HQ 545744

January 19, 1995

VAL CO:R:C:V 545744 RSD

CATEGORY: Valuation

District Director of Customs

Dallas/Ft Worth District

PO Box 619050

1205 Royal Lane

Dallas/Ft Worth Airport, Texas 75261

RE: Internal Advice request on whether commissions paid to an alleged
\"buying agent\" are dutiable; invoicing requirements

Dear Sir:

This is in response to your memorandum dated August 8, 1994, regarding a
request for internal advice from the Customs Broker, Evans and Woods, on
behalf of Hobby Lobby, Stores Inc., on the dutiability of alleged
\"buying commissions\" paid to Peter Trading Company. Accompanying your
memorandum were a copy of an agency agreement, an invoice, a purchases
order, and entry documents. We regret the delay in responding.

FACTS:

The importer, Hobby Lobby Stores, Inc., imports merchandise from China.
The merchandise is described on the purchase order as glass bottles,
glass jars, and glass preserving jars. The importer uses the services of
the Peter Trading Company to procure this merchandise and to import it
into the United States. Hobby Lobby claims that Peter Trading Company is
a bona fide buying agent and any commissions paid to it should be
non-dutiable.

In response to a request for further information, Hobby Lobby submitted
a purchase order and commercial invoices. The purchase order is made out
to Peter Trading Company and shows Peter Chien as salesman, but no
mention is made of a manufacturer or other seller. The invoices are made
for the account of Hobby Lobby and are prepared by Peter Trading
Company. The invoice lists the Chinese Art Co. as the manufacturer. The
invoice shows that a 7% \"buying commission\" is added to price of the
merchandise. There are no separate invoices from the manufacturer.

The file contains an agency agreement which is prepared on stationery
with Peter Trading Company letterhead, dated September 15, 1991. The
agreement specifies that the Peter Trading Company acts in the capacity
as a buying agent for the Hobby Lobby Stores, Inc. Under the agreement,
the buyer designates the articles to be purchased; the quantity and the
desired shipping dates. The buying agent is supposed to negotiate with
various manufacturers to obtain pricing, quality terms, and acceptable
delivery. The agent also places orders with the manufacturers, arranges
for all shipments, inspects the goods to insure conformance with
specifications. It also prepares all necessary invoices, packing lists,
GSP Forms, special Customs invoices, inspection certificates and other
documentation as required. Furthermore, the agent is also supposed to
act on behalf of the buyer should claims arise from the delivery of
substandard goods to the buyer.

The agreement also states that it is understood that the buying agent
does not act as a seller to the buyer. All charges from the factories
such as inland freight to the shipping port, insurance for the steamer
and storage are to be covered by the buyer, but these charges will be
paid by the buying agent and added to the invoice. For the services
provided, the buying agent is to receive a commission of ten percent of
the ex-factory price, which is added to the invoice along with the
shipping charges.

ISSUE:

Whether commissions paid to the Peter Trading Company should not be part
of the price actually paid or payable of the imported merchandise
because they are \"bona fide\" buying commissions?

LAW AND ANALYSIS:

For the purpose of this ruling request, we are assuming that transaction
value will be applicable as the basis of appraisement.

As you know, transaction value is defined in section 402(b)(1) of the
TAA. This section provides, in the pertinent part, that the transaction
value of imported merchandise is \"the price actually paid or payable
for merchandise when sold for exportation to the United States,\" plus
amount for the items enumerated in section 402(b)(1). Buying commissions
are not specifically included as one of the additions to the \"price
actually paid or payable.\" The \"price actually paid or payable: is
more specifically defined in section 402(b)(4)(A) 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.

It is clear from the statutory language that in order to establish
transaction value one must know the identity of the seller and the
amount actually paid or payable to him. As stated in Headquarters Ruling
Letter (HRL) 542141 (TAA #7), dated September 29, 1980, \"\...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 order to view the relationship of the parties as a bona fide buying
agency, Customs must examine all the relevant factors. J.C. Penney
Purchasing Corporation et al. v. United States, 80 Cust. Ct. 84, C.D.
4741 (1978), 451 F.Supp 973 (1978); United States v. Knit Wits (Wiley)
et al., 62 Cust. Ct. 1008, A.R.D. 251 (1969). The primary consideration,
however, \"is the right of the principal to control the agent\'s conduct
with respect to the matters entrusted to him.\" Dorf Int\'l Inc., et al
v. United States, 61 Cust. Ct. 604, A.R.D. 245, 291 F.Supp. 690 (1968).
The degree of discretion granted to the agent is an important factor.
New Trends Inc. v. United States, 10 CIT 637, 645 F.Supp. 957 (1986).
The plaintiff bears the burden of proof to establish the existence of a
bona fide buying commission. Monarch Luggage Company Inc., v. United
States, 13 CIT\_, Slip Op. 88-91 (1989).

The Court of International Trade in the case of New Trends Inc., supra,
set forth several factors upon which to determine the existence of a
bona fide buying agency. These factors include: whether the agent\'s
actions are primarily for the benefit of the importer, or for himself;
whether the agent is fully responsible for handling or shipping the
merchandise and for absorbing the costs of shipping and handling as part
of its commission; whether the language used on commercial invoices is
consistent with the principal-agent relationship whether the agent bears
the risk of loss for damaged, lost or defective merchandise; and whether
the agent is financially detached from the manufacturer of the
merchandise.

In Jay-Arr Slimwear Inc., v. United States, 12 CIT\-\-\--, 681 F.Supp
875 (1988), the Court of International Trade cited examples of services
which are characteristic of those rendered by a buying agent. These
services include compiling market information, gathering samples,
translating, placing orders based on the buyer\'s instructions,
procuring the merchandise, assisting in factory negotiation, inspecting
and packing merchandise and arranging for shipment and payment.

Evidence submitted to Customs must clearly establish the fact of a bona
fide buying agency. Headquarters Ruling Letter (HRL) 544610 dated
February 23, 1991. Moreover, \"an invoice or other documentation from
the actual foreign seller to the agent \[is\] required to established
that the agent is not a seller and to determine the price actually paid
or payable to the seller.\" HRL 542141 dated September 29, 1980, also
cited as TAA No.7.

The existence of a buying agency agreement tends to support a finding 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. Service General Notice, 11 Cus.
Bull. & Dec. 15 ( March 15, 1989). See HQ 544965, February 22, 1994.

The information submitted in connection with in the instant internal
advice request is insufficient to support the existence of a bona fide
agency relationship. There is no documentation that demonstrates the
importer exercised control over the Peter Trading Company, the purported
buying agent. No invoices from the manufacturer to the purported

agent were submitted. The only invoices submitted are from the Peter
Trading Company. Payment is made to the Peter Trading Company . Although
the manufacturer\'s name appears on the invoices, payment to the
manufacturer is not mentioned. The purchase order is made out to Peter
Trading Company and shows Peter Chien as the salesmen. Based on the
information presented, the commissions are part of the price actually
paid or payable and are dutiable.

HOLDING:

The commissions in question constitute part of the price actually paid
or payable pursuant to 19 U.S.C. 1401a(b).

Sincerely,

John Durant, Director

Commercial Rulings Division