What is an example of Commissions and Brokerage?

An importer pays 3% commission to a Shanghai agent who sources suppliers, negotiates prices, and inspects quality. By demonstrating with a contract that it is a buying commission, they exclude it from customs value.

Valuation

Commissions and Brokerage

Also known as: Sales commissions, Buying commissions, Intermediary fees

Payments made to intermediaries, buying agents, or commercial brokers in an international merchandise transaction that, depending on their nature, may constitute dutiable additions to customs value or be excluded from it under the WTO Valuation Agreement.

What are Commissions and Brokerage in Customs Valuation?

In customs valuation, commissions and brokerage are payments to third parties involved in the international purchase and sale. Their tax treatment depends on who pays and whom the intermediary represents. Article 8 of the WTO Valuation Agreement and Articles 65-66 of Mexico's Customs Law classify these payments as dutiable (added to value) or excludable (not added).

Commission classification

Selling commissions: paid by seller to their agent → YES dutiable
Buying commissions: paid by buyer to their agent → NOT dutiable (excluded)
Brokerage: paid to an independent broker → YES dutiable
Intermediary expenses: depends on whom the intermediary represents
Burden of proof regarding the commission's nature falls on the importer

Critical distinction

The difference between a buying commission (excludable) and selling commission (dutiable) can represent thousands of dollars in duties. The importer must clearly document that their purchasing agent acts on their behalf and not on behalf of the seller.

To demonstrate that a commission is a buying commission (and therefore excludable), the importer must prove that: (1) the agent acts under the buyer's instructions, (2) the agent is not a subsidiary of the seller, (3) an agency contract exists between buyer and agent, and (4) the agent provides verifiable services such as quality inspection, price negotiation, or supplier sourcing.

Examples

An importer pays 3% commission to a Shanghai agent who sources suppliers, negotiates prices, and inspects quality. By demonstrating with a contract that it is a buying commission, they exclude it from customs value.
The seller pays 5% to their commercial representative in Mexico for closing the sale. This selling commission must be added to customs value as a dutiable charge.
An independent broker charges $2,000 USD for facilitating the transaction between buyer and seller without representing either party. This brokerage is added to customs value.

Related terms

Valuation

Dutiable Charges (Assists)

Costs and values that must be added to the price actually paid or payable for imported goods to determine customs value, including commissions, packing, assists, royalties, licenses, and certain transport and insurance costs not included in the invoice price.

Trade

Customs Value

The monetary amount on which import duties are calculated, determined according to the WTO Valuation Agreement with transaction value as the primary method.

Valuation

Transaction Value

The price actually paid or payable for imported goods, adjusted as prescribed by the WTO Valuation Agreement. It is the primary method for determining customs value.

Valuation

Customs Valuation

Process of determining the customs value of imported goods using the six methods of the WTO Valuation Agreement, used to calculate duties and taxes.

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