PRACTICAL EXERCISE OFFSHORE SERVICES LTD

The buyer purchases ceiling fans from an unrelated seller in the country of export for a price of $40000.00 USD and imports them into the country of importation. The valuation officer in the country of importation concludes that in addition to the invoice price, an amount of $2000.00 USD, identified on the accompanying invoices as brokerage fees, should be included in the customs value. Accordingly, the fans were valued at $42,000.00 USD.

The buyer contends that brokerage fees represent amounts paid by the buyer to the seller with instructions to the seller to disburse the funds to the buyers agent, Offshore Services Ltd; which assisted in bringing about the sale. As a result, the buyer challenges the addition of $2000.00 USD to the customs value of the goods.

Offshore Services Ltd. was established by the buyer as a separate entity in a third country to source goods, negotiate prices and freight rates, and otherwise represent the buyer in its overseas activities. A buying agency agreement entered into by the buyer and Offshore Services was presented to the valuation officer. The agreement provided that the buying commission and other charges were to be listed separately on the commercial invoices prepared by the agent.

Contrary to this agreement, however, the commercial invoice submitted with the required entry documents did not identify the amount of $2000.00 USD as being either a buying commission or a brokerage fee.

In order to pay for the goods, the buyer had opened a letter of credit with its bank in the aggregate amount of $42,000.00 USD. The letter of credit stated only the aggregate amount of $42,000.00 USD and an invoice value of $40,000 USD together with instructions that the seller was to remit $2 per fan to the buyers agent, Offshore Services Ltd. The effect of this condition would be the same as if the buyer were to pay $2000 USD directly to Offshore Services Ltd; however, the alleged commission was not separately identified in the letter of credit (as required by the buying agency agreement) and there is no indication of what the payment was for.

Based on the entry documentation, which included the pertinent invoices and the buying agency agreement, Customs valued the ceiling fans at $42000USD.

1. How do you respond to the buyers challenge that the amount of $2000 represents buying commissions which, under the Agreement, are not included in the transaction value

2. Should the buyer be permitted to challenge Customs determination?