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Duty on Buying Agents' Commissions

Importers need to take care over arrangements with overseas agents after a Customs Appeal Authority ruling that some buying commissions are dutiable, but others aren't.

If you buy goods from a company for $100 and pay another company a $10 commission you are expected to declare to Customs the total value of $110 to calculate duty. The exception is when you pay commission to an agent "for the purpose of representing the buyer overseas in respect of the purchase of goods".

Most importers of Chinese goods employ Hong Kong buying agents. These agents help the importers find suppliers, collect samples, inspect goods and, in some cases, supervise transport. Their commissions usually range from 5 to 10%. Some of them also collect commissions from sellers.

In the latest case, Customs decided after an audit to charge duty on the commissions Hallensteins paid to three different buying agents. The Customs Act allows these claims for duty to go back four years.

Customs argued that the commissions were for selling, as opposed to buying. To understand the difference between the two, read to this paper: http://www.silva.co.nz/BuySell.htm

The Appeal Authority looked at each case separately. In the first case, there was a normal buying agency relationship but, unknown to Hallensteins, its agent also took a cut, on occasions, from a fabric supplier. Judge Barber found, in a decision dated 19 July, that the commission was not dutiable.

However, he also said "If, from now on, the arrangement between [the importer and the agent] is varied so that the [importer] accepts that the [agent] can get further 'cuts' wherever he can, then that would seem to alter the pure agency arrangement" and the commission would become dutiable.

In the second case, the agent was an Australian-based company that has a relationship with the seller. The agent charged a commission of 25%, an amount that is more like a wholesale mark-up than a commission. The Judge found that the agent worked for the seller and his commission was dutiable.

In the third case, the agent had a business card that described him a "manufacturer's representative" and collected commissions from both seller and buyer. The Judge found that he was an agent of the seller and his commission was also subject to duty.

Importers who use buying agents should take careful note of this case (download from http://www.silva.co.nz/cases/ or email us if you want a copy). The duty status of buying commissions is not just a function of how agreements are worded - the Judge considered all aspects of the relationships between the various parties and even, it seems, their states of mind.

To avoid paying duties on buying commissions, importers need to ensure their agents are genuinely representing them - and not the sellers.

* * * Previous Import News items are published on our Internet site http://www.importers.org.nz.

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