What is the difference between buying and selling commissions?

In legal terms, in an agency relationship, one party is called the agent and the other party, the principal.

An agent is a person who performs ac­tions on behalf of the principal.

The fees the agent receives for its services are called commissions.

Typically, the commission is equal to an agreed percentage of the price of the goods.

In a buying agency, the principal is the buyer and in a selling agency, the principal is the seller.

Buying commissions are fees paid to a bona fide buying agent for the services it performs on behalf of the buyer in con­nection with the purchase of the imported goods.

Selling commissions are fees paid to a selling agent for the services it performs on behalf of the seller in the sale of the im­ported goods.

It is important to note that when the inter­mediary is acting as an agent, it is not the actual buyer or the actual seller of the im­ported goods but rather, a third party who is performing services on behalf of either the buyer or the seller.

How are buying and selling

commissions treated under the CTA, (Customs Tariff ACT, 1986)?

Selling commissions incurred by the buy­er with respect to the imported merchan­dise are one of the specified additions to the price actually paid or payable.

An addition is to be made for such selling commissions unless they are already in­cluded in the price.

For example, if the seller pays its agent a commission and includes this amount in the price it charges the buyer for the im­ported goods, no addition is made for the selling commission since it is already in­cluded in the price.

Selling commissions incurred by the buyer with respect to the imported goods are included in the value used to calculate Customs duty either as part of the price actually paid or payable or as an addition thereto.

In contrast to selling commissions, buy­ing commissions are not one of the speci­fied additions to the price actually paid or payable.

Therefore, no addition is made for bona fide buying commissions incurred by the buyer (that is, commissions paid to a bona fide buying agent who meets the criteria discussed in this publication).

Except as noted below, bona fide buying commissions are not included in the trans­action value of the imported merchandise.

What are some examples of services which are often provided by buying agents?

Examples of services which are char­acteristic of those rendered by a buying agent include compiling market informa­tion, gathering samples, translating, in­forming the seller of the desires of the buy­er, locating suppliers, placing orders based on the buyer’s instructions, procuring the merchandise, assisting in factory negotia­tion, inspecting and packing merchandise, and arranging for shipment and payment.

What are some examples of services which are often provided by selling agents?

It is not important what the agent refers to himself/herself as.

What is important is the role she/he plays in the transaction.

Examples of the services which are often rendered by a selling agent include seeking customers for the seller’s goods, maintain­ing samples and showing them to prospec­tive buyers, assisting in preparing export documents and arranging for insurance, transport and storage.

What are some indications that the i

ntermediary is not a bona fide buying agent but rather an independent seller?

In some cases, an intermediary may not be functioning as an agent at all, but rather as an independent buyer/seller.

In such case, the amount that is referred to as the buying commission may actually be the intermediary’s mark-up or profit which would constitute part of the total price paid by the buyer and part of trans­action value.

Some indications would be that the inter­mediary operates an independent business primarily for its own benefit, that it has unlimited discretion regarding the pur­chase of the goods from the seller, that the purported buyer and seller have no direct contact, and that the intermediary obtains title to the goods.

What is the significance of a buying agency agreement or the absence of such an agreement?

A written buying agency agreement which sets forth the obligations of the buyer and agent is evidence of the buying agency.

While the agreement is important, it is more important to consider whether the parties are actually doing what they agreed to do.

For example, the fact that the agreement indicates that the agent must obtain the buyer’s written approval before entering into an agreement with the seller is mean­ingless if the purported agent never ob­tains the buyer’s written approval.

Also, the fact that the agreement indi­cates that the buyer will be responsible for selecting the manufacturer is meaningless if the purported agent selects the manufac­turer.

Where the actions of the parties indicate that the buyer maintains little or no con­trol over the agent, there is no bona fide buying agency relationship, even if the agreement provides otherwise.

The absence of a buying agency agree­ment does not necessarily preclude the existence of a bona fide buying agency re­lationship.

However, it will be very difficult to estab­lish one without it.

Who has the burden of proof to

establish the existence of a bona fide buying agency?

The importer has the burden of proving the existence of a bona fide buying agency relationship.

Absent sufficient proof, commissions paid by the importer will be included in the transaction value of the imported mer­chandise.