Request for Internal Advice regarding the dutiability of commissions paid to Peter Trading Co., Ltd.

HQ W546604 August 8, 1997 RR: IT:VA W546604 er CATEGORY: Valuation Port Director U.S. Customs Irving, Texas RE: Request for Internal Advice regarding the dutiability of commissions paid to Peter Trading Co., Ltd. Dear Sir: This is in response to the request for internal advice, dated October 18, 1996, submitted by Evans and Wood & Co. regarding the dutiability of commissions paid to Peter Trading Co., Ltd. ("Peter Trading") by Hobby Lobby Stores, Inc. ("Hobby Lobby") and forwarded to this office by you under separate cover dated December 17, 1996. We regret the delay in responding. FACTS: The importer, Hobby Lobby, imports a variety of merchandise from China. Hobby Lobby uses the services of Peter Trading to procure this merchandise and to import it into the U.S. Hobby Lobby claims that Peter Trading is a bona fide buying agent and that commissions paid to Peter Trading by Hobby Lobby should be non-dutiable. On January 19, 1995, this office issued an internal advice (HRL 545744) regarding this same matter. In that decision, this office determined that the information submitted was insufficient to support the existence of a bona fide buying agency relationship between Hobby Lobby and Peter Trading. We noted that no invoices were submitted from the manufacturer. The only invoices submitted were prepared by Peter Trading. The purchase orders submitted were from Hobby Lobby and were made out to Peter Trading, not to the manufacturer. Additionally, payment for the merchandise was made by Hobby Lobby to Peter Trading and not to the manufacturer. Accordingly, Customs determined that the commissions paid to Peter Trading by Hobby Lobby were dutiable. On May 24, 1996, Evans and Wood resubmitted a new request for internal advice stating that a new buying agency agreement was in existence between the importer and Peter Trading. That agreement was executed on February 28, 1995. -2- In a letter dated May 31, 1996, the Port Director informed Evans and Wood that the new buying agency agreement alone is insufficient to establish Peter Trading as a bona fide buying agent. The Port Director explained that in order for Evans and Wood to establish that Peter Trading was acting as a bona fide buying agent, the importer would have to submit evidence identifying the actual seller, who was controlling the purchase of the imported merchandise and who was making the sale. The Port Director itemized the types of documents and evidence that would constitute evidence that the sale took place between the importer and the manufacturer with Peter Trading acting in the capacity as a bona fide buying agent. In response to the Port Director's letter, Evans and Wood submitted the new request for internal advice along with a variety of documents, including a copy of the new buying agency agreement which characterizes Peter Trading as a buying agent with the authority to prepare commercial invoices when an invoice cannot be obtained from the manufacturer. A review of the other documents submitted reveals the purchase orders from Hobby Lobby are still made out to Peter Trading, not to the manufacturer, and indicate that Peter Trading is the seller. There is no invoice from the manufacturer. The only invoices regarding the merchandise sold are those prepared by Peter Trading which only make mention of the manufacturer. The sales confirmation documents are prepared by Peter Trading, not the manufacturer, and identify Peter Trading as the seller of the merchandise. The proof of payment documents submitted also identify the seller as Peter Trading and make no reference to the manufacturer. Other correspondence submitted indicates that Peter Trading, not the manufacturer, is responsible for failure to meet the terms of the purchase order/contract. No correspondence was submitted between Hobby Lobby and the manufacturers or between Peter Trading and the manufacturers indicating that the manufacturers sold merchandise to Hobby Lobby. Additionally, a letter from Hobby Lobby dated June 23, 1994, indicates that Hobby Lobby does not pay a commission on purchases made directly from Peter Trading's showroom. ISSUE: Whether the new buying agency agreement and the additional documents submitted constitute evidence that Peter Trading is acting in the capacity as a bona fide buying agent for Hobby Lobby, such that the commissions paid to Peter Trading would not be dutiable. LAW AND ANALYSIS: Merchandise imported into the U.S. 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 -3- actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions. 19 U.S.C. 1401a(b)(1). Buying commissions are not specifically included as one of the additions to the "price actually paid or payable". In HRL 545744, supra, we assumed that transaction value was the correct method of appraisement for the subject merchandise. The same assumption applies equally to this decision. In HRL 545744, supra, we stated that: (A]n 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. [HRL 542141 (TAA#7), dated September 29, 1980) 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 the subject request for internal advice there is still no invoice from the manufacturer. The absence of this piece of documentation, alone, results in a determination that no buying agency exists. Moreover, the remainder of the documentation submitted, as described above in the facts, strongly supports the conclusion that Peter Trading is a seller and not a buying agent. Indeed, the documents submitted go so far as to refer to Peter Trading as the actual "seller" of the imported merchandise. With regard to buying agency agreements, we stated in HRL 545744, supra, that: The existence of a buying agency agreement tends to support a find [of] a "bona fide" buying agency relationship. Although a buying agency agreement was presented in this case, it is the position of Customs that having legal authority to act as a buying agent and acting as a buying agent are two separate matters and Customs is entitled to examine evidence which proves the latter. U.S. [Customs] Service General Notice, 11 Cus. Bull. & Dec. 15 (March 15, 1989). See, HQ 544965, February 22, 1994. The new version of the buying agency agreement, while referring to Peter Trading as the buying agent and giving Peter Trading the authority to prepare commercial invoices in the absence of an invoice from the manufacturer, does not support a finding that a bona fide buying agency exists. The fact that Peter Trading has the authority, per the agency agreement, to prepare a commercial invoice in the absence of one from the manufacturer, does not change the requirement, as explained above, that a manufacturer's invoice is requisite to finding a bona fide buying agency. Moreover, despite the existence of the agency agreement, finding a bona fide buying agency is impossible because the remainder of the documentation submitted, as described above, specifically refers to Peter Trading as the seller of the merchandise and not as the buying agent. Hence, the documentation contradicts the terms of the buying agency agreement. In sum, the new agency agreement and the additional documentation submitted do not support a finding that Peter Trading is acting in the capacity as a bona fide buying agent for the importer, Hobby Lobby. Accordingly, the holding in HRL 545744, supra, remains valid, such -4- that the commissions paid to Peter Trading are dutiable as part of the price actually paid or payable for the imported merchandise. HOLDING: The buying agency agreement between Hobby Lobby and Peter Trading, executed on February 28. 1995, and the additional documentation submitted, do not support a finding that Peter Trading is acting in the capacity as a bona fide buying agent. The commissions paid to Peter Trading are, accordingly, dutiable as part of the price actual paid or payable for the imported merchandise. Sincerely, Acting Director International Trade Compliance Division