CBP Says Sourcing Fee Paid Between Related Parties Not Dutiable

A fee paid by BMW of North America to its parent company in Germany to help negotiate prices for car parts from North American vendors is not dutiable under transaction value, CBP said in a newly released ruling dated Dec. 15. BMW's lawyer at Lamb & Lerch asked CBP about the dutiability of the fee.

The sourcing fee involves “aftermarket automotive parts sold by BMW NA to unrelated distributors and to two related parties located in Canada and Mexico,” and not parts for manufacturing automobiles, it said. Once the German parent company reaches agreement with the North American vendors, “BMW NA issues purchase orders directly to these vendors for the purchase of parts as it requires them,” it said. “The parts are delivered directly to BMW NA by the vendors who issue invoices to BMW NA.” BMW NA, which then pays a sourcing fee for the services, described the fee as “an arm’s length payment.”

The services of the parent company are somewhat similar to that of a buying agent, but CBP said this isn't a buying agent relationship. “No agency relationship is claimed, nor does the Sourcing Assistance Agreement establish such a relationship,” CBP said. Instead, the parent company uses “experience and volume leverage” to negotiate the prices, for which BMW NA pays a fee, CBP said. Commissions paid to buying agents aren't dutiable.

Though there isn't an agency relationship between the two, CBP said the fee paid by BMW NA shouldn't be included in the price paid or payable. “Negotiating prices on behalf of another party is a service CBP has found to be typically provided by buying agents,” CBP said. Here, BMW NA isn't a “principal who can control the conduct” of its parent company, but instead a beneficiary of the services provided, CBP said.