First-tier Tribunal (Tax)

(1)          no buying commission had been paid by the company and thus the invoiced value on which customs duty had been paid should not be adjusted; and

(2)          there was no legal or factual basis on which sums identified as being for corporate support and global marketing should be removed from the invoiced value.

The evidence

(1)          correspondence between the parties and between the parties and the Tribunal;

(2)          an “organisation structure table” for the company and certain related companies;

(3)          a contract entitled “The Product Manufacturing, Distribution and Boutique Development Agreement”  between Donna Karan Studio LLC (“DKS”) and Club 21 International Distribution Ltd (“CID”), dated January 1 2007 (“the Licence”);

(4)          a document entitled “Buying Agency and Sourcing Service Agreement” between the company and CID, dated 1 October 2009 (“the BASS Agreement”) and a document entitled “Marketing & Corporate Support Services Agreement” also between the company and CID, and also dated 1 October 2009 (“the MCSS Agreement”), together “the Agreements”;

(5)          a schedule for Spring/Fall 2010 setting out the calculation of the “sourcing and buying agency fees” for 2010 (“the 2010 Schedule”) and a similar schedule for 2011 (“the 2011 Schedule”), together “the Schedules”;

(6)          a document headed “Product Pricing Structure” for Spring 2010 (“PPS Schedule 1”);

(7)          a schedule for corporate/global marketing costs, undated but which we were told relates to 2010 (“the Marketing Costs Schedule”);

(8)          invoices for corporate support and global marketing for the quarters beginning October 2009, January 2010 and April 2010, each for $303,250, issued by CID to the company;

(9)          an extract from the company’s draft accounts for 2010; and

(10)      an audit trail for one of the consignments in issue, showing purchase orders, invoices and other documents.

The facts not in dispute

The company and CID

(1)           Club 21 Enterprises (S) Pte, a related company of both CID and the company, which identifies designs for each season’s products;

(2)          Club 21 Enterprises (HK) Ltd, a Hong Kong company and a wholly owned subsidiary of CID.  Its role is to identify manufacturers who can produce the products;

(3)          Club 21 (HK) Ltd, another group company related in some way to CID and the company, which arranges delivery and shipment of the products once manufactured.

The Licence

“the non-transferable exclusive right and license (subject to [certain existing rights] and otherwise as hereinafter provided) to use the Licensed Mark in the Territory solely in connection with the manufacture, marketing, distribution and sale of seasonal Products approved by the Licensor (‘Articles’).”

“No Distributor (including Como) may be engaged unless the Distribution Agreement has been fully executed and delivered to, and approved by, Licensor, and the Licensor’s consent to the engagement of the Distributor on the terms set forth in the Distribution Agreement has been executed and delivered to the Licensee, and, where applicable, Como (such approval and consent not to be unreasonably withheld).”

“each Distribution Agreement shall require the Distributor to comply in its activities as a distributor with, and be bound by, all of the provisions of the Agreement applicable to Licensee.  Further, Licensee shall work together with each of the Distributors to ensure that these Articles are advertised, marketed, promoted, distributed and sold in a manner that is co-ordinated and consistent with the manner in which the same articles are advertised, marketed, promoted, distributed and sold by Licensee.  Also, Licensee shall ensure that the Distributors act in accordance with the terms and conditions of this Agreement.”

“the Licensee, either itself or through Como…may develop and operate up to an aggregate of six Outlets during the initial term of this Agreement.”

“shall be responsible for designing and developing the seasonal collections of Articles, making all prototype and other samples and overseeing all aspects of the production of Articles and the Licensee shall bear all costs thereof.”

“After Licensor finally approves an entire seasonal collection of Articles…Licensee shall diligently proceed with the completion of the development of and with the commercial production of such collection and shall show, offer for sale, sell and ship such collection in a timely manner in accordance with industry standards.”

“make expenditures for advertising activities…and for marketing activities…during each Annual Period in amounts appropriate to drive the Business and maximise the sales of Articles and consistent with the approved Business and Marketing Plan commencing with such Annual Period.”

The BASS Agreement

“(a) The Company is engaged in the retail boutique operations and wholesale distribution of products bearing the licensed mark DKNY Jeans (the Articles) in Europe/United Kingdom/Middle East countries.

(b) subject to the terms of this Agreement, the Company desires to formalise in writing the existing appointment of the Agent as its buying agent to arrange for and oversee various aspects of the manufacture of the Articles with an international sourcing base of third party Factories including Factories to be located in, but not limited to, Asia and the Agent and [sic] desires to obtain and continue such appointment.”

“Agency

Subject to and pursuant to the terms in this Agreement the Company hereby appoints the Agent, and the Agent hereby accepts such appointment, to act as a buying agent for the Company.”

(1)          Providing office space, office equipment and furniture to accommodate merchandising employees “who will work exclusively on matters pertaining to the Articles.” 

(2)          Providing shared use of meeting rooms, equipment and staff for administration, office maintenance, shipping, quality control and “any other services required by the Company.”

(3)          Researching and recommending to the company “suitable fabric and accessories” and assisting in sourcing “promotional items” as requested by the company from time to time.

(4)          Assisting the company with researching and locating suitable manufacturing Facilities (“the Factories”).  The Factories are “subsequently to be approved” by DKS based on that company’s guidelines.

(5)          Carrying out regular inspections of the Factories on behalf of the company “to ensure compliance against the Company’s and DKS’s social compliance standard”;  conducting “quality control inspection during production” and assisting “in maintenance of inventory control of goods issued to Factories, including fabric, trimmings and labels.”

(6)          Making the necessary arrangements for the Factories to enter into third party manufacturing agreements with CID which are “in form and substance acceptable to the Company.”

(7)          Assisting the company in placing orders for the purchase and administration of the fabric and accessories to be used by the Factories for the manufacture of the Articles; placing orders “as directed by the Company” among the various Factories and countersigning “orders and contracts in connection therewith as authorised by the Company.”

(8)          Providing the company with prototypes and production samples on a timely basis and to “sign off at the end of [production] to certify that the Articles shall be at least equal in quality to the prototype samples approved by DKS and shall maintain the integrity of the design/aesthetics of the samples approved by DKS.”

(9)          Buying the Articles on behalf of the company:

 “but in its sole capacity as the company’s buying agent. As such the Agent will receive FOB invoices for the Articles from the manufacturer and will raise corresponding CIF invoices to the Agent [sic] which will match the manufacturer’s FOB price but with the addition, as appropriate, of insurance and freight.”

(10)      Arranging for shipment or routing of all Articles.

(11)      Assisting the company “in co-ordinating with Factories on all financial business aspects including payment, establishing letters of credit etc with the Factories” and that in providing this assistance, CID will operate “solely as a representative and liaise to the best of their ability as an agent and to protect the best interest for and on behalf of the company.”

“As compensation for all the services rendered by the Agent pursuant to this Agreement, the Agent shall receive…14% of the FOB factory price in US dollars of the Articles shipped for or on behalf of the Company by the Factories arranged by the Agent.” 

“5.1 The Agent will not seek to reimburse from the Company expenses incurred to fulfil its duties which are required by Clause 3 of this Agreement, such as:

(a) office rental…

(f) All travel expenses incurred by the Agent in travel to any country…for the avoidance of doubt, the Agent shall seek the Company’s approval on the reasonable travel expenses…for each trip other than Hong Kong, China and Macau prior to trip commencement, notwithstanding trips specifically requested by the Company.  Determination of the reasonableness of all expenses shall be within the sole discretion of the Company..

5.2  Any other expenses incurred by the Agent in furtherance of the Agreement shall be reimbursed by the Company only if such expenses submitted and approved by the Company before they were incurred by the Agent.”

 “This Agreement constitutes the complete understanding between the parties with respect to the subject matter hereof, supersedes all prior oral and written understanding and agreements relating thereto…no party is acting on reliance [sic] upon any representation of guaranteed of the other, aside from those explicitly provided for in the Agreement.”

“nothing in this Agreement shall constitute a partnership or establish a relationship of principal and agent or any other relationship of a similar nature between or among any of the Parties.”

The MCSS Agreement

“the Company wishes to formalise in writing the existing appointment of the Service Provider for the performance of certain marketing, merchandising, and administrative tasks and other services relating to the DKNY JEANS retail and wholesale distribution business in Europe. United Kingdom and Middle East (‘the DKNY JEANS Business’) as more particularly described in 1.1 hereto (‘the Services’) to enable it to carry on its business at the highest levels of efficiency and competitiveness.”

(1)          Establishing and formulating global development strategy in alignment with the brand development strategy of Donna Karen Inc (“DKI”), and thereby seeking the necessary DKI support of the company’s plans to promote the growth of the DKNY JEANS Business. DKI is described in the MCSS Agreement as “the DKNY JEANS brand principal.”

(2)          Establishing and executing global marketing strategies and campaigns for the DKNY JEANS trademark in alignment with the DKI’s brand development strategy.

(3)          Providing consultation in relation to the establishment of annual marketing plans in accordance with DKI’s global brand directives, to be set out and agreed between the parties for approval by DKI.

(4)          Liaising with DKI to maximise exposure ensuing from the DKNY JEANS global institutional image advertising campaigns for each seasonal collection (including the creation, production and placements of consumer media/print advertising).

(5)          Co-ordination and liaison with design and product development divisions to ensure alignment with established merchandising line plans for each Seasonal Collection.

(6)          Providing central inventory resource allocation to minimise inventory stock-out situations.

(7)          Co-ordinating distribution of merchandise from point-of-purchase to appointed destination, including preparation of shipping documents

(8)          Providing warehousing facilities for “back-up” inventories and co-ordination of pick/pack services for fulfilment of re-order requests by the company.

(9)          Providing an online wholesale ordering system for order inputs by the company’s customers to facilitate subsequent order fulfilment by the company;

(10)      IT development support.

“…notwithstanding anything contained herein to the contrary, it is hereby expressly agreed that:

(i) …

(ii) the parties expressly acknowledge and agree that the Service Provider shall act only as an independent contractor in providing the Services to the company.  The Service Provider shall not be entitled to hold itself out as an agent or representative of the company.”

How the company obtained the relevant goods

(1)           further invoices for amounts identified as “buying agency and sourcing fees”, which the company says are “buying commission” within the meaning of the relevant provisions of the CCC, as discussed below.  We were told that these invoices were issued on a number of occasions during each year, based on groups of invoices.  This was unchallenged and we accept it, although no examples were provided to the Tribunal; and

(2)           quarterly invoices for “a corporate services fee” and “shared marketing expense,” which the company submits should also be excluded from the amount on which duty is charged.  Copies of invoices for the quarters beginning October 2009, January 2010 and April 2010, each for $303,250, were in the Bundle. Each invoice represents one-quarter of the total corporate support and global marketing fees of $1,213,000 set out at Clause 3 of the MCSS Agreement.

The application for repayment

(1)          The company has been informed that it pays an uplift of 68% on the FoB value “to incorporate non-specific product costs,” so the FoB amount was calculated by dividing the invoiced amount by 1.68. 

(2)          Buying commission was 14% of that FoB value.

(3)          Although corporate support and global marketing comprises “fixed costs per annum” which are “not product specific and not forming part of the actual price paid or payable for the imported goods, until October 2009 they were collected by way of prorata of the FoB value.”  The percentage “varies by season” but for the relevant period was 12.6% of the FoB cost.

(4)          The dutiable amount has therefore been reduced by (a) 14% for buying commission and (b) 12.6% for corporate support and global marketing, and the duty recalculated on that lower figure.

(5)          The Claim is the difference between the duty on the invoiced value and the duty on the new lower value.

Legislation, WCO explanatory notes/commentary and relevant case law

The Community Customs Code, jurisdiction and foreign law

The Valuation Agreement and the WCO

“The Technical Committee was set up by Article 18 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, signed at Geneva on 12 April 1979 and approved by the Decision of the Council of the European Communities of 10 December 1979 concerning the conclusion of the Multilateral Agreements resulting from the 1973 to 1979 trade negotiations (Official Journal 1980 L 71, p. 1). The Technical Committee on Customs Valuation is placed under the auspices of the Customs Cooperation Council and includes representatives of all the countries which are parties to the abovementioned Geneva Agreement. Pursuant to Annex II to that agreement the Technical Committee was established ‘with a view, at the technical level, towards uniformity in interpretation and application’ of the agreement. Its opinions, which may take various forms including explanatory notes, are adopted by a majority of at least two thirds of the members present. Even if the opinions are only of an advisory nature, nevertheless they represent the opinion of the experts of the majority of countries engaged in world trade. If the Community were to adopt an interpretation contrary to such an opinion, it would risk creating quite considerable problems and the Community should do so only for very serious reasons.”

The law on “the customs value” generally

“the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller…”

“In determining the customs value under Article 29, there shall be added to the price actually paid or payable for the imported goods:

(a) the following, to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods:

(i) commissions and brokerage, except buying commissions…”

“In determining the customs value under the provisions of Article 1, there shall be added to the price actually paid or payable for the imported goods

(a) the following, to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods:

…

(i)    commissions and brokerage, except buying commissions…”

“Activities, including marketing activities, undertaken by the buyer on his own account, other than those for which an adjustment is provided in Article 32, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller or have been undertaken by agreement with the seller, and their cost shall not be added to the price actually paid or payable in determining the customs value of imported goods.”

THE FIRST ISSUE: BUYING COMMISSION

What is “buying commission”?

WCO Explanatory Notes and Commentary

“a person who buys or sells goods possibly in his own name, but always for the account of a principal. He participates in the conclusion of a contract of sale, representing either the seller or the buyer.”

“A buying agent is a person who acts for the account of a buyer, rendering him services in connection with finding suppliers, informing the seller of the desires of the importer, collecting samples, inspecting goods and, in some cases, arranging the insurance, transport, storage and delivery of the goods.”

“Sometimes, the contracts or documents do not clearly represent or reflect the nature of the activities of the so-called agent. In such circumstances, it is essential that the actual facts of the case be determined and various factors, as explained below, be examined.”

“10. One of the questions which could be the subject of an enquiry is whether the so-called buying agent assumes any risk or performs additional services other than those which are indicated in para 9 of Capital Explanatory Note 2.1 and would normally be carried out by a buying agent. The extent of these additional services could affect the treatment of the buying commission. An example could be where the agent uses his own funds for the payment of the imported goods. This opens the possibility of the so-called buying agent sustaining a loss or gaining a profit arising from ownership of the goods rather than receiving an agreed fee from acting as a buying agent. In this situation, the totality of the circumstances which apparently establishes a buying agency arrangement may be examined.

11. The result of this enquiry could indicate that the agent is acting on his own account and/or that he has proprietary interest in the goods…

12. Another factor to be examined is the relationship, within the meaning of art 15.4, of the parties involved in the transaction. For instance, the relationship of the agent with the seller or with the person related to the seller has a bearing on the ability of the alleged agent to represent the buyer's interest. Despite the existence of an agency contract, the Customs is entitled to examine the totality of the circumstances to determine whether the so-called agent is in fact acting on behalf of the buyer and not on the account of the seller or even on his own account.”

EU law and/or English law of agency?

“[40] In law, that question must be answered by reference to Article 11(A)(3)(c) of the Sixth Directive, that is to say, the Community law notion of acting in the name and for the account of another and not by reference to civil law provisions concerning agency and mandate which vary from one legal system to another.

[41] Moreover, the operation must be categorised by reference to objective criteria and not solely to contractual provisions agreed between the dealer and the purchaser. Otherwise the parties could determine which elements are included in the taxable amount.”

Other guidance from Umbro

Buying commission which is not “shown separately from the price”

“[52] If the revision indicates that the provisions governing the customs procedure in question were applied on the basis of incorrect or incomplete information, the customs authorities must, in accordance with Article 78(3) of the Customs Code, take the measures necessary to regularise the situation, taking account of the new information available to them.

[53] Where it finally becomes apparent that the import duties paid by the declarant exceed those that were legally owed at the time of their payment, the measure necessary to regularise the situation can consist only in reimbursement of the overpaid amount.

[54] That reimbursement is made in accordance with Article 236 of the Customs Code if the conditions laid down by that provision are fulfilled, in particular that there has been no manipulation by the declarant and that the application for reimbursement has been submitted within the time-limit, which is in principle three years.”

“[67] Moreover, the fact that, as a matter of form, a customs declaration does not contain separate reference to a buying commission, which is nevertheless distinct from the price of the goods, can only mean that that commission is validly regarded as dutiable and that, consequently, import duties applied to it are legally owed.

[68] That fact, where there is a possibility of subsequently revising a customs declaration at the declarant's request, cannot have as its consequence that duties legally charged by reason of simple rules of evidence are subsequently assimilated to duties legally owed within the meaning of Article 236(1) of the Customs Code, despite the production of sufficient evidence…

[71] where [HMRC] find…that the declared customs value erroneously included a buying commission, they are required to regularise the situation by reimbursing the import duties applied to that commission.” 

Outline of the parties’ submissions on buying commission

(1)          Lack of contemporaneous evidence: Mr Brinsmead-Stockham, for HMRC, submitted that there was no contemporaneous evidence that the company had paid buying commission related to the relevant goods, and that the appeal should be dismissed on that basis alone.  Mr Brown, for the company, said that the Schedules, the BASS Agreement and Mrs Kara’s evidence were sufficient to prove the company’s case, despite the lack of contemporaneous evidence.

(2)          The Schedules: Mr Brown submitted that the Schedules supported the company’s case; Mr Brinsmead-Stockham contended that they did not.

(1)          the company and CID were aware of the elements which had gone to make up the buying commission at the relevant period, so that there was “full transparency”;

(2)          although only the 2010 and 2011 Schedules had been provided to the Tribunal, similar documents relating to the relevant period (29 November 2007 to 29 May 2008) “may exist in Singapore”;

(3)          the 2010 Schedule demonstrated that CID had charged the company a buying commission of 14% of the FoB price in 2010 and the same had been true in the relevant period; and

(4)          the terms of the BASS Agreement were the same as those which were in operation between the parties during the relevant period.

Discussion

(1)          the burden of proof is on the company;

(2)          on 24 February 2011, Mr Manton asked for “evidence to support the existence  of a buying agency agreement prior to date the written agreement [was] entered into” and gave examples of the sort of material which would be helpful;

(3)          On 24 May 2013 Mrs Jackie Smith of HMRC asked for “any further evidence that could change this decision,” and

(4)          Mr Brinsmead-Stockham’s skeleton argument at [27] says that “the company has not produced a written agency agreement with CID (or indeed any other documentary evidence in support of its claim) relating to the relevant period.  He went on to say that where there is insufficient evidence, the WCO Commentary at 17.1 allows HMRC to conclude that there is no agency relationship. 

The Schedules and buying commission

The information in the Schedules

Sample costs 300,000

Fit models 50,000

Travel costs 60,000

Office rent/utilities 400,000

Internet/admin/office supplies 80,000

Depreciation 120,000

Total $2,560,000

“if the following year the cost base goes down then the percentage could increase or decrease; the [BASS] agreement allows it to be less.  The 14% is not cast in stone;  we compare to actuals [and] we will be credited for any up or down movements in costs.”

The parties’ submissions

(1)          The amount stated to be a “buying commission” was demonstrably a calculated amount, made up of various costs borne by CID,  which were then marked up: 14% was the relationship between these costs and CID’s total sales of $19,167,500.  The “buying commission” percentage had thus been “reverse engineered” as a percentage of CID’s costs. Had the “buying commission” simply been a percentage of the FoB cost, there would be no need for the Schedule at all: CID would simply have charged the company 14% of the FoB cost. 

(2)          The 2011 Schedule showed that CID’s costs (including a mark-up) were 13.8% of the FoB cost, and Mrs Kara’s evidence was that the “buying commission” had been adjusted in consequence.  This too demonstrated that the company was simply being charged a percentage of CID’s costs (including a mark-up). 

Discussion

The Secret Hotels2 approach

Mr Brown’s submissions

“[42] As regards in particular the importance of contractual terms in categorising a transaction as a taxable transaction, it is necessary to bear in mind the case law of the court according to which consideration of economic and commercial realities is a fundamental criterion for the application of the common system of VAT…

[43] Given that the contractual position normally reflects the economic and commercial reality of the transactions and in order to satisfy the requirements of legal certainty, the relevant contractual terms constitute a factor to be taken into consideration when the supplier and the recipient in a ‘supply of services’ transaction within the meaning of articles 2(1) and 6(1) of the Sixth Directive have to be identified.

[44] It may, however, become apparent that, sometimes, certain contractual terms do not wholly reflect the economic and commercial reality of the transactions.

[45] That is the case in particular if it becomes apparent that those contractual terms constitute a purely artificial arrangement which does not correspond with the economic and commercial reality of the transactions.”

“[31]  Where parties have entered into a written agreement which appears on its face to be intended to govern the relationship between them, then, in order to determine the legal and commercial nature of that relationship, it is necessary to interpret the agreement in order to identify the parties' respective rights and obligations, unless it is established that it constitutes a sham.

[32]  When interpreting an agreement, the court must have regard to the words used, to the provisions of the agreement as whole, to the surrounding circumstances in so far as they were known to both parties, and to commercial common sense. When deciding on the categorisation of a relationship governed by a written agreement, the label or labels which the parties have used to describe their relationship cannot be conclusive, and may often be of little weight…”

Mr Brinsmead-Stockham’s submissions

Discussion

“do not clearly represent or reflect the nature of the activities of the so-called agent. In such circumstances, it is essential that the actual facts of the case be determined…”

(1)          Explanatory Note 2.1(15), says that whether or not a payment is “buying commission” depends “on the role played by the intermediary.” 

(2)          The WCO Commentary at 17.1(2) states that “while the provisions of the Agreement are clear and raise no particular question of principle, the treatment of commissions for Customs valuation purposes depends on the exact nature of services rendered by the intermediaries.”

(3)          17.1(3) says that Note 2.1 concludes that “since the nature of the services rendered by intermediaries are often not apparent from the commercial documents, national administrations will need to take necessary reasonable measure to ensure the proper application of this provision of the Agreement.”

(4)          17.1(6) refers to the agency contract as one of the documents which must be provided to the customs authority in order to determine the nature of the arrangement. 

(5)          Finally 17.1(15) says:

“Despite the existence of an agency contract, the Customs is entitled to examine the totality of the circumstances to determine whether the so-called agent is in fact acting on behalf of the buyer and not on the account of the seller or even on his own account.”

The BASS Agreement and the Licence

The company’s case

(1)          CID is identified at the inception of the BASS Agreement as “the Agent”; the Recital says that the Company “desires to formalise in writing the existing appointment of the Agent as its buying agent” and at clause 1.1 CID accepted appointment as the company’s buying agent.

(2)          Clause 3 says that CID will buy the Articles on behalf of the company “in its sole capacity as the company’s buying agent.”

(1)          the company “was buying from the manufacturers and CID was adding other costs to that price”; 

(2)          the decision as to which manufacturers were appointed was a joint one between the company and Club 21 Pte.  However, under cross-examination Mrs Kara accepted that if CID rejected a manufacturer (for example because it did not meet the standards set by DKS) the company and Club 21 Pte would “suggest another five manufacturers and find one which met the requirements.”  She said that “it was very important that [CID] took on what we said to them” and that CID “could not come and select someone else.” 

(3)          Although CID made the contract with the manufacturers and paid them this was because “the contracts had to be with the Licensee [CID] who had the trademark rights” and because it acted as “a central co-ordinating point.”

(4)          The company often communicated directly with Club 21(HK) Limited and Club 21Enterprises (HK) Limited and not with CID;

(5)          Although CID organised and paid for the insurance of the relevant goods, if there was an uninsured loss during transit – for example, if goods had accidentally not been insured, or the insurer became insolvent – that loss would be borne by the company and not by CID, and this was consistent with it acting as principal.

HMRC’s case

(1)          CID was bound by the terms of the Licence, and under its terms CID acted as principal when purchasing goods.

(2)          CID had appointed the company as a distributor, and the terms of that distribution agreement must be consistent with the terms of the Licence (Clause 7.1(c)).  The true nature of the relationship between the parties was that the company was a distributor of goods supplied by CID as principal.

(3)          Mrs Kara’s submission that the company was bearing the insurance risk in relation to goods not yet delivered was inconsistent with the facts;

(4)          Her submission that the company selected the manufacturers was inconsistent with the terms of the Licence.

(5)          For the most part, the BASS Agreement simply set outs obligations which CID already had to bear under the terms of the Licence.

(6)          It is clear from Umbro at [29] that the label attached to the relationship is not determinative. 

(7)           Clause 10 of the BASS Agreement expressly states that CID was not acting the company’s agent.

Discussion: relationship between the Licence and the BASS Agreement

(1)          By clause 3.2(b) of the Licence CID has undertaken to make “all prototype and other samples” and by Clause 3.3 it is DKS which approves these prototypes, which cannot then be modified without DKS’s explicit permission; under Clause 5.1(a) CID is required to ensure that the Articles are at least equal in quality to those prototypes.  The BASS Agreement says that CID’s duties to the company include providing the company with prototypes and production samples on a timely basis and certifying that the Articles shall be at least equal in quality to the prototype samples approved by DKS and shall maintain the integrity of the design/aesthetics of the samples approved by DKS.

(2)          Clause 3.2(b) of the Licence also requires CID to oversee “all aspects of the production of Articles”; Clause 3.8 allows it to appoint Contractors to produce the Articles but obliges it to “maintain an active social compliance program” to monitor the third party Contractors who have been engaged to produce the Articles  and can conduct its own factory audits to “determine whether the Contractors have satisfied the Licensor’s then current standards.” The BASS Agreement says (emphases added) that CID will:

(a)           assist the company with researching and locating suitable Factories which are “subsequently to be approved” by DKS based on that company’s guidelines;

(b)          make the necessary arrangements for the Factories to enter into third party manufacturing agreements with CID which are “in form and substance acceptable to the Company”; and

(c)          carry out regular inspections of the Factories on behalf of the company. 

(3)          CID is required under the Licence to “show, offer for sale, sell and ship” each season’s collection in a timely manner (Clause 3.4); the BASS Agreement obliges CID “to buy articles on behalf of the company but in its sole capacity as the company’s buying agent”, and to arrange for shipment or routing of the Articles to the company.

(1)          whether the BASS Agreement supplanted the Licence; 

(2)          if both agreements subsist, whether CID was both a Licensee of DKS and the company’s buying agent; and

(3)          if not, which had priority.

“This Agreement constitutes the complete understanding between the parties with respect to the subject matter hereof, supersedes all prior oral and written understanding and agreements relating thereto.”

“all Distribution Agreements and the obligations of the distributors thereunder shall be consistent in all material respects with the terms of this agreement...each Distribution Agreement shall require the Distributor to comply in its activities as a distributor with, and be bound by, all of the provisions of the Agreement applicable to Licensee…Licensee shall ensure that the Distributors act in accordance with the terms and conditions of this Agreement.” 

Mrs Kara’s evidence on selecting manufacturers and insurance.

Other responsibilities under the BASS Agreement 

The extent of the relationship between the company and CID

“Another factor to be examined is the relationship, within the meaning of art 15.4 of the parties involved in the transaction. For instance, the relationship of the agent with the seller or with the person related to the seller has a bearing on the ability of the alleged agent to represent the buyer's interest. Despite the existence of an agency contract, the Customs is entitled to examine the totality of the circumstances to determine whether the so-called agent is in fact acting on behalf of the buyer and not on the account of the seller or even on his own account.”

Clause 10

Conclusions on the BASS Agreement

Purchase orders and invoices

“it is necessary above all to establish what was the real function of the agent. If he acted solely on behalf of the buyer he participated in the conclusion of the contract of sale by representing the buyer and the contract is concluded in substance between the manufacturer/supplier.”

Mark-ups

“considered all the material, not only the documents but also the evidence of many witnesses, and has concluded both that the 1985, 1989 and 1994 agreements authorised MIG to negotiate and conclude contracts in CSH's name and on its behalf and that the contracts and confirmations of contract used consistently throughout the period of over twenty years in question reflected the agency relationship which had been originally defined in the 1985 agreement [between the parties].”

The conduit argument

Overland

The Vehicle Control Services argument

“The flaw in the [Upper Tribunal’s] reasoning is that it confuses the making of a contract with the power to perform it. There is no legal impediment to my contracting to sell you Buckingham Palace. If (inevitably) I fail to honour my contract then I can be sued for damages.”

Economic reality?

“I apprehend that, if it [ie the concept of sham] has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities…that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the  acts  or  documents  are  not  to  create  the  legal  rights  and obligations which they give the appearance of creating.”

(1)          the inconsistencies in Clause 5, which opens by saying that CID “will not seek to reimburse from the Company, expenses incurred to fulfil its duties” but 5.1(f) and 5.2 say that the company shall approve CID’s expenses before payment;

(2)          the requirement that CID “receive FOB invoices for the Articles from the manufacturer and will raise corresponding CIF invoices to the Agent,” when the CIF invoices are in fact raised to the company;  and

(3)          the absence of provisions specifying what would constitute a breach of the agreement.

Mr Brinsmead-Stockham : Did you make these agreements with a view to supporting this claim and the future treatment of the goods for customs purposes?

Decision on buying commission

(1)          there is no contemporaneous evidence that buying commission was paid;

(2)          the Schedules show that for 2010 and 2011, the amount of “buying commission” was not a percentage of the FoB value but a calculated share of certain costs borne by CID, which were then re-engineered to give a figure of 14%;

(3)          the terms of the Licence show that CID is acting as principal when purchasing items which are then sold on to the company;

(4)          most of the obligations purportedly owed by CID to the company under the BASS Agreement are already owed by CID to DKS under the Licence;

(5)           the BASS Agreement explicitly states at Clause 10 that CID is not an agent of the company;

(6)          the purchase orders and invoices are consistent with CID acting as principal, and so too is CID’s mark-up on costs;

(7)          the facts are easily distinguishable from Overland;

(8)          the Secret Hotels2 approach does not apply to customs duties, but even if it did, the economic reality of the relationship between the parties, taking the Licence into account, is that CID is not the buying agent for the company but is rather acting as principal.

THE SECOND ISSUE: CORPORATE SUPPORT AND GLOBAL MARKETING

Article 29(3)(b)

“Activities, including marketing activities, undertaken by the buyer on his own account, other than those for which an adjustment is provided in Article 32, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller or have been undertaken by agreement with the seller, and their cost shall not be added to the price actually paid or payable in determining the customs value of imported goods.”

(1)          Article 29(3)(b) refers to “activities, including marketing activities, undertaken by the buyer on his own account.”  It is clear from the Marketing Schedule that the marketing and corporate service costs are incurred by CID and then charged to the company, so they are incurred on behalf of CID, not on behalf of the company.  Even the MCSS Agreement itself states explicitly at Clause 3 that the marketing costs are incurred by CID and then “allocated on a shared basis” to the company.  Article 29(3)(b) does not apply. 

(2)          In Dolland & Aitchison the CJEU decided at [35] that where there was “a global offer for which a single payment is made” covering both contact lenses and “specified services, such as examination, consultation or aftercare,” these together constituted “the transaction value.”  There was no basis for distinguishing the company’s case from Dolland & Aitchison, because at the relevant time, the company made a single global payment to CID which included corporate support and global marketing.

(3)          Even had the corporate support and global marketing been separately invoiced (as happened in 2010 and which the company argued represented the true position), Article 29(3)(b) does not allow a buyer to split off, from the price paid for the goods, the part of that price which reflects the marketing and other costs borne by the seller and recharged to the buyer.  Rather, these amounts fell within the definition of “the price actually paid or payable” i.e., “the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller” per Article 29(3)(a). 

(4)          The approach put forward by the company undermined the “transaction value” requirement laid down by the CCC, which the preamble to the Valuation Agreement said should apply “to the greatest extent possible.”  Mr Brinsmead-Stockham said it was a “simple and easy to apply system” suitable for the huge number of importations which occur every day, or as Vos LJ put it in Asda at [23]:

“Article 29 is plainly intended to provide a straightforward and easily applicable method of ascertaining the customs value in a wide variety of cases. It will avoid wherever possible the need for complex or detailed investigations by the importer or the customs authorities.”

(5)          Finally, there is no parallel with buying commission, so Mr Brown was wrong to seek to extend the ratio of Overland to these other costs.  All that Overland decided was that if an importer had genuinely paid buying commission which was then accidentally included in the invoiced amount,  HMRC had to allow that error to be corrected.  The same analysis could not be extended to these other costs, because there is no provision similar to the Article 32(1)(i) exception for buying commission.  As Vos LJ said in Asda at [24]:

“The regime expressly provides for additions that must be made to the price, ascertained under art 29, in art 32 of the Code, and for deductions of certain separately itemised charges in art 33 of the Code. It is now common ground that the rebate does not fall within any of the categories of additions or deductions contained in these articles of the Code…In my judgment, the very specificity of arts 32 and 33 make it clear that other deductions are not to be made, when considering 'the price paid or payable', in order to ascertain the transaction value under art 29 of the Code.”

Secret Hotels2

The lack of contemporaneous documentation

The MCSS Agreement

(1)          Clause 8.3 of the Licence gives DKS “complete control over all aspects of the design and development” of all advertising and marketing, and “no aspects” of the plan can be implemented until “finally approved” by DKS and CID.  .  By Schedule J to the Licence, DKS also imposes a “Minimum Marketing Obligation” and a “Minimum Advertising Obligation” on CID for each accounting period, expressed as defined percentages of the net retail and wholesale sales for the period but subject in each case to specified minimum monetary amounts.  However, the MCSS Agreement states in Clause 2.2(i) that the obligations to “establish and execute global marketing strategies” and “establish and formulate global development strategy” are obligations owed under that Agreement to the company.  This is not the reality: rather, they are pre-existing obligations owed to DKS by CID under the Licence. 

(2)          Clause 8.4 requires CID “regularly to undertake PR activities relating to Articles, the Boutiques and the Business”; it cannot “engage in any media contacts with respect to the Licensed Mark, any Articles, any of the Boutiques or Outlets or the Business” without first clearing that with DKS or its appointed PR Staff.  The requirement that CID undertake these PR activities flows from the Licence; it is an obligation owed by CID to DKS, not to the company. However, CID’s services to the company under the MCSS Agreement include a requirement that it “liaise with DKI to maximise exposure ensuing from the DKNY JEANS global institutional image advertising campaigns for each Seasonal Collection (including the creation, production and placements of consumer media/print advertising).”

(3)          CID incurs these marketing and PR costs on its own account, as required by the Licence; they are not incurred on behalf of the company.  The other “services” set out in the MCSS Agreement are simply a disaggregation of the normal overheads of a company which has purchased as principal and is on-selling goods to a distributor, namely providing inventory control, an ordering system, distributing  merchandise, warehousing, and shipping.  These costs form part of “the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller” per Article 29(3)(a).

Decision on corporate support and global marketing

(1)          The corporate support and global marketing costs which the company seeks to exclude from customs duty are simply recharges of costs incurred by CID on its own account.  They do not fall within Article 29(3)(b).

(2)          The CCC makes specific provision for the exclusion of buying commission as that term is defined and understood.  There is no such exclusion for corporate support or global marketing costs. 

(3)          There is no parallel with the facts in Overland and its ratio neither applies generally to global support/corporate marketing nor does it apply on the facts of this specific case.

(4)           There is no contemporaneous evidence that any amount was paid to CID for the relevant goods for corporate support or global marketing.  Instead, the company paid a global price for the goods, which included a share of CID’s corporate support and global marketing costs.  This is correctly treated as part of the “the price actually paid or payable for the goods” i.e., the transaction value.

(5)          Even had the same methodology been followed in the relevant period as in 2010, all that has happened is that the corporate support and global marketing costs borne by CID have been allocated to the company and invoiced separately.  That does not make them into “activities, including marketing activities, undertaken by the buyer on his own account” so as to bring them into Article 29(2)(b).  Rather, they are costs incurred by CID because of its obligations under the Licence, under which it acted as the principal in selling goods to the company.

THE METHODOLOGY AND QUANTUM OF THE CLAIM

The Schedules and the FoB value

Freight/handling 5.0% (as PPS Schedule 1)

Sourcing office (HK) 14.0% (“buying commission”)

Royalties 19.0% (PPS Schedule 1: 16.6%)

Advertising contribution 4.0% (new)

Design/product devt (S’pore): direct 11.4% (as PPS Schedule 1)

Design/product devt (S’pore): indirect 4.4% (new)

Distribution centre (HK)   4.6% (new)

Corporate Office (Singapore)   5.6% (new)

Total 68.0%

The corporate support and global marketing amount

Overall decision and appeal rights

ANNE REDSTON

TRIBUNAL JUDGE

RELEASE DATE: 23 December 2014

EXTRACTS FROM COUNCIL  REGULATION EEC NO 2913/92 OF 12 OCTOBER  1992 ESTABLISHING THE COMMUNITY CUSTOMS CODE

TITLE II: FACTORS ON THE BASIS OF WHICH IMPORT DUTIES OR EXPORT DUTIES AND THE OTHER MEASURES PRESCRIBED IN RESPECT OF TRADE IN GOODS ARE APPLIED

Chapter 3

Article 28

The provisions of this Chapter shall determine the customs value for the purposes of applying the Customs Tariff of the European Communities and non-tariff measures laid down by Community provisions governing specific fields relating to trade in goods.

Article 29

1. The customs value of imported goods shall be the transaction value, that is, the price actually paid or payable for the goods when sold for export to the customs territory of the Community, adjusted, where necessary, in accordance with Articles 32 and 33, provided:

(a) that there are no restrictions as to the disposal or use of the goods by the buyer, other than restrictions which:

- are imposed or required by a law or by the public authorities in the Community,

- limit the geographical area in which the goods may be resold,

or

- do not substantially affect the value of the goods;

(b) that the sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;

(c) that no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with Article 32; and

(d) that the buyer and seller are not related, or, where the buyer and seller are related, that the transaction value is acceptable for customs purposes under paragraph 2.

2. (a) In determining whether the transaction value is acceptable for the purposes of paragraph 1, the fact that the buyer and the seller are related shall not in itself be sufficient grounds for regarding the transaction value as unacceptable. Where necessary, the circumstances surrounding the sale shall be examined and the transaction value shall be accepted provided that the relationship did not influence the price. If, in the light of information provided by the declarant or otherwise, the customs authorities have grounds for considering that the relationship influenced the price, they shall communicate their grounds to the declarant and he shall be given a reasonable opportunity to respond. If the declarant so requests, the communication of the grounds shall be in writing.

(b) In a sale between related persons, the transaction value shall be accepted and the goods valued in accordance with paragraph 1 wherever the declarant demonstrates that such value closely approximates to one of the following occurring at or about the same time:

(i) the transaction value in sales, between buyers and sellers who are not related in any particular case, of identical or similar goods for export to the Community;

(ii) the customs value of identical or similar goods, as determined under Article 30 (2) (c);

(iii) the customs value of identical or similar goods, as determined under Article 30 (2) (d).

In applying the foregoing tests, due account shall be taken of demonstrated differences in commercial levels, quantity levels, the elements enumerated in Article 32 and costs incurred by the seller in sales in which he and the buyer are not related and where such costs are not incurred by the seller in sales in which he and the buyer are related.

(c) The tests set forth in subparagraph (b) are to be used at the initiative of the declarant and only for comparison purposes. Substitute values may not be established under the said subparagraph.

3. (a) The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. The payment need not necessarily take the form of a transfer of money. Payment may be made by way of letters of credit or negotiable instrument and may be made directly or indirectly.

(b) Activities, including marketing activities, undertaken by the buyer on his own account, other than those for which an adjustment is provided in Article 32, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller or have been undertaken by agreement with the seller, and their cost shall not be added to the price actually paid or payable in determining the customs value of imported goods.

Article 32

1. In determining the customs value under Article 29, there shall be added to the price actually paid or payable for the imported goods:

(a) the following, to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods:

(i) commissions and brokerage, except buying commissions,

(ii) the cost of containers which are treated as being one, for customs purposes, with the goods in question,

(iii) the cost of packing, whether for labour or materials;

(b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable

(i) materials, components, parts and similar items incorporated in the imported goods,

(ii) tools, dies, moulds and similar items used in the production of the imported goods,

(iii) materials consumed in the production of the imported goods,

(iv) engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the Community and necessary for the production of the imported goods;

(c) royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;

(d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller;

(e) (i) the cost of transport and insurance of the imported goods, and

(ii) loading and handling charges associated with the transport of the imported goods

to the place of introduction into the customs territory of the Community.

2. Additions to the price actually paid or payable shall be made under this Article only on the basis of objective and quantifiable data.

3. No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Article.

4. In this Chapter, the term “buying commissions” means fees paid by an importer to his agent for the service of representing him in the purchase of the goods being valued.

5. Notwithstanding paragraph 1 (c):

(a) charges for the right to reproduce the imported goods in the Community shall not be added to the price actually paid or payable for the imported goods in determining the customs value; and

(b) payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export to the Community of the goods.

Article 33

1. Provided that they are shown separately from the price actually paid or payable, the following shall not be included in the customs value:

(a) charges for the transport of goods after their arrival at the place of introduction into the customs territory of the Community;

(b) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation of imported goods such as industrial plant, machinery or equipment;

(c) charges for interest under a financing arrangement entered into by the buyer and relating to the purchase of imported goods, irrespective of whether the finance is provided by the seller or another person, provided that the financing arrangement has been made in writing and where required, the buyer can demonstrate that:

- such goods are actually sold at the price declared as the price actually paid or payable, and

- the claimed rate of interest does not exceed the level for such transactions prevailing in the country where, and at the time when, the finance was provided;

(d) charges for the right to reproduce imported goods in the Community;

(e) buying commissions;

(f) import duties or other charges payable in the Community by reason of the importation or sale of the goods.

TITLE IV: CUSTOMS APPROVED TREATMENT OR USE

Article 78: Post-clearance examination of declarations

1. The customs authorities may, on their own initiative or at the request of the declarant, amend the declaration after release of the goods.

2. The customs authorities may, after releasing the goods and in order to satisfy themselves as to the accuracy of the particulars contained in the declaration, inspect the commercial documents and data relating to the import or export operations in respect of the goods concerned or to subsequent commercial operations involving those goods. Such inspections may be carried out at the premises of the declarant, of any other person directly or indirectly involved in the said operations in a business capacity or of any other person in possession of the said document and data for business purposes. Those authorities may also examine the goods where it is still possible for them to be produced.

3. Where revision of the declaration or post-clearance examination indicates that the provisions governing the customs procedure concerned have been applied on the basis of incorrect or incomplete information, the customs authorities shall, in accordance with any provisions laid down, take the measures necessary to regularise the situation, taking account of the new information available to them.

TITLE VII: CUSTOMS DEBT

Chapter 5: Repayment or remission of duty

Article 236

1.  Import duties or export duties shall be repaid in so far as it is established that when they were paid the amount of such duties was not legally owed or that the amount has been entered in the accounts contrary to Article 220(2).

Import duties or export duties shall be remitted in so far as it is established that when they were entered in the accounts the amount of such duties was not legally owed or that the amount has been entered in the accounts contrary to Article 220(2).

No repayment or remission shall be granted when the facts which led to the payment or entry in the accounts of an amount which was not legally owed are the result of deliberate action by the person concerned.

2. Import duties or export duties shall be repaid or remitted upon submission of an application to the appropriate customs office within a period of three years from the date on which the amount of those duties was communicated to the debtor.

That period shall be extended if the person concerned provides evidence that he was prevented from submitting his application within the said period as a result of unforeseeable circumstances or force majeure.

Where the customs authorities themselves discover within this period that one or other of the situations described in the first and second subparagraphs of paragraph 1 exists, they shall repay or remit on their own initiative

EXTRACTS FROM EXPLANATORY NOTE TO AND COMMENTARY ON ARTICLE 8 OF THE WTO AGREEMENT

EXPLANATORY NOTE 2.1

Buying and selling agents

4. The agent (also referred to as an “intermediary”) is a person who buys or sells goods possibly in his own name, but always for the account of a principal. He participates in the conclusion of a contract of sale, representing either the seller or the buyer.

5. The agent's remuneration takes the form of a commission, generally expressed as a percentage of the price of the goods.

6. A distinction can be made between selling agents and buying agents. ...

9. A buying agent is a person who acts for the account of a buyer, rendering him services in connection with finding suppliers, informing the seller of the desires of the importer, collecting samples, inspecting goods and, in some cases, arranging the insurance, transport, storage and delivery of the goods.

10. The buying agent's remuneration which is usually termed "buying commission" is paid by the importer, apart from the payment for the goods...

15. To sum up, when determining the transaction value of imported goods it will be necessary to include in that value commissions and brokerage incurred by the buyer, except buying commissions. Accordingly, the question of whether or not payments made to intermediaries by the buyer and not included in the price actually paid or payable should be added to that price will depend, in the final analysis, on the role played by the intermediary and not on the term ("agent" or "broker") by which he is known. It is also clear from the provisions of art 8 that commissions or brokerage payable by the seller but which are not charged to the buyer could not be added to the price actually paid or payable.'

EXTRACTS FROM COMMENTARY 17.1

2.. While the provisions of the Agreement are clear and raise no particular question of principle, the treatment of commissions for Customs valuation purposes depends on the exact nature of services rendered by the intermediaries.

3.  Explanatory Note 2.1 of the Technical Committee on Customs Valuation examines commissions and brokerage in the context of Article 8, identifying the common characteristics of intermediaries, and concludes that, since the nature of the services rendered by intermediaries are often not apparent from the commercial documents, national administrations will need to take necessary reasonable measure to ensure the proper application of this provision of the Agreement.

4. This commentary provides guidelines on the question of the evidence necessary to establish under what circumstances fees paid by a buyer to an intermediary can be considered as a buying commission.

5. In this context, all relevant documents necessary to ascertain the existence and precise nature of the services in question should be made available to Customs.

6. Among such documents, one would be the agency contract between the agent and the buyer, stating the formalities and the activities which the agent may have to perform in the discharge of his duties up to the time that he puts the goods at the disposal of the buyer. The agency contracts should accurately reflect the terms of the agreement between the buyer and the agent and other documentary evidence such as purchase orders, telexes, letters of credit, correspondence, etc., which clearly supports the bona fides of the agency contract are to be produced should Customs so request.

7. In cases where written agency contracts do not exist alternative documentary evidence, such as mentioned in para 6 above, which clearly establishes the existence of an agency relationship is to be produced should Customs so request.

8. In cases where sufficient evidence establishing an agency relationship is not produced, Customs may conclude that no buying agency relationship exists.

9. Sometimes, the contracts or documents do not clearly represent or reflect the nature of the activities of the so-called agent. In such circumstances, it is essential that the actual facts of the case be determined and various factors, as explained below, be examined.

10. One of the questions which could be the subject of an enquiry is whether the so-called buying agent assumes any risk or performs additional services other than those which are indicated in para 9 of Capital Explanatory Note 2.1 and would normally be carried out by a buying agent. The extent of these additional services could affect the treatment of the buying commission. An example could be where the agent uses his own funds for the payment of the imported goods. This opens the possibility of the so-called buying agent sustaining a loss or gaining a profit arising from ownership of the goods rather than receiving an agreed fee from acting as a buying agent. In this situation, the totality of the circumstances which apparently establishes a buying agency arrangement may be examined.

11. The result of this enquiry could indicate that the agent is acting on his own account and/or that he has proprietary interest in the goods. ...

12. Another factor to be examined is the relationship, within the meaning of art 15.4 of the parties involved in the transaction. For instance, the relationship of the agent with the seller or with the person related to the seller has a bearing on the ability of the alleged agent to represent the buyer's interest. Despite the existence of an agency contract, the Customs is entitled to examine the totality of the circumstances to determine whether the so-called agent is in fact acting on behalf of the buyer and not on the account of the seller or even on his own account.