Buying vs selling commission: the one deduction customs actually allows

The 6% you pay your agent, and what customs does with it

You import home textiles from Asia. You have never set foot in the mill: a sourcing office in Hong Kong found the factory, negotiated the price, approved the samples and policed the production schedule. It bills you 6% of FOB value, on its own invoice, separate from the goods. On your entry you declare the factory price only — and you are right to.

Your competitor runs the identical structure with one difference: their intermediary sends a single invoice covering goods and remuneration together. They pay duty on both. Same product, same origin, same freight, same tariff line — and a materially larger duty bill, created entirely by how two pieces of paper were drawn up.

Buying commissions occupy a unique position in valuation law: they are the only item in the adjustment article that removes money from the dutiable base instead of adding to it. That asymmetry, on its own, explains why the line draws audit attention out of all proportion to its size.

The only subtraction in a list of additions

The WTO Valuation Agreement, at Article 8.1(a)(i), adds to the price paid "commissions and brokerage, except buying commissions". US law carries the same rule at 19 U.S.C. § 1401a(b)(1)(B), which makes only selling commissions dutiable; India mirrors it at Rule 10(1)(a)(i) of the Customs Valuation Rules 2007, and the UK retained the EU wording through the Taxation (Cross-border Trade) Act 2018.

The Agreement defines the term itself, at Article 15.1(b): a buying commission is what an importer pays its agent for the service of representing him abroad in the purchase of the goods being valued. Every word carries weight. The intermediary must represent the buyer, and the mandate must concern the purchase.

Now read the rest of the adjustment article: assists supplied free of charge, royalties and licence fees, packing costs, proceeds of resale accruing to the seller, and international freight for CIF-basis countries such as the UK and India. Every one of those increases the base. The buying commission is the only line that lowers it.

The consequence is procedural, and it is the heart of the matter: for an addition, the administration builds the case; for this exclusion, the importer must prove the agency is real. US case law has said so without hedging since Rosenthal-Netter, Inc. v. United States (12 CIT 77, 1988, aff'd Fed. Cir. 1988) — whoever claims the agency carries the burden. European practice reaches the same place by a different route.

Customs reads the function, not the label

No administration stops at the words "buying commission" typed on an invoice. There is a single question: is this intermediary acting for the account of the buyer, or on its own account? The US courts formalised the inquiry in New Trends, Inc. v. United States (10 CIT 637, 1986), refined in Jay-Arr Slimwear, Inc. v. United States (12 CIT 133, 1988), and the factors travel well to any WTO-aligned regime.

Five tells recur. The first is title: if the intermediary ever owns the goods, even briefly, it is not an agent but a seller, and its margin sits inside the price rather than beside it. The second is who issues the commercial invoice: an agent invoices a service, never merchandise. The third is the source of remuneration: a rebate collected from the factory converts a single mandate into a dual one and pushes the fee across into selling commissions. The fourth is commercial risk: warranting quality, absorbing non-payment or carrying supplier credit are the attributes of a principal. The fifth is the one most often misread.

That last row deserves saying plainly, because it makes importers abandon a deduction they were fully entitled to: being related to the buyer does not disqualify a buying agent. A sourcing subsidiary that scouts, negotiates and inspects without ever taking title is still an agent. It is a link to the seller, or money received from the seller, that is fatal. The symmetry is only apparent.

The paperwork trap: a folded-in commission cannot be deducted

A perfectly genuine agency can still yield nothing, and this is the most common failure by a wide margin. The exclusion rests on three plain material conditions: a separate invoice from the agent, a separate payment to the agent, and a written mandate predating the transactions at issue.

If the fee sits inside the unit price, the dutiable base is the price actually paid or payable — the whole invoice. No mechanism lets anyone carve out, after the fact, a share the importer chose not to isolate. The service happened; the deduction did not.

A mandate signed after a CF-28 lands is worth little: an agreement tidied up mid-audit does not evidence the intention that governed the entries. The durable habit is to keep, per shipment, the factory invoice made out to the buyer, the agent's fee invoice, and proof of both payments. That chain is exactly what gets requested, and exactly what a post-clearance audit pulls first.

One last reflex: the fee must be unbundled when the agent performs other services. Inspection, consolidation and warehousing follow their own rules and do not inherit the buying-commission treatment.

Three worked cases

1. Two invoices beat one. US importer, ocean entry, Asian sourcing through a Hong Kong buying office at 6% of FOB, separately invoiced. Duty rate of 8.5% used here as a working assumption — verify against your actual HTSUS line.

The merchandise processing fee at 0.3464% and the harbor maintenance fee at 0.125% both run on entered value, so both shrink with the base — roughly $74 more on this entry, subject to the MPF per-entry cap.

2. The agency that failed the test. Importer claimed 6% out of the base for three years on a $1,800,000 annual flow. A CF-28 established that the intermediary had issued the commercial invoices for the goods in its own name.

A prior disclosure under § 1592(c)(4), filed before the investigation is known to the importer, typically reduces the exposure to the duty plus interest — which is the whole argument for auditing this line yourself rather than waiting.

3. India, where relatedness routes you through SVB. Importer of industrial components paying a 1.5% buying commission to a related Singapore sourcing arm, invoiced separately. Basic customs duty of 10% used as a working assumption.

A cash line decided at the drafting stage

A buying commission is not a scheme. It is an entitlement written into the WTO Valuation Agreement, which a great many importers never exercise because the relationship was never structured to support it. Three habits cover it: a written mandate dated before the first purchase order, separate invoicing and separate settlement, and a clause barring any remuneration from the seller's side.

To place this line inside the wider construction, see our walkthrough of the six customs valuation methods and the analysis of transfer pricing adjustments, which asks the same question — who pays what, to whom, and on what basis — of intercompany flows.