The DRAFT U.S. Customs (“CBP”) Informed Compliance Publication (“ICP”) What Every Member of the Trade Community should know About BONA FIDE SALES & SALES FOR EXPORTATION TO THE UNITED STATES may be an incentive to revisit the way many importers structure their transactions and how they value their goods.
The DRAFT has a list of 33 “examples” of supporting documents that CBP may request when evaluating the use of the “first sale for export to the U.S.” as the basis for Customs value and the assessment of ad valorem duties. The result of such an evaluation may be the denial of the use of that value. The importer would then be required to declare and pay duty on the higher value charged by a middleman to the importer than on the lower price paid by the middleman to the manufacturer.
The “best of both worlds,” whereby the importer paid duty on the lower price but paid income taxes on a cost of goods sold incorporating the higher price actually paid to the middleman would be gone.
What to do.
In the days before Nissho Iwai, i.e. Nissho Iwai American Corp. v United States, 982 F.2d 505 (Fed. Cir. 1992), the use of buying agents to whom buying commissions are paid was more common than in the ensuing years. The buying agent is an intermediary, but is NOT a seller or reseller to the U.S. importer.
If your present Nissho Iwai middleman/seller is to become a buying agent whose fee, as opposed to his profit, is to be excluded from entered value, some changes in the importer’s relationship will be necessary. Note that the buying agency commission very likely will be less than what a middleman might have made as a profit on resale.
Bona fide buying commissions 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, and 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. 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. Headquarters Ruling Letter (“HQ”) 542141 dated September 29, 1980, also cited as TAA No. 7.
CBP has said that although no single factor is determinative, the primary consideration in determining whether an agency relationship exists is the right of the principal to control the agent’s conduct with respect to those matters entrusted to the agent.
In addition, the courts have examined such factors as the existence of a WRITTEN buying agency agreement; whether the importer could have purchased directly from the manufacturers without employing an agent; whether the agent was financially detached from the manufacturer of the merchandise; and the transaction documents. The courts have also examined whether the purported agent’s actions were primarily for the benefit of the principal; whether the agent bore the risk of loss for damaged, lost or defective merchandise; whether the agent was responsible for the shipping and handling and the costs thereof; and whether the intermediary was operating an independent business, primarily for its own benefit.
The written buying agency agreement can address these points. Can this work? It depends.
Christopher M. Kane