Protest Number 2704-03-1011804; Buying Commissions

HQ W548460 March 25 2004 RR:IT:VA W548460 MMC CATEGORY: Valuation U.S. Customs and Border Protection Port Director 301 Ocean Blvd Long Beach, CA 90045 ATT: Gerald Rankin RE: Protest Number 2704-03-1011804; Buying Commissions Dear Port Director: This letter is in response to your December 12, 2003 memorandum regarding an Application for Further Review (AFR) of Protest Number 2704-03-1011804, submitted on behalf of World Class International, importer of record, (importer) by Grunfeld, Desiderio, Lebowitz & Silverman. The protest pertains to 6 entries that were liquidated on April 24, 2003, May 2, 2003, May 9, 2003, and May 30, 2003. These entries were all timely protested on July 23, 2003. The question presented is whether certain payments qualify as buying commissions and as such are not an addition to the price actually paid or payable. You have referred this protest for further review to us because there is a claim of a lack of uniform treatment by the ports. FACTS: The above protest concerns the appraisement of merchandise from China including scanner radios, time alarm calendars, sports bags and coffee mugs. The appraised value includes certain commissions paid by the importer to its related company, Donex Company Limited. The importer claims that these payments are non-dutiable buying commissions. According to counsel the alleged buying agent is a "wholly owned buying office", (subsidiary) of the importer (parent). As a wholly owned buying office, counsel asserts that Donex Company Limited acts as the importer's buying agent under the direction and control of the importer. There is no buying agency agreement between the two. Counsel asserts that because the importer "wholly owns" Donex Company Limited the degree of control it exercises over Donex Company Limited is such that a buying agency agreement is not necessary. In support of the claim that Donex Company Limited is a buying agent for the importer, for each entry in question, counsel has provided a copy of a manufacturer's invoice to the alleged buying agent and a copy of Donex Company Limited's "Customs invoice" to the importer. At the bottom of each Customs invoice appears a handwritten note adding 7% to the invoice amount. This note was apparently written by the reviewing Customs official. No other documentation was supplied. No separate invoice between the importer and the alleged buying agent for its services was provided. ISSUE: Whether the importer has shown that the payments in question are bona fide buying commissions such that they should not be added to the price actually paid or payable for the merchandise. 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 primary 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 commissions incurred by the buyer with respect to the imported merchandise. 19 U.S.C. 1401 a(b)(1). Pursuant to section 402(b)(4) of the TAA, the term "price actually paid or payable" is defined in pertinent part as "the 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. 19 U.S.C. §1401a(b)(4). Bona fide buying commissions, however, 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. See, J. C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973, 983, 80 Cust.Ct. 84, 95, C.D. 4741 (1978). 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). 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 courts have also examined such factors 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 merchandise 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. Furthermore, the existence of a buying agency agreement has been viewed by courts as supporting the existence of a buying agency relationship. Dorco Imports v. United States, 67 Cust. Ct. 503, 512, R.D. 11753 (1971). CBP has consistently ruled that the burden is on the importer to establish the existence of a bona fide agency relationship. See Headquarters Ruling Letter (HRL) 544987 dated July 18,1994. In addition, the evidence submitted to Customs must clearly establish the fact of a bona fide buying agency. HRL 544610 dated February 23, 1991. In the CBP Informed Compliance Publication entitled "Buying and Selling Commissions" it the CBP Informed Compliance Publication entitled "Buying and Selling Commissions" it is stated that the existence of a bona fide buying agency commission. However, it will be very "the absence of a buying agency agreement does not necessarily preclude difficult to establish one without it." The information submitted in connection with the instant protest is insufficient to support the existence of a bona fide agency relationship. First, no information has been provided regarding the services performed by the alleged buying agent on behalf of theimporter. Second, the mere fact that the importer owns the alleged buying agent does not demonstrate the requisite control over the transactions in question. Parents and subsidiaries buy and sell goods from each other all the time. There is no evidence in the record that the importer exercised control over the alleged buying agent with respect to the matters entrusted to it for specific transactions. Similarly, there is no evidence that the alleged buying agent acted primarily for the benefit of the importer, or that the importer could have purchased the imported merchandise directly from the manufacturers. Moreover, the importer has failed to submit invoices from the alleged buying agent to the importer for the alleged buying commission. Finally, no buying agency agreement exists between the importer and the alleged buying agent. In short, here the only evidence that has been submitted is: invoices from the seller to the alleged agent, invoices from the alleged agent to the buyer for the same amount and the statements by counsel that the alleged agent is wholly owned by the buyer. This evidence is not enough to establish a bona fide buying agency relationship. HOLDING: Based upon the information submitted in connection with this AFR/protest and for the reasons stated above, we find that the commissions paid to the alleged agent in this case do not constitute bona fide buying commissions. Therefore, the protest should be DENIED IN FULL. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing 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, Freedom of Information Act and other public access channels. Sincerely, Virginia L. Brown, Chief Value Branch