HQ 544987: Application for Further Review of Protest 1001-90-000730; buying agency; related parties; dutiability of commissions; insufficient evidence of payments

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 544987
                                 
                          July 18, 1994

VAL CO:R:C:V 544987 LR

CATEGORY:  Valuation

Area Director of Customs
J.F.K. Area
Jamaica, N.Y. 11430

RE: Application for Further Review of Protest 1001-90-000730;
    buying agency; related parties; dutiability of commissions;  
    insufficient evidence of payments

Dear Sir:

     The above-referenced protest and application for further
review was filed by counsel on behalf of El Greco Inc.
(protestant) against your decision appraising the goods at the
invoice value, plus ten percent.  We regret the delay in
responding.

FACTS:

     El Greco is an importer of footwear.  The 70 entries which
are the subject of this protest and application for further
review concern the importation of footwear from Brazil during
1988 and 1989 from various factories.  Customs appraised the
footwear at the invoice value plus ten percent.    

     Protestant alleges that there is no statutory or regulatory
basis for the ten percent addition to the invoice values, and
even if there is a basis, the protestant has not been made aware
of such basis, as mandated by 19 CFR 152.101(d).  Therefore, the
protest alleges that the decision to assess duty on El Greco's
importations from Brazil at the invoice value plus ten percent is
arbitrary, capricious, and a violation of the customs laws and
regulations.  Counsel claims that despite its requests for
specific information regarding the ten percent addition,
including a FOIA request, it was not notified why this addition
was made.   It claims that the CF 29 issued to protestant gave no
reason for the value advance, other than to say "based on
information supplied by Regulatory Audit, all Brazilian imports
will be appraised at the FOB value net pkd. plus 10%."      
     
     Your position is that the results of the Regulatory Audit's
Division's report and the recommendation of the Special Agent in
Charge justify the ten percent value advance to determine the
transaction value of the shipments.

     The record indicates that the Regulatory Audit Division, New
York Region, performed a review of the accounting records and
importation documents of protestant and issued a report dated
December 31, 1990.  The audit encompassed the period 1983 through
1986.  The report indicates that due to a lack of cooperation, it
was necessary to obtain the necessary records by means of a
Customs summons.  The report concludes that during the period
1984 through 1986 protestant intentionally omitted dutiable
assists and undervalued its merchandise from Korea.  The report
documents the undervaluation of footwear from Korea in connection
with 19 consumption entries filed during this period.  

     The above findings do not relate to the entries which are
the subject of the protest which were filed much later (1988 and
1989) and concern the importation of footwear from Brazil, not
Korea.  Although the report indicated "numerous payments being
made to Buying Agents in various countries which we have
determined to be dutiable"  and that "a supplemental audit report
will be issued which will address other areas of possible
undervaluations", we have been unable to obtain a copy of such a
report.  We were orally advised that no supplemental audit report
was prepared.        

     After discussions with various import specialists and
auditors in the New York Region concerning the protest, we were
orally advised that the ten percent addition was for selling
commissions El Greco paid in connection with the imported goods. 
However, we have been unable to obtain any documentation of such
payments.  

     After this office advised counsel that it appeared that the
ten percent addition related to commissions, counsel filed a
supplemental submission dated October 23, 1992, addressing this
issue.  Counsel contends that such addition was not proper
because any commissions El Greco paid in connection with the
imported merchandise were non-dutiable buying commissions. 
Counsel advised that in sourcing from Brazil, El Greco utilizes
two buying agents:  Sapatus Assessoria & Lancamentos Ltd.
("Sapatus") and the Alec Corporation ("Alec", the U.S. arm of
"GVD").  Counsel points to Headquarters Ruling Letter (HRL)
544265, dated February 7, 1990, which found that based on the
information submitted, the relationship between El Greco and
Sapatus was that of a bona fide buying agency.  (This prospective
ruling was issued in response to El Greco's November 17, 1988,
ruling request).  Counsel indicates that in October 1989, El
Greco entered into a written buying agency agreement with the
Alec.  A copy of this agreement was submitted.  Counsel claims
that both the favorable ruling and the buying agency agreement
demonstrate the bona fides of the buying agency relationships.

ISSUE:

     Whether the decision to add ten percent to the invoice value
to obtain the appraised value was correct.

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 additions, including any selling commission
incurred by the buyer with respect to the imported merchandise.  

     Section 402(b)(4) of the TAA provides in relevant part:

     (A) The term "price actually paid or payable" means the
     total payment (whether direct or indirect, and exclusive of
     any costs, charges, or expenses incurred for transportation
     and related services incident to the international shipment
     of the merchandise from the country of exportation to the
     place of importation in the United States) 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).  Additions to the price actually paid or
payable will be made only if there is sufficient information to
establish the accuracy of the additions and the extent to which
they are not included in the price.  19 CFR 152.103(c).  If
sufficient information is not available with respect to any
amount, the transaction value of the imported merchandise
concerned shall be treated, for purposes of this section, as one
that cannot be determined.  See HRL 544177, September 19, 1988. 

     The only issue which is presented in this case is whether
the ten percent was a proper addition to the invoice value.   
For purposes of this decision, we assume that transaction value
is the proper basis of appraisement and that the invoice value
represents the price actually paid or payable for the imported
merchandise.  

     Although we have been advised that the value advance was for
dutiable selling commissions, the record contains little evidence
relating to El Greco's payment of commissions.  There is a report
of an importer's premises visit, dated March 3, 1987, indicating
that El Greco pays a buying commission to "Sapatus" and "GVD"
that ranges from 5 to 10 percent.  There are copies of two
checks, dated May 5, 1983, from El Greco to Cezar Roberto De
Olivera, one of the principals of Sapatus.  And, there is some
evidence that one of the agents, Sapatus, and one of the
manufacturers, Calcados Dikora Ltda. ("Dikora"), are related
parties.  This relationship was specifically discussed in HRL
544265:

     The newly disclosed facts indicate that the agent and the
     manufacturer are related.  The burden is therefore, on the
     importer to establish that the agent acted solely on behalf
     of the importer and that the relationship of the agent and
     the manufacturer does not encroach upon the principal-agent
     relationship.  In this instant case, the services to be
     performed by the agent are indicative of those generally
     provided in a buying agency relationship.  Further you have
     presented evidence which supports the fact that the
     commissions paid to the agent by the importer have not in
     the past inured to the benefit of the manufacturer.  You
     further state that the future action of the agent will
     conform to the past action of the agent.

     Based upon the treatment of the past transactions by the
     import specialist and the information you have provided
     regarding the prospective transactions, the relationship in
     question appears to be a bona-fide buying agency.  Note
     however, the actual determination as to the existence of a
     buying agency will be made by the appraising officer at the
     applicable port of entry... 

In a request for reconsideration of this ruling, your office
advised that no contract exists establishing a formal agency
agreement, that the agent has refused to allow Customs to examine
his books, and that the agent owns a 40% interest in the factory. 
Noting these circumstances, in a memorandum dated July 30, 1990,
we advised that:

     The burden of proof as to whether or not a bona fide buying
     agency relationship exists rests with the importer, and we
     are not satisfied that the importer will exercise the
     requisite degree of control over the agent.  As the importer
     has not met his burden of proof as to the existence of a
     bona fide buying agency and does not allow Customs to verify
     the facts pertaining to the importation of the merchandise
     into the United States, the concerned appraising officer has
     the responsibility of making the determination as to whether
     the buying commission are bona fide.  

     The problem in the instant case, is that there is no
indication in the record that El Greco made additional ten
percent payments in connection with the imported footwear.  
Although we have been orally advised that the ten percent
addition represents selling commission paid by El Greco in
connection with the importation of the footwear, the record
contains no evidence which reflects these payments.  As indicated
above, the audit report does not contain any such evidence.  Our
attempts to obtain additional evidence from the appropriate
customs offices concerning the ten percent addition were
unsuccessful.  Moreover, while the expressed concern regarding
HRL 544265, supra, was whether there was a bona fide buying
agency relationship between Sapatus and Dikora, the importations
which are the subject of this protest involve more than one agent
and various manufacturers.  If the value advance was meant to
address this issue, there is no indication why it was done across
the board.
  
     Assuming the addition was for commissions, there appears to
be no basis for the ten percent figure.  The only mention of a
ten percent commission is in a 1987 import specialist report
indicating that El Greco pays a buying commission to Sapatus and
GVD that ranges from five to ten percent.  The buying agency
agreement submitted by counsel between El Greco and Alec refers
to a seven percent commission.  HRL 544265, regarding commissions
El Greco paid to Sapatus, refers to a five percent commission.    

     As provided in 19 CFR 152.103(c), additions to the price
actually paid or payable will be made only if there is sufficient
information to establish the accuracy of the additions and the
extent to which they are not included in the price.  In this
case, there is insufficient information to establish the accuracy
of the ten percent addition.  Based on the record before us, the
ten percent addition cannot be supported.

HOLDING:

     The decision adding ten percent to the invoice value to
obtain transaction value is not supported by the record.  
Therefore, you are directed to grant the protest. In accordance
with Section 3A(11)(b) of Customs Directive 099 3550-065, dated
August 4, 1993, Subject: Revised Protest Directive, this decision
should be mailed by your office to the protestant no later than
60 days from the date of this letter.  Any reliquidation of the
entry in accordance with the decision must be accomplished prior
to mailing of the decision.  Sixty days from the date of the
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 the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act and other
public access channels.

                                     Sincerely,




                                     John Durant, Director
                                     Commercial Rulings Division