Apparel Importer's Agent Commissions, Indirect Payments are Dutiable, CBP Says

An apparel importer’s purported buying agent commissions, a cash advance to its supplier and indirect payments for fabric development and inspection fees should all have been included in the transaction value of the apparel for valuation purposes, CBP said in a recent ruling. In HQ H271308 (here), issued Nov. 30, CBP headquarters found Key Apparel’s agent was not bona fide, partly because its payments to the agent were based on the apparel’s resale price rather than the price paid to the apparel supplier. CBP also found Key did not provide enough evidence that the indirect payments to its suppliers were not tied to the sale of the apparel.

The ruling comes in response to a request for internal advice from the Area Port Director of the Port of Savannah. The request was prompted by a 2014 Office of Regulatory Audit report that found Key guilty of undervaluation. The report said Key improperly excluded from transaction value payments to purported agents that were not bona fide buying commissions, as well as indirect payments for fabric development charges, inspection fees and advance payments.

CBP’s Office of Regulations and Rulings agreed with the audit’s finding that the payments were dutiable. Unlike selling commissions, bona fide buying commissions are not included in transaction value, the ruling said. But Key failed to prove that its agent was actually a bona fide buying agent, and that the commissions were tied to its purchases, the ruling said. The purported agent billed Key every few months based on the prices of final sales to U.S. consumers, rather than the price paid by Key for the merchandise. Also, the agent “was in control of receiving Key’s customers’ orders” and “instructed Key’s customers when to make payment.” The agent’s involvement with Key’s resale of the merchandise shows that it “was involved in other aspects of Key’s business, and their relationship exceeded that of a principal-buying agent relationship,” CBP said.

The other indirect payments made by Key to its suppliers should also have been included in transaction value, CBP said. Key did not provide documentation to support claims that some payments to its supplier were for fabric development and samples. Similarly, documentation to justify the exclusion of indirect “inspection fee” payments to third parties from the apparel’s value had several discrepancies. Key argued that payments to its related supplier to keep it in business don’t count as indirect payments that should be added to the price of the merchandise. But CBP has ruled that, “if an advance is paid in order for the seller to begin production of the merchandise, the advances will be dutiable.” Here, Key did provide evidence of a structure of payments to demonstrate the advance was actually a loan. “Therefore, all financial transfers characterized by the parties as advances should be included in the price actually paid or payable,” CBP said.