HQ 544794: Dutiability and Disclosure of Payments Made to a Buying Agent

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                          HQ 544794
                        July 17, 1992


VAL CO:R:C:V 544794 ILK

CATEGORY:  Valuation

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RE:  Dutiability and Disclosure of Payments Made to a Buying
     Agent

Dear xxxxxxxxxx:

     This is in response to your request, dated September 5, 1991
(hereinafter referred to as "request") for a ruling on the
dutiability of payments made by xxxxxxxxxxxxxxxxxxxxxxxxxxxAAIx,
a U.S. corporation, to its purported buying agent, xxxxxxxxxxx,
xxxxxxAAJx, a Japanese corporation, and the appropriate
disclosure of those amounts.  We regret the delay in responding.

FACTS:

     AAI and AAJ are both wholly owned companies of xxxxx
Corporation, a Delaware corporation.  AAI was formerly known as x
xxxxxxxxxxxxxxxxxxxAATx.AAJ has been acting as AAI's buying agent
for many years.  In 1973, it was held that AAJ was AAT's bona
fide buying agent, and had acted as such since 1955.  A & A
Trading Corp. v. United States, 71 Cust. Ct. 55, 56 (1973).  It
is represented that except for the name change, the association
between AAI and AAJ has remained identical to the way it was
described in the court decision.  In summary, the court decision
describes that in all respects AAJ was under the control of AAT,
and AAJ performed the functions usually associated with the role
of buying agent and was paid a commission for those services.
     Now AAI is preparing to implement a new method by which to
compensate AAJ for its services.  Instead of paying AAJ on a
commission basis, AAI will compensate AAJ using a "cost-plus"
method as described in subparagraph 2.2 of the draft agreement
accompanying the request:

     2.2  Such compensation will reimburse AAj for all
          expenses, as specified below, plus xxxxx
          percent (x%) of the total amount of such
          expenses.

The expenses upon which the compensation will be based are
described in subparagraph 2.3 of the draft agreement as including
"any and all expenses which are recorded on AAJ's statutory
accounts which are incurred by AAJ on behalf of AAI in the
performance of the services enumerated in the attached schedule."
According to the request, the covered expenses include salaries,
incidental costs and other administrative expenses.  The draft
agreement provides that AAJ will invoice AAI for its services on
a monthly basis, and that AAI will remit to AAJ the total amount
payable within ten days of the invoice date.

     The services AAJ is to provide to AAI are limited to AAI's
purchasing operations in Japan and are listed on a Schedule
attached to the draft agreement.  The services consist of
obtaining quotations from manufacturers and vendors, providing
information on market and commercial conditions, furnishing
information on the availability of merchandise and prices of
competitive merchandise, placing orders with manufacturers and
vendors in the name of AAI, performing quality analysis of
manufactured products per AAI specifications including outgoing
inspection of merchandise prior to shipment, arranging delivery
and shipment of the merchandise and preparation of all necessary
shipping and customs documents and provision of such other
purchasing or market information services as may be requested by
AAI.  Subparagraph 4.1 specifically limits AAJ's services to
those listed in the Schedule, or any others upon which the
parties may agree to in writing.  The request states that AAI
retains complete authority to decide what merchandise it will
purchase and from which manufacturer, and that AAI retains the
right to examine AAJ's books and records, since its payments are
to be based on AAJ's costs.

     It is represented that usually the price of the merchandise
will be paid to the manufacturer in AAI's name by AAJ, AAJ having
obtained the funds by wire transfer from AAI's U.S. bank on an
open account, as authorized by AAI.  On other occasions AAI may
pay the manufacturer directly by open account and letter of
credit.  In your supplemental submission dated May 29, 1992, it
is stated that AAJ has no relationship or common ownership
interests with any of AAI's vendors, other than as purchasing
agent for AAI and none of the compensation received by AAJ from
AAI is paid to or shared with the vendors from whom AAI purchases
goods.  Subparagraph 3.5 of the draft agreement provides that
payments made to AAJ under the agreement "are not a condition of
the sale for export of the imported goods being valued."

     AAI proposes disclosing the payments to AAJ by providing
each Customs port through which it imports its merchandise a copy
of the final, signed agreement and a copy of the ruling issued
herein, assuming that it holds that the buying commission is not
included in the transaction value of the merchandise.
Thereafter, commission payment amounts would not be indicated
with each importation, as the payments will not be made on a
shipment-by-shipment basis, unless specifically requested by
Customs.

     It is your position that the payments made by AAI to AAJ are
not included in the transaction value of the imported
merchandise, and that the proposed method of disclosing the
buying commission payments to Customs is adequate.

ISSUE:

     Whether the described services to be provided by the agent
pursuant to the proposed agency agreement are those of a bona
fide buying agent.



LAW AND ANALYSIS:

     The services described above have long been considered
characteristic of a buying agent.  See e.g.., Jay-Arr Slimwear
Inc. v. United States, 12 CIT 133, 681 F.Supp. 875 (1988); J.C.
Penney Purchasing Corp. et al. v. United States, 80 Cust. Ct. 84,
C.D. 4741, 451 F. Supp. 973 (1978).  In addition, in Rosenthal-
Netter, Inc. v. United States, 12 CIT 77, 679 F.Supp. 21, aff'd.
861 F.2d 261 (Fed. Cir. 1988), the court noted that the factors
in deciding whether a bona fide agency relationship exists
include: the right of the principal to control the agent's
conduct, the transaction documents, whether the intermediary was
operating an independent business primarily for its own benefits,
and the existence of a buying agency agreement.  We have ruled
that "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."  Headquarters Ruling
Letter (HRL) 542141 dated September 29, 1980, also cited as TAA
No. 7.  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."
J.C. Penney Purchasing Corp., 451 F.Supp. at 983.

     We note that the primary considerations in determining
whether a bona fide buying agency exists pursuant to the proposed
agreement are addressed in your request, with the exception of
transaction documents, ie. entry documents, including invoices
between the parties.  Documents such as invoices between the
parties are not specifically addressed in your request, however
you state in your May 28, 1992 submission that "AAJ makes
payments to these vendors out of funds received from AAI," and
that merchandise charges including purchase price, storage and
transportation charges are "included in the f.o.b. cost of the
goods stated on AAJ's commercial invoice."  From these statements
it appears that AAJ is invoiced for the merchandise by the vendor
and that AAJ in turn invoices AAI for the merchandise.  This
arrangement would be consistent with the requirement set forth in
TAA No. 7:

     [A]n 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.

In this case it appears that the seller is providing an invoice
to the agent, AAJ, and this invoice would establish the price
actually paid or payable.  However, even if the seller were
providing an invoice directly to the importer, as long as the
agent will receive no remuneration from the seller, and the
importer pays the seller directly, the invoice to the importer is
sufficient for the purpose of establishing that the agent is not
a seller and determining the price actually paid or payable to
the seller.

          The services performed by the agent are those usually
performed by a bona fide buying agent.  If the terms of the
proposed buying agency agreement and those outlined above are
met, we are satisfied that the importer will exercise the
requisite degree of control over the buying agent.  Thus, on the
basis of the information you have provided regarding the
relationship between the importer, agent and seller, the totality
of the evidence indicates that the agent is in fact a bona fide
buying agent.  In addition, the submission of the agent's invoice
for the merchandise along with the seller's invoice would support
that the agent is not an independent seller and that the
commission is not part of the price paid or payable to the
seller.  Therefore, we conclude that the fees to be paid to the
agent pursuant to the proposed agreement constitute bona fide
buying commissions which are not included in the transaction
value of the imported merchandise.

     This ruling is subject to the condition that the actual
transaction between the importer and the agent is as
characterized above and in the proposed agreement.  It is the
position of Customs that "having legal authority to act as
buying agent and acting as buying agent [are] two different
matters" and Customs is entitled to examine evidence which proves
the latter.  U.S. Customs Service General Notice, 11 Cus. Bull.&
Dec. 15 (March 15, 1989).  See also Pier 1 Imports, Inc. v.
United States, 13 CIT 161, 708 F.Supp. 351 (1989); Jay-Arr
Slimwear Inc., supra; and Rosenthal-Netter, supra.

     With regard to the disclosure to Customs of the costs
incurred by AAJ and paid by AAI, the frequency of disclosure of
these costs must be determined by each port.  We agree that AAI
must provide a copy of the executed agreement between it and AAJ
to each port through which it imports its merchandise.  It is in
the discretion of each port to determine the frequency or method
by which it would require disclosure of the amounts paid to AAJ.
The appraising officer must be able to determine whether the
total fee exceeds the commission rate that is customary in the
trade for bona fide buying agents.  Documentary evidence
detailing the extent of services provided beyond those
customarily performed by such agents would need to be presented
to the appraising officer.  Whether or not we are provided with
actual amounts to be paid to AAJ, we are unable to authorize the
acceptance of the amounts.  Therefore this ruling does not
authorize that the amounts to be paid to AAJ under the proposed
agreement are acceptable.  In addition, this ruling is limited to
the proposed agreement, and is not applicable to any existing
agency agreement.

HOLDING:

     The fees to be paid to the agent pursuant to the proposed
agreement for assisting in the purchase of merchandise from the
foreign sellers are to be considered bona fide buying
commissions as long as the factors discussed above are followed.



                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division