit will provide for payment to the manufacturer of the invoiced amount, and also for simultaneous payment to the agent=s bank in Philadelphia of its commission.

The agreement provides that Liss Brothers will receive no renumeration from any supplier or manufacturer and holds no ownership interest, financial or otherwise, in any manufacturer or supplier. Liss Brothers agrees to act in the best interest of Rite Aid and at the direction of Rite Aid. The agreement also provides that although it is not contemplated as a regular course of business, if the occasion should arise where the agent is the owner of goods that it wishes to sell to Rite Aid on a Aprincipal to principal@ basis, then such invoices will clearly designate the agent as the seller of the goods. No commission would be paid on such a transaction.


Whether the amounts paid to Liss Brothers constitute bona fide buying commissions such that they are not to be included in the transaction 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 Athe price actually paid or payable for the merchandise when sold for exportation to the United States,@ plus five enumerated additions including the value, apportioned as appropriate, of any selling commissions incurred by the buyer with respect to the imported merchandise. 19 U.S.C. 1401a(b)(1).

Pursuant to section 402(b)(4) of the TAA, the term Aprice actually paid or payable@ is defined in pertinent part as Athe 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. Bona fide buying commissions, however, are not an addition to the price actually paid or payable. Pier One 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. 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).

The primary consideration in an agency relationship 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 factors such 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 goods 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.

In determining whether an agency relationship exists, the evidence submitted to Customs must clearly establish the fact of a buying agency relationship. 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. HQ 542141 dated September 29, 1980 (TAA No. 7).

In this case, you have submitted a proposed buying agency agreement between Rite Aid and Liss Brothers. 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 of such an arrangement. 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. Thus, Ahaving 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 provides the latter.@ General Notice, 23:11 Cust. B. & Dec. 9 (March 15, 1989). See also, HQ 544965 dated February 22, 1994.

Regarding the relationship between Rite Aid and Liss Brothers, as long as Liss Brothers provides the services as described in the submitted agreement and complies with the agreement, including the method of payment as described in your letter, we agree that Liss Brothers and Rite Aid have entered into a bona fide buying agency agreement. Liss Brothers is agreeing to perform services that are typical of a bona fide buying agent. Moreover, under the terms of the agreement, Rite Aid has the right to control the actions of Liss Brothers with respect to these services. However, as indicated above, an invoice from the seller will be required. We agree that as long as the terms of the agreement are followed, the commissions paid to Liss Brothers by Rite Aid will not be included in the transaction value of the imported merchandise.


As long as the parties comply with the submitted buying agency agreement, and the proper invoices and documentation can be provided to Customs, then the commissions paid to Liss Brothers by Rite Aid are not included in the transaction value of merchandise imported by Rite Aid. In those instances where Liss Brothers may act as seller, this fact must be made clear on the submitted documentation.


Acting Director,

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