HQ 545174: Protest and Application for Further Review No. 2809-92-101397;buying agent; payments not bona fide commissions

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 545174

                        September 7, 1994



VAL CO:R:C:V 545174 CRS

CATEGORY:  Valuation

District Director
U.S. Customs Service
P.O. Box 2450
San Francisco, CA 94126

RE:  Protest and Application for Further Review No. 2809-92-101397;
buying agent; payments not bona fide commissions

Dear Sir:

     This is in reply to your memorandum dated December 11, 1992,
under cover of which you forwarded the above-referenced Protest and
Application for Further Review dated August 13, 1992, filed by
counsel George R. Tuttle, P.C., on behalf of Playhouse Import &
Export, Inc. (hereinafter the "buyer").  We regret the delay in
responding.

FACTS:

     The buyer is an importer and distributor of parts and
accessories for collectible dolls such as shoes, eyeglasses,
violins, eyes and limbs.  The buyer purchases these items from
cottage industry producers in the Republic of China (ROC).  In
order to assist it in locating suppliers and placing orders, the
buyer employs the services of a buying agent, Jon Universal
Commercial Co. (the "agent").

     The agent locates potential suppliers in the ROC and arranges
for the buyer to meet with them.  The agent acts as interpreter
during these meetings since the manufacturers generally do not
speak English.  During the meetings the buyer examines merchandise
manufactured by the producers and discusses pricing; however orders
are not usually placed at this time.  When orders are placed the
agent assists in their submission to include the issuance of
shipping instructions and the performance of quality control
inspections.  In return for its services the buyer pays the agent
a commission.  While the buyer has employed the services of the
agent since 1986, the arrangement was only reduced to writing in
1992 with the signing of a buying agency agreement (the
"agreement").  A signed copy of the agreement was attached to the
protest and application for further review.

     Prior to December 1991, the agent issued two invoices to the
buyer.  One was identified as a "credit" invoice; the other as a
"real" invoice.  The "real" invoice identified the merchandise
shipped, its quantity, and its unit price and price in New Taiwan
dollars and its conversion value in U.S. dollars.  The unit price
of each item included a percentage for the agent's commission.  The
"credit" invoice identified the merchandise shipped, its quantity,
and its unit price and total price in U.S. dollars only, but did
not contain an amount for the agent's commission.  The "credit"
invoice was supplied to Customs for use in appraisement and the
amount of the commission was not reported.

     After December 1991, the buyer revised its invoicing
procedures.  The agent now issues only one invoice to the buyer. 
This invoice describes the merchandise shipped and identifies the
seller's price in U.S. dollars.  In addition, the invoice
identifies the name of the seller and itemizes the agent's
commission of fifteen percent of the total invoice price.  The
imported merchandise is packed in cartons bearing the buyer's
shipping mark.  Counsel states that the sellers do not issue
commercial invoices but, instead, return an acknowledged copy of
the agent's purchase order.

     Payment is made by the buyer to the agent by means of wire
transfer for the full amount of a shipment in U.S. dollars,
including the commission.  The agent then pays the individual
sellers in New Taiwan dollars.  Prior to January 1992, payments to
the sellers were made in cash; however, since then payments have
been made by check payable in New Taiwan dollars.  Counsel notes
that given the circumstances of the transaction, the agent must
continue to be the party to make payment to the sellers.

ISSUE:

     The issue presented is whether commissions paid to the agent
constitute bona fide buying commissions such that they are not
included in the transaction value of the imported merchandise.

LAW AND ANALYSIS:

     Merchandise imported in 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 is transaction value, defined as
"the price actually paid or payable for the merchandise when sold
for exportation to the United States," plus certain statutorily
enumerated additions.  19 U.S.C.  1401a(b)(1).  For the purposes
of this ruling only we have assumed that the appropriate basis of
appraisement is transaction value.

     Bona fide buying commissions 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 (Cust. Ct.
1978).  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:  whether the purported agent's
actions were primarily for the benefit of the principal; whether
the principal or the agent was responsible for the shipping and
handling and the costs thereof; whether the importer could have
purchased 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.

     Finally, 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.  Headquarters Ruling Letter (HRL) 542141 dated September
29, 1980 (TAA No. 7).  Moreover, 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.  Where no separate invoice for the commission was provided
and where the commission was calculated on the total invoice value,
Customs has held that commission paid to an agent are included in
the transaction value of the imported merchandise.  E.g., HRL
544668 dated July 15, 1991.

     However, in regard to the instant protest the buyer has not
provided a separate invoice from the actual foreign seller. 
Instead, in order to attempt to establish that the agent was not
the seller the buyer has merely supplied a copy of the agent's
invoice allegedly stamped by the seller.  In addition to the fact
that there is no separate invoice, the commission is calculated on
the basis of the total invoice value of the merchandise.  The
documentation in this case is insufficient to support the
contention that the commissions paid to the agent constitute bona
fide buying commissions.  Consequently, we do not reach the issue
of whether the relationship between principal and agent otherwise
constitutes a bona fide buying agency relationship.  Other issues
concerning the imported merchandise were raised in Playhouse Import
& Export, Inc. v. United States, 28:7 Cust. Bull. & Dec. 70, No.
92-08-00587, slip op.94-14 (January 28, 1994), reh'g denied, 28:23
Cust. Bull. & Dec. 25, No. 92-08-00587, slip op. 94-79 (May 13,
1994).

HOLDING:

     Based on the information presented, the commissions paid to
the agent do not constitute bona fide buying commissions. 
Accordingly, you are directed to deny the protest in full.  A copy
of this decision should be sent to the protestant together with the
Form 19 Notice of Action.

     In accordance with section 3A(11)(b), Customs Directive 099
3550-065, dated August 4, 1993, this decision should be mailed by
your office to the protestant no later than sixty days from the
date of this letter.  Any reliquidation of the entry in accordance
with this decision must be accomplished prior to the mailing of the
decision.  Sixty days from the date of this decision 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 vis the Diskette Subscription Service,
Freedom of Information Act, and other public access channels.

                         Sincerely,





                         John Durant, Director
                         Commercial Rulings Division