Commissions; Price Actually Paid or Payable

HQ H301531 March 5, 2019 OT:RR:CTF:VS H301531 RMC CATEGORY: Valuation Bruce Burniece World Metal, LLC 10701 Corporate Drive, Suite 184 Stafford, TX 77477 RE: Commissions; Price Actually Paid or Payable Dear Mr. Burniece: This is in response to your letter, dated October 11, 2018, on behalf of World Metal, LLC (“World Metal”). In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on whether certain commissions should be taken into account when determining the price actually paid or payable for merchandise imported by World Metal. FACTS: World Metal, a chemical distributor based in the United States, imports various products from China. A Chinese entity supplies World Metal with inorganic metal salt “copper chloride dihydrate.” For illustrative purposes, World Metal provided U.S. Customs and Border Protection (“CBP”) with sample documentation from a previous import transaction involving a purchase of copper chloride dihydrate from the Chinese supplier. The sample documentation includes a sales contract, an invoice, and a commission agreement. The sales contract specifies that World Metal LLC will purchase a quantity of copper chloride dihydrate from the Chinese supplier at a specific price, CIF New Albany, Indiana. In addition, the sales contract lists a separate amount for a commission and notes that “Commission [ ] is included.” The total price listed for the merchandise is $66,300.00. The invoice issued by the seller to World Metal LLC also lists $66,300.00 as the total amount of the transaction. The payment information instructs World Metal LLC to pay the seller for the merchandise and to pay the commission to a separate bank account belonging to an entity in Hong Kong. The commission agreement, which pre-dates the sales contract and the invoice, was issued on the seller’s letterhead. It lists World Metal as “Party A” and the seller as “Party B.” It references the sales contract number and invoice number for the transaction described above and provides that the commission is to be remitted to the Hong Kong entity. Upon CBP’s request, World Metal also provided a copy of the agreement with the Hong Kong entity. The title of the document is “Trade & Market Cooperation Agreement.” It lists the Hong Kong entity as “Party A” and the seller as “Party B.” The agreement includes a list of rights and obligations whereby the Hong Kong entity agrees to perform the following services (among others) for the seller: providing customer information in the international market, facilitating contracts, providing commercial information on the purchasing factory, investigating buyers’ credit, and assisting with legal formalities. ISSUE: Whether the commissions paid by the importer are buying commissions that should be excluded from the price actually paid or payable for the merchandise. LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with § 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 enumerated statutory additions. 19 U.S.C. § 1401a(b)(1). For purposes of this ruling, we assume that transaction value is the proper method of appraisement for the merchandise. The price actually paid or payable shall be increased by the amounts attributable to the five statutory additions enumerated in 19 U.S.C. § 1401a(b)(1)(A) through (E) only to the extent that each such amount is not otherwise included within the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). 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). The enumerated additions to the price actually paid or payable include the value of any selling commissions incurred by the buyer with respect to the imported merchandise. A “selling commission” is any commission paid to the seller’s agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller. 19 C.F.R. § 152.102(b). Bona fide buying commissions, however, are not included in transaction value as part of the price actually paid or payable or as an addition thereto. See Pier 1 Imports, Inc. v. United States, 13 Ct. Int’l Trade 161, 164, 708 F. Supp. 351, 354 (1989); Rosenthal-Netter, Inc. v. United States, 12 Ct. Int’l Trade 77, 78, 679 F. Supp. 21, 23 (1988), aff’d, 861 F.2d 261 (Fed. Cir. 1988); and Jay-Arr Slimwear, Inc. v. United States, 12 Ct. Int’l Trade 133, 136, 681 F. Supp. 875, 878 (1988). The existence of a bona fide buying commission depends upon the relevant factors of the individual case. J.C. Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). However, the importer has the burden of proving that a bona fide agency relationship exists and that payments to the agent constitute bona fide buying commissions. Pier 1 Imports, Inc., 13 Ct. Int’l Trade at 164; Rosenthal-Netter, Inc., 12 Ct. Int’l Trade at 78; and New Trends, Inc. v. United States, 10 Ct. Int’l Trade 637, 640, 645 F. Supp. 957, 960 (1986). 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. See Headquarters Ruling 542141 dated September 29, 1980, also cited as TAA No. 7. Here, World Metal has not met its burden of demonstrating that the payments that it will make to the Hong Kong entity are bona fide buying commissions. Although the commission agreement appears to require World Metals to pay the commission arising from the transaction, the “Trade & Market Cooperation Agreement” does not list World Metal as a party to the agreement. The terms of this agreement demonstrate that the Hong Kong entity will work not on behalf of World Metal, but on behalf of the seller. The Hong Kong entity will provide a range of services aimed at benefitting the seller, including providing information on buyers, facilitating contracts, investigating buyers’ credit, and assisting with legal formalities. Because the Hong Kong entity will be “controlled by” and will “work[ ] for or on behalf of, the manufacturer or seller,” commission payments made to the Hong Kong entity will be selling commissions incurred by the buyer. See 19 C.F.R. § 152.102(b). Accordingly, the payments are to be included in the price actually paid or payable for the merchandise. HOLDING: The commissions paid by the importer are not buying commissions and are to be included in the price actually paid or payable for the merchandise. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch