HQ 545519: Request for Internal Advice 105/93 Concerning the Dutiability of Certain 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 545519
                          June 30, 1994
VAL CO:R:C:V  545519 er

CATEGORY: VALUATION

District Director
Seattle District

RE:  Request for Internal Advice 105/93 Concerning the
     Dutiability of Certain Commissions.

Dear Sir:

     This is in response to your memorandum dated December 10,
1993, forwarding a request for internal advice dated July 27, 1993,
submitted by Billy J. Gwin of Geo. S. Bush & Co., Inc. on behalf of
their client, Ace Novelty Co. ("Ace").  We regret the delay in
responding.

FACTS:

     The dutiability of the buying commissions paid by Ace to
various buying agents has been a matter of disagreement between
Customs' offices at Seattle, Los Angeles and Chicago.  It is
Seattle's position that the buying commissions are not dutiable;
however, both Los Angeles and Chicago disagree, believing that the
monies paid to the buying agents are dutiable as part of the price
actually paid or payable for the imported merchandise.  

     It is the practice of the buying agents to prepare the
invoices itemizing the imported merchandise.  The invoices identify
ACE as the purchaser and consignee, and specify that the
merchandise was shipped on purchaser's account and risk.  The
invoices also identify the manufacturer from whom the merchandise
is purchased and the number of the purchase order originally issued
from ACE that initiated the sale between the manufacturer and ACE. 
Next to each merchandise itemization, a unit price appears, which
price includes the x percent (x%) buying commission payable to the
buying agent responsible for preparing the invoice.  The last page
of the invoice reveals a total FOB (country of exportation) value,
commission included.  Below the total FOB value, the amount for the
buying commission is identified and is calculated at x percent (x%)
of the total FOB (country of exportation) value.  Underneath the
amount for the buying commission is the figure representing the FOB
value less the buying commission, which amount is described on the
invoice as the total Ex-factory value.  


     Because the amounts for the commissions are included in the
itemized unit value amounts listed on the invoice prepared by the
buying agent, and are deducted from the total FOB invoiced value,
it is Los Angeles' and Chicago's position that the buying
commissions constitute part of the price actually paid or payable
for the merchandise.  Seattle's position is that before any
commission may be considered nondutiable, the bona fides of the
claimed agency relationship between the buyer and the agent must be
examined, and that if Customs is satisfied that the buying
commissions are bona fide, then the fact that the commission
amounts are included in the invoiced unit values, and deducted from
the total FOB invoiced value, does not disqualify them from
nondutiable status.

ISSUE:

     Whether buying commissions calculated based on a percentage of
the total invoiced FOB value, and deducted from the total invoiced
FOB value, are deductible from the price actually paid or payable.

LAW AND ANALYSIS:

     We assume the merchandise is appraised under transaction value
as provided for under section 402(b) of the Tariff act of 1930, as
amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). 
Section 402(b)(1) of the TAA provides, in pertinent part, that the
transaction value of imported merchandise is the "price actually
paid or payable for the merchandise when sold for exportation to
the United States", plus enumerated additions.

     The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as the "total payment (whether director or
indirect, and exclusive of any costs, charges, or expenses incurred
for transportation, insurance, and related services incident to the
international shipment of the merchandise . . .)  made, or to be
made, for the imported merchandise by the buyer to, or for the
benefit of, the seller."

     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.  Eg., 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
bona fide buying commissions.  Rosenthal-Netter, 679 F.Supp. at 23;
New Trends, Inc. v. United States, 645 F.Supp. 957, 960, 10 CIT 637
(1986).

     In a general notice published in the Customs Bulletin on March
15, 1989, Customs provided an explanation of its position on buying
commissions.  The following excerpts illustrate that position:

     While bona fide buying commissions are nondutiable,
     evidence must be submitted to Customs which clearly
     establishes that fact.  In this regard, Headquarters
     Ruling Letter 542141, dated September 29, 1980, also
     cited as TAA No. 7, provides:

          ...an 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.  Furthermore,
          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.

     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 at 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 agents' 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.

     In the instant case, Seattle is satisfied that the duties
performed by the agents are those typically performed by bona fide
buying agents.  In reaching this conclusion, Seattle examined the
buying agency agreements between the parties, copies of
manufacturers' invoices and payment records.  The buying agency
agreements specify that the agent will arrange for  shipment of the
merchandise, visit manufacturers and/or other agents of the buyer,
collect samples, submit the samples to the buyer, report regularly
to the buyer about the market situation and availability of
merchandise and obtain price quotes.  Upon receipt of written
instructions from the buyer, the agent places orders on behalf of
the buyer, verifies that the quantity, quality and condition of
merchandise conform to specifications and inspects finished
products prior to packing.  The agreement further states that the
agent will never act as a seller in the transactions involving ACE. 


As noted above, the invoices identify the manufacturer of each unit
of merchandise listed. 

     Neither Chicago nor Los Angeles discussed whether the agency
relationship appeared to be bona fide in any or all respects, aside
from the method of invoicing.  In a memorandum dated January 4,
1994, the National Import Division agrees with Seattle's position
that the buying commission should not be considered dutiable when
the only factor that would cause Customs to find otherwise is an
invoicing practice.  

     The facts in the instant case are very similar to those in
Monarch Luggage Co., Inc. v. United States, Slip Op. 89-91 (June
28, 1989).  There the court found that the evidence submitted did
establish that the agents were bona fide buying agents.  However,
with respect to certain entries, the invoices submitted indicated
that the commissions were calculated by dividing the FOB price by
a specific figure.  The commissions were then deducted from the
invoiced FOB price of the merchandise.  Citing to BBR Prestressed
Tanks, Inc., et al. v. U.S., 64 Cust. Ct. 787, 788, A.R.D. 265
(1970), the court found that because the amounts attributable to
the buying commissions were part of the price actually paid or
payable for the merchandise, the amounts were properly included in
the dutiable value of the imported merchandise.  For the other
entries made after late 1981, a different invoicing method was used
whereby the commission was calculated by multiplying the FOB price
by a certain amount, and remitting the commission amount separately
by check from the buyer to the agent.  Under these circumstances
the court found that the commissions became an amount separate from
and in addition to the price for the merchandise.  Thus, these
commissions were properly excluded from the dutiable value of the
merchandise.

     In the instant case, as in Monarch, there appears to be no
question, as far as Seattle is concerned, that the agents are bona
fide agents.  However, in view of the court's decision in Monarch,
because the subject buying commissions are calculated by deducting
an amount from the invoiced FOB total, the commissions must be
included in the dutiable value of the merchandise.  If these
amounts were calculated by adding an amount to the invoiced total
it would appear that the commissions would not be dutiable, because
in all other respects, the bona fides of the agency relationship
are satisfied.  As noted by the court in Monarch, a mere change in
the method of invoicing, if it is only in form and really not in
substance, would not suffice to change [the party] from a selling
agent, if it had been one, to a buying agent."  Monarch at 525. 
However, where the form follows the actual substance, then the
change in invoicing techniques from a previously unacceptable
method to a method which does not include the commissions in the
price actually paid or payable, may serve to render nondutiable
those commissions which are bona fide.  

     The "form" of the invoicing is a significant factor in
deciding whether the commissions paid to bona fide buying agents
are nondutiable.  Where those commissions are deducted from the
total FOB invoiced value of the goods, they are dutiable and
Customs has no authority to treat them as anything other than
dutiable as part of the price actually paid or payable for the
imported merchandise.  See, TAA 7; HRLs 542362, 542176, 542358,,
542785, 543023, 543292, and 544426.

     As a reminder concerning the determination regarding the
existence, or not, of a bona fide buying agency relationship, such
a decision is always factually specific.  Thus, the actual
determination concerning the agency will be made by the appraising
officer at the port of entry and will be based on the entry
documentation submitted.  The totality of the evidence must
therefore demonstrate that the purported agent is in fact a bona
fide buying agent and not a selling agent nor an independent
seller.  See, 23:11 Cust. Bull. & December 9, General Notice dated
March 15, 1989; HRL 542121 (September 29, 1991).  The manner of
invoicing is an issue which is separate from the determination
regarding the bona fides of an agency relationship, but,
nonetheless, must be properly performed if bona fide buying
commissions are to be nondutiable.

HOLDING:

     Where buying commissions are calculated by deducting an amount
from the total FOB invoiced value, such commissions are dutiable as
part of the price actually paid or payable, regardless of whether
the buying agency relationship is bona fide in all other respects.

                                        Sincerely,



                                        John Durant, Director
                                        Commercial Rulings Division