Importer Avoids 7% Surprise on Agency Arrangement

Jan. 24, 2024
By: David G. Forgue

Importers are always looking for legally appropriate ways to lower the entered value of imported articles. One expense amenable to savings is the cost of someone in-country as part of the purchasing process. This is important because depending on the nature of the position (i.e. sellers agent v. buying agent v. intermediate seller or “middleman”), the costs associated with it can be part of dutiable value or not.

In H315944 (August 3, 2023) Customs Headquarters took the opportunity to explore the legal test differentiating a foreign seller from a buying agent. In that matter a U.S. importer had created a Chinese wholly-owned subsidiary to “transact all business in China” on behalf of the importer. The importer also executed a detailed buying agency agreement with the subsidiary setting forth the parameters of the subsidiary’s authority.

In the transaction subject to the ruling the Customs team reviewing the entry did not believe that the commercial documents reflected a buying agency relationship. First, the sales contract issued by the manufacturer of the goods referred to the subsidiary, rather than the importer, as the “buyer.” Second, the commercial invoice used for entry was issued by the subsidiary to the importer, rather than by the manufacturer to the importer. The Customs team found that those were clear indications that the subsidiary was actually the buyer of the goods, selling them to the importer. If that were true, the 7% commission the subsidiary was paid would have been a dutiable part of the entered value. If the subsidiary was a buying agent, the 7% commission would not be part of the dutiable value.

Headquarters reminded us all that evaluating buying agency agreements is a more holistic process than finding specific terminology on the documents. Whether a bona fide buying agency exists depends on the facts of each case. Primary among these are whether the putative agent acts like a buying agent. This would include activities like compiling market information, gathering samples, translating, placing orders on the buyer’s instructions, procuring the merchandise, assisting in factory negotiations, inspection, and arranging shipping and payment. Crucially, the agent may not accept title or risk of loss with respect to the goods. Notwithstanding the terminology on the documents, the importer was able to demonstrate to Customs that these are the sorts of activities the subsidiary undertook. In other words, the facts in this case supported the finding that the subsidiary was a buying agent. Therefore, Headquarters reversed the finding of the Customs team and ruled that the commission paid to the subsidiary was not part of the dutiable value of the goods.

One notable element of the protest that led to the decision above is the strong evidentiary foundation created by the importer. The importer was able to provide a written buying agency agreement, evidence of the payments both to the manufacturer and to the subsidiary, an affidavit from the manufacturer explaining that they understood the importer to be the party responsible for paying them, and email correspondence between the importer’s President and the personnel at the subsidiary reflecting agency-like activity by the subsidiary. The fact that Customs ruled for the importer in this matter proves the adage from Training Day: “it’s not what you know, it’s what you can prove.” Document your transactions accordingly.

If you are creating a buying agency or need to understand how to evaluate your purchasing structures outside the United States contact any attorney at Barnes, Richardson & Colburn, LLP for guidance.