The statute says that:
The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to . . . any selling commission incurred by the buyer with respect to the imported merchandise . . . .
There are two kinds of commissions: dutiable selling commissions and non-dutiable buying commissions.
The thing about dutiable selling commissions is that the buyer is paying a cost associated with selling the goods. Think of it as the buyer paying the commission to the sales staff. Why does that happen? Don't ask me, but it does. So, if it is not added to the entered value, that value is understated because it is a cost the seller would otherwise have to bear. Kind of like an assist.
A buying commission is totally different. In that scenario, the buyer has hired someone to go out into the marketplace, find the merchandise, negotiate the deal for purchase, and maybe take care of the paper work. All of the costs associated with those activities are usually borne by the buyer, so they are not necessarily part of the value of the goods and will not be added to the dutiable value.
The problem that usually comes up is not distinguishing selling commissions from buying commissions. Usually, the problem is telling buying commissions from payments for the goods. More on that in a bit.
Separating selling from buying commissions is usually a question of figuring out for whom the agent is working. The real question is who is in control of the agent? In a buying agent situation, the buyer will give the agent specifications for the desired merchandise, terms of sale, acceptable prices, quantities, delivery dates, etc. Also, the buyer will generally control the commission level and how it is paid. These factors indicate that the buyer is in control. If the seller sets the commission amount, encourages the agent to find new buyers, or is related to the seller, the commission will likely be treated as a dutiable selling commission if paid by the buyer.
Seems easy enough. So where is the problem?
The problem is that what might look and feel like a buying agent sometimes turns out to be a seller. Picture this, you send your agent out looking for new gizmotrons in Malaysia. All you told the agent is that you need a new source for gizmotrons. The agent sets out to help you fill all your needs for gizmotrons and does a great job. It finds a supplier, determines that the supplier can make the goods to spec on the required schedule and in appropriate quantities. Not only that, the gizmotrons will be 12% cheaper than your current cost. To close the deal, the agent buys 1,000 units at $100 each and sells them back to you at $105 each. Five dollars being the "commission." That is a savings to you and a tidy profit for the agent.
Trouble is, the agent is no longer working for you. Instead, the agent just went into business for himself or herself. A markup, is not a commission. So, while you the buyer may think that the Malaysian factory is the seller, in reality, the seller is the agent and the "commission" is just part of the selling price. At the end of the day, losing control of the agent just cost your some money.
What do you do to avoid this terrible fate? Get it in writing. You should have written agency agreements spelling out exactly what the agent can and cannot do. Among the things the agent should not do are hold inventory, take title to the goods, have an insurable interest in the goods, place orders on its own account or on spec. The agent can find vendors, place orders on your behalf, arrange the logistics, help translate documents, help you secure financing, etc. But, if they look and act like a seller, that is how they will be treated.
Which, coincidentally, takes us to middleman valuation and the concept of "first sale." I'll save that for another day.
In the meantime, just for completeness, I'll mention that your transaction value also needs to include:
- the packing costs incurred by the buyer with respect to the imported merchandise; and
- the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.