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CALDERWOOD & HARKNESS LLP

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of firm attorneys working on the above-referenced matter. Any distribution, reproduction, or disclosure to third parties without the prior written consent of the responsible partner is strictly prohibited.

MEMORANDUM

TO: File (C&H-2022-ITS-04781)

FROM: Garrett Simmons

DATE: November 18, 2022

RE: Analysis of Nereus Maritime Advisory Ltd. Procurement Fee — Buying Commission vs. Selling Commission Under the Union Customs Code

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I. Issue

This memorandum addresses whether the €2,940,000 "procurement coordination fee" paid by Thalassa Shipping & Logistics SA ("TSL") to Nereus Maritime Advisory Limited ("Nereus") qualifies as a deductible "buying commission" under Article 72(a) of the Union Customs Code (Regulation (EU) No. 952/2013) ("UCC") or, alternatively, constitutes a selling commission or procurement markup that must be included in the customs value of the imported goods under Article 71(1)(a)(i) of the UCC.

The fee at issue was calculated at 3% of the aggregate equipment purchase price across four master purchase contracts (3% × €98,000,000 = €2,940,000). The fee was invoiced by Nereus to TSL and paid by TSL in installments corresponding to shipment milestones under each of the four purchase contracts.

Nereus is a Cyprus-registered private limited company, bearing Cyprus Company Registration Number HE 387214, with its registered office at 12 Griva Digeni Avenue, Office 302, 3106 Limassol, Cyprus. The company was incorporated in 2018 and has maintained its registered office at that address since incorporation.

The fee was paid in connection with the procurement of 47 units of marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a Chinese manufacturer headquartered in Ningbo, Zhejiang Province, People's Republic of China (Unified Social Credit Code: 91330211MA2GR8KT5X). The 47 units were purchased under four master purchase contracts executed between January 2019 and February 2021, identified as follows:

• Contract HHI-TSL-2019-001 (executed January 15, 2019)

• Contract HHI-TSL-2019-002 (executed July 8, 2019)

• Contract HHI-TSL-2020-001 (executed March 12, 2020)

• Contract HHI-TSL-2021-001 (executed February 3, 2021)

The total declared CIF customs value across all four contracts was €98,000,000. TSL excluded the Nereus procurement coordination fee from the declared customs value on the grounds that it constituted a buying commission deductible under Article 72(a) UCC.

This issue forms part of the valuation adjustment set forth in Additional Duty Assessment Notice AADE/ADAN/2022/0074, dated August 12, 2022, issued by the Independent Authority for Public Revenue of Greece (Ανεξάρτητη Αρχή Δημοσίων Εσόδων, "AADE"). The AADE determined that the Nereus fee did not qualify as a buying commission and accordingly included it in the customs value, resulting in additional customs duties assessed against TSL.

This memorandum analyzes the legal framework governing the distinction between buying commissions and selling commissions under the UCC, applies that framework to the specific factual circumstances surrounding Nereus's role in the Hailong procurement, assesses the risk of an adverse outcome, and recommends mitigation strategies for the engagement team's consideration.

II. Short Answer

TSL's characterization of the Nereus procurement coordination fee as a buying commission faces significant obstacles on multiple fronts.

The related-party ownership structure — in which the Andreadis family holds a combined 70% economic interest in Nereus through Andreadis Family Holdings LLC ("AFH") (40%) and Eleni Andreadis individually (30%), while AFH simultaneously controls TSL with a 62% equity stake — fundamentally blurs the distinction between the buyer (TSL) and its alleged independent purchasing agent (Nereus). The World Customs Organization's Technical Committee on Customs Valuation has consistently identified the lack of independence between buyer and agent as one of the strongest indicators that a commission is not a genuine buying commission.

This structural concern is significantly compounded by the background of Konstantinos Melas, Nereus's managing director and 30% owner. Melas served as Hailong's commissioned sales agent for the Southern European market (covering Greece, Italy, Turkey, and Croatia) from approximately 2012 to 2017. His departure from Hailong and subsequent role as managing director of Nereus — an entity receiving a 3% procurement fee from TSL on purchases from the very manufacturer for which Melas previously served as a sales agent — presents a factual profile that AADE can be expected to characterize as a fee restructuring designed to convert a selling commission into a buying commission for customs valuation purposes.

Furthermore, the limited documentation currently available regarding genuine buyer-side procurement services performed by Nereus undermines TSL's ability to demonstrate the substantive purchasing activities that the WCO and CJEU case law require for a buying commission to be deductible. While preliminary information suggests that Nereus did perform some buyer-side activities — including an initial market assessment, correspondence with TSL, and several quality inspection site visits to Hailong's Ningbo facility — these activities, without more, may be insufficient to overcome the related-party and seller-connection concerns.

Taking these factors together, this memorandum assesses an approximately 70–80% probability that AADE will succeed in including the procurement coordination fee in the customs value of the imported equipment.

However, complete concession at this stage is premature. We recommend comprehensive factual development as an immediate priority, including a Functions-Assets-Risks ("FAR") analysis to be prepared by Kestrel & Palladian LLP (Spyros Makris, Partner, Indirect Tax & Customs Valuation Practice, Athens office at 8 Voukourestiou Street, 106 71 Athens), to identify and document any genuine buying-agent functions that Nereus performed. If Nereus can demonstrate through contemporaneous documentation that it performed substantive procurement functions on TSL's behalf — including market research, identification and evaluation of alternative suppliers, price negotiations, and quality assurance activities — then the defense, while challenging, is not foreclosed. The engagement team should also consider the strategic interaction between the Nereus valuation issue and the classification dispute under ADAN/2022/0073, as the duty impact of the Nereus adjustment is entirely dependent on the applicable tariff rate.

III. Legal Framework

A. Buying Commission Definition Under the UCC

Article 72(a) of the Union Customs Code (Regulation (EU) No. 952/2013) provides that "buying commissions" — that is, fees paid by an importer to its agent for the service of representing the importer in the purchase of goods — shall not be included in the customs value of imported goods. This provision reflects the longstanding international customs valuation principle, derived from Article 8.1(a)(i) of the WTO Valuation Agreement, that a payment by the buyer to its own purchasing agent does not form part of the price actually paid or payable for the goods and should therefore be excluded from the transaction value.

The term "buying commission" is further defined in Article 127(1) of the UCC Implementing Regulation (Commission Implementing Regulation (EU) 2015/2447), which characterizes it as fees paid by an importer to its agent for the service of representing the importer for the purchase of the goods being valued. The Implementing Regulation thus emphasizes two critical elements: (i) the agent must be acting in a representative capacity, and (ii) the representation must be on behalf of the importer (the buyer) rather than the seller.

The WCO Technical Committee on Customs Valuation has provided substantial guidance on the criteria for distinguishing a genuine buying commission from other types of commissions or intermediary fees. Commentary 17.1 of the WCO Technical Committee identifies the following hallmarks of a genuine buying commission arrangement:

1. The agent acts on behalf of the buyer, not the seller. The fundamental requirement is that the agent's loyalties, obligations, and economic incentives are aligned with the buyer's interests. The agent must be acting as the buyer's representative in the purchasing transaction, not as an intermediary advancing the seller's commercial interests.

2. The agent is independent of the seller. A genuine buying agent must maintain independence from the manufacturer or supplier of the goods. Where the agent has a relationship with the seller — whether through ownership, employment, contract, or prior business dealings — the independence of the agent is called into question, and the burden on the importer to demonstrate genuine buying-agent status is correspondingly heightened.

3. The agent performs genuine purchasing services. The buying agent must provide substantive value-added services on behalf of the buyer in connection with the procurement. Such services typically include, but are not limited to: locating and identifying potential suppliers, evaluating supplier capabilities and product quality, soliciting competitive quotations, negotiating prices and commercial terms, inspecting goods prior to shipment, and arranging logistics and transport.

4. The agent's fee is separately identified and distinguishable from the purchase price. The buying commission must be invoiced and paid separately from the price of the goods. If the commission is embedded in the purchase price or paid through the seller, it is unlikely to qualify as a deductible buying commission.

5. The agent does not take title to the goods. A genuine buying agent acts as a representative and does not acquire ownership of the goods at any point in the transaction chain. If the agent purchases goods in its own name and resells them to the importer, the agent is acting as a principal, not as a buying agent.

6. The agent does not bear the commercial risk of the transaction. A buying agent's exposure should be limited to its agency fee. If the agent bears risks typically associated with ownership — such as inventory risk, price fluctuation risk, or the risk of non-payment by the buyer — the agent is more likely to be characterized as a principal or intermediary rather than as a genuine buying agent.

Commentary 17.1 further establishes that the burden of proof lies on the importer to demonstrate that a commission qualifies as a genuine buying commission. This burden allocation is significant in the present case, as it places on TSL the obligation to affirmatively establish that Nereus functioned as a bona fide buying agent — a burden that cannot be satisfied by mere contractual labeling but requires substantive evidentiary support.

B. Selling Commission Under the UCC

Article 71(1)(a)(i) of the UCC provides that the customs value of imported goods must include "commissions and brokerage, except buying commissions," to the extent that they are incurred by the buyer but not already included in the price actually paid or payable for the imported goods. Under this provision, a selling commission — that is, a commission paid to a person who represents the seller or who acts as an intermediary facilitating the sale between the buyer and the seller — must be added to the transaction value for purposes of customs valuation.

The distinction between a buying commission (deductible under Article 72(a)) and a selling commission (includable under Article 71(1)(a)(i)) turns on the actual role played by the agent in the transaction, not on the label or characterization assigned to the fee by the contracting parties. Both the WCO Technical Committee and the Court of Justice of the European Union ("CJEU") have consistently held that customs authorities are entitled — and indeed required — to look beyond the contractual description of a payment and examine the substance of the relationship and the functions actually performed by the purported agent. This substance-over-form principle is critical to the analysis of the Nereus fee.

A payment that is labeled as a "procurement coordination fee" or a "buying commission" in the parties' agreements will nonetheless be treated as a selling commission if the evidence demonstrates that the agent was in fact acting on behalf of the seller, facilitating the sale, or serving as an intermediary between the buyer and seller rather than as the buyer's independent representative. In such cases, the payment must be included in the customs value under Article 71(1)(a)(i).

C. Related-Party Transactions and Their Effect on Customs Valuation

Article 70(3)(d) of the UCC provides that the transaction value of goods imported between related persons may be accepted as the basis for customs valuation only if the relationship between the parties did not influence the price. This provision establishes a general principle of heightened scrutiny for transactions between related parties, which extends to the assessment of commissions and intermediary fees where the alleged buying agent is related to the buyer, the seller, or both.

Article 127(1) of the UCC Implementing Regulation (EU) 2015/2447 and WCO Commentary 17.1 reinforce this principle by identifying the related-party status of an alleged buying agent as a significant factor in assessing whether the agent genuinely acted on behalf of the buyer. Under the Implementing Regulation, a buying commission is deductible only if the agent acts exclusively on behalf of the buyer. Where the agent is related to the buyer or has connections to the seller, the customs authority is entitled to question whether the agent's loyalties and economic incentives are genuinely aligned with the buyer, and the importer faces a correspondingly higher evidentiary burden to demonstrate the genuineness of the buying-agent relationship.

In the present case, the related-party dimension operates on two levels. First, the 70% combined Andreadis family economic interest in Nereus (through AFH's 40% stake and Eleni Andreadis's 30% personal stake), coupled with AFH's controlling 62% equity stake in TSL, means that Nereus and TSL share common ownership and control. This raises the fundamental question of whether Nereus can be considered an independent agent at all, or whether it is simply an extension of TSL itself — a related-party vehicle through which TSL routes a portion of the procurement expenditure. Second, Konstantinos Melas's prior role as a Hailong sales agent introduces a seller-side connection that compounds the independence concerns and provides AADE with a factual basis to argue that Nereus served as a conduit between buyer and seller rather than as a genuine buyer's representative.

IV. Factual Analysis of Nereus's Role

A. Ownership Structure

Nereus Maritime Advisory Limited was incorporated in Cyprus in 2018 as a private limited company. Based on the company's incorporation documents and shareholder register, the ownership structure of Nereus is as follows:

This ownership structure gives rise to a dual concern that poses substantial challenges for TSL's buying commission defense.

Buyer-side relationship. AFH's 40% stake in Nereus, combined with Eleni Andreadis's 30% personal stake, results in a combined 70% Andreadis family economic interest in Nereus. At the same time, AFH controls TSL with a 62% equity stake, and Nikolaos Andreadis (AFH's 70% member) serves as TSL's Chairman and CEO. This ownership overlap fundamentally blurs the distinction between TSL in its capacity as the buyer and Nereus in its purported capacity as TSL's independent buying agent. The Andreadis family effectively controls both the importer and the entity receiving the procurement fee. Under these circumstances, AADE can be expected to argue that Nereus is not a genuine independent agent but rather a related-party vehicle — an economic alter ego of TSL through which a portion of the value of the imported goods is channeled outside the formal purchase price. The WCO Technical Committee's insistence that a buying agent be "independent" of the buyer is difficult to reconcile with a structure in which the buyer's controlling family holds a 70% economic interest in the agent.

Seller-side relationship. Konstantinos Melas's 30% ownership interest in Nereus, combined with his role as the company's managing director — the individual who directs Nereus's day-to-day operations and, by extension, its activities in the Hailong procurement — introduces a significant seller-side concern. Melas served as Hailong's commissioned sales agent for the Southern European market from approximately 2012 to 2017. In that capacity, he represented Hailong's commercial interests and was compensated by Hailong through sales commissions. Although Melas reportedly departed Hailong's employ in 2017 — approximately two years before the execution of the first TSL purchase contract (HHI-TSL-2019-001, dated January 15, 2019) — his prior relationship with the seller is precisely the type of seller-side connection that the WCO and CJEU guidance identifies as a strong indicator that an agent is not acting exclusively on behalf of the buyer. The temporal proximity between Melas's departure from Hailong, the incorporation of Nereus in 2018, and the commencement of TSL's procurement from Hailong in January 2019 further heightens this concern.

B. Services Allegedly Performed by Nereus

The engagement documentation governing Nereus's role in the procurement is a Procurement Services Agreement dated December 1, 2018, executed between TSL (as principal) and Nereus (as procurement agent). This agreement was executed approximately six weeks before the first Hailong purchase contract (HHI-TSL-2019-001, dated January 15, 2019).

Under the terms of the Procurement Services Agreement, Nereus was engaged to "identify, evaluate, and recommend suitable manufacturers of marine cargo-handling equipment and to coordinate the procurement process on behalf of TSL." The agreement sets forth Nereus's obligations in broad terms, encompassing market research, supplier identification and evaluation, price and commercial term negotiation, quality assurance, and coordination of logistics. In consideration for these services, Nereus is entitled to a procurement coordination fee of 3% of the aggregate purchase price of equipment procured through Nereus's services.

While the Procurement Services Agreement, on its face, contains language consistent with a buying-agent relationship, the critical question is whether the contractual description is supported by evidence of actual services performed. As both the WCO Commentary 17.1 and the CJEU have emphasized, the formal terms of an agreement are not determinative; customs authorities will examine the substance of the relationship and the activities actually undertaken by the purported buying agent.

The documents received to date from TSL regarding Nereus's actual services are limited. We have submitted a comprehensive document request to TSL, and the following categories of documentation remain pending:

• Documentation of the manufacturer identification and evaluation process, including any records of Nereus's research into potential equipment suppliers beyond Hailong;

• Evidence of alternative suppliers considered by Nereus, including any requests for proposals, competitive bids, or comparative analyses of manufacturers;

• Records of Nereus's negotiations with Hailong on pricing, commercial terms, delivery schedules, and equipment specifications;

• Inspection reports, quality assurance documentation, or testing certificates generated by Nereus in connection with the procurement;

• Internal correspondence between Nereus and TSL demonstrating buyer-side reporting, including status updates, recommendations, and advisory communications;

• Correspondence between Nereus and Hailong, which is essential to assessing whether Nereus was acting on the seller's behalf, facilitating the sale, or functioning as a conduit between buyer and seller.

The absence of contemporaneous documentation of genuine procurement services is the most significant factual weakness in TSL's position. If Nereus cannot produce evidence of substantive buyer-side services — including market research demonstrating that alternative suppliers were identified and evaluated, competitive tender or quotation processes, price negotiation documentation showing that Nereus advocated for lower prices or more favorable terms on TSL's behalf, and quality assurance reports demonstrating active oversight of the manufacturing process — AADE will argue that Nereus was either a passive intermediary whose activities did not rise to the level of genuine procurement services or, more damagingly, a vehicle for routing value to the Andreadis family and Melas outside the formal purchase price structure.

Based on preliminary information obtained from Dimitrios Sarantopoulos, TSL's Vice President of Procurement & Supply Chain, Nereus's actual documented activities to date include:

1. Initial market assessment report (November 2018). Nereus prepared a market assessment report, dated November 2018, that purportedly surveyed the landscape of marine cargo-handling equipment manufacturers. We have not yet reviewed this document and cannot assess its scope, depth, or whether it reflects genuine buyer-side research or a pro forma exercise designed to justify the Nereus engagement.

2. Correspondence between Nereus and TSL regarding the Hailong procurement. Sarantopoulos has indicated that there is email correspondence between Nereus (primarily Melas) and TSL's procurement team in which Nereus provided updates on the procurement process. The volume, substance, and frequency of this correspondence remain to be assessed upon production.

3. Three quality inspection reports from site visits to Hailong's Ningbo facility. Sarantopoulos confirmed that Nereus personnel (or contractors engaged by Nereus) conducted site visits to Hailong's manufacturing facility in Ningbo, resulting in inspection reports dated approximately February 2019, mid-2019 (exact date not confirmed), and September 2020.

These activities provide some evidence of buyer-side services. In particular, the quality inspection site visits, if substantiated by detailed reports, travel records, and demonstrable follow-up actions, could support the argument that Nereus performed one of the core functions of a buying agent — quality assurance oversight on behalf of the buyer. However, the inspection reports alone, without evidence of the broader procurement functions described in the Procurement Services Agreement (market research, supplier evaluation, competitive analysis, price negotiation), may be insufficient to overcome the related-party and seller-connection concerns detailed in the preceding section.

C. Konstantinos Melas's Prior Relationship with Hailong

The background of Konstantinos Melas is a central factual issue in the buying commission analysis and warrants detailed consideration.

Melas served as Hailong Heavy Industries' commissioned sales agent for the Southern European market — covering Greece, Italy, Turkey, and Croatia — from approximately 2012 to 2017. In this capacity, Melas was responsible for identifying and cultivating potential customers for Hailong's marine and industrial equipment in the region. His compensation from Hailong was structured as sales commissions based on the value of orders he generated. During this period, Melas introduced Hailong to several prospective customers in the Southern European market, including TSL, through Melas's pre-existing relationship with Nikolaos Andreadis.

Melas reportedly departed from his role as Hailong's sales agent in or around 2017. The precise circumstances of his departure — including whether it was voluntary or involuntary, whether Melas was subject to any non-compete or post-employment restrictive covenants, and whether any ongoing commercial arrangements remained in place between Melas and Hailong after his departure — have not yet been established. These facts are material and should be developed through an interview with Melas and, if possible, through review of any agency agreement or correspondence between Melas and Hailong relating to the termination of his appointment.

Following his departure from Hailong, Melas incorporated Nereus Maritime Advisory Limited in Cyprus in 2018. Nereus's incorporation coincided with the beginning of TSL's procurement process for the marine cargo-handling equipment that is the subject of the Hailong purchase contracts. The temporal sequence — Melas's departure from Hailong in 2017, Nereus's incorporation in 2018, the execution of the Procurement Services Agreement on December 1, 2018, and the first Hailong purchase contract on January 15, 2019 — raises an inference that Nereus was created specifically to facilitate the TSL-Hailong procurement and to provide a structure through which Melas could continue to participate economically in Hailong's sales to TSL while the fee was recharacterized from a selling commission (paid by Hailong to Melas) to a buying commission (paid by TSL to Nereus).

AADE can be expected to advance this argument forcefully. Specifically, AADE will contend that Melas's transition from Hailong sales agent to Nereus managing director — with Nereus then receiving a 3% procurement fee from TSL on the same type of equipment and from the same manufacturer for which Melas would previously have earned a sales commission from Hailong — is indicative of a fee restructuring designed to convert what was substantively a selling commission (includable in customs value under Article 71(1)(a)(i) UCC) into a buying commission (deductible under Article 72(a) UCC). This argument is strengthened by the fact that the 3% fee rate is within the range of typical sales agent commissions in the heavy industrial equipment sector, and by the absence of evidence demonstrating what, if any, substantive change occurred in Melas's actual role vis-à-vis the Hailong procurement.

The key Hailong contact who can confirm or deny the details of Melas's prior role, the circumstances of his departure, and any ongoing relationship between Melas and Hailong is Wei Junhao, Export Sales Director at Hailong Heavy Industries. Whether and under what circumstances to approach Wei for information requires careful strategic consideration, as any inquiry to Hailong could elicit responses that are either helpful or harmful to TSL's position, and TSL may have limited ability to control the narrative from Hailong's side.

V. WCO and CJEU Guidance

A. WCO Technical Committee Commentary 17.1

WCO Technical Committee on Customs Valuation Commentary 17.1 is the primary interpretive source for the buying commission/selling commission distinction under the WTO Valuation Agreement and the customs legislation of WTO member states, including the UCC. The Commentary identifies a series of criteria and "red flags" that customs authorities should consider in determining whether a commission is a genuine buying commission or, alternatively, a selling commission or other payment to be included in the customs value.

As noted above, the burden of proof rests on the importer to demonstrate that a commission qualifies as a genuine buying commission. Where the importer fails to discharge this burden, the commission is to be treated as a selling commission and included in the customs value under Article 71(1)(a)(i) UCC.

Application of the Commentary 17.1 red flags to the present case yields the following assessment:

• Agent has a relationship with the seller. This red flag is triggered. Konstantinos Melas, Nereus's managing director and 30% owner, served as Hailong's commissioned sales agent for the Southern European market from approximately 2012 to 2017. Although Melas reportedly left Hailong's employ two years before the first TSL purchase contract, his prior role as a seller's representative in the very market at issue and with the very manufacturer at issue constitutes a relationship with the seller within the meaning of Commentary 17.1.

• Agent is related to the buyer. This red flag is triggered. The combined Andreadis family economic interest in Nereus is 70% (AFH's 40% stake plus Eleni Andreadis's 30% personal stake), and AFH simultaneously controls TSL with a 62% equity stake. Nereus and TSL are related persons under any reasonable definition, and the depth of the ownership overlap — a 70% common family interest — is at the more extreme end of the spectrum of buyer-agent relatedness.

• Agent does not provide evidence of genuine procurement services. The status of this factor is to be determined pending the completion of the document review. As of the date of this memorandum, the documentation of Nereus's actual procurement activities is limited to the items described in Section IV.B above (the November 2018 market assessment report, correspondence between Nereus and TSL, and three quality inspection reports). Whether this documentation is sufficient to demonstrate "genuine procurement services" will depend on the depth and substance of the materials produced.

• Agent's fee is calculated as a percentage of the purchase price. This red flag is triggered, though it is of lower weight standing alone. Nereus's 3% fee is calculated as a fixed percentage of the aggregate purchase price (3% × €98,000,000 = €2,940,000). While percentage-based fee structures are used in both buying commission and selling commission arrangements, and are therefore not dispositive, Commentary 17.1 identifies a percentage-based fee as a factor that, in combination with other red flags, may suggest that the commission is not a genuine buying commission. In the present case, where the percentage-based fee structure is combined with the seller-side relationship and the buyer-side relatedness concerns, it adds to the cumulative weight of the evidence against TSL's position.

B. CJEU Case Law

The Court of Justice of the European Union has addressed the buying commission/selling commission distinction in several decisions, the most directly relevant of which for present purposes is the following:

HAVI Logistics (Case C-59/16, judgment of 2017). In HAVI Logistics, the CJEU considered whether payments made to an intermediary in connection with the procurement of goods should be included in the customs value as a selling commission or excluded as a buying commission. The Court held that the classification of a payment as a buying commission or a selling commission depends on "the actual role played by the agent in the transaction, assessed on the basis of all the facts." The Court emphasized several principles of direct relevance to the present analysis:

First, the label or characterization given to a payment by the parties is not determinative. The CJEU stated that customs authorities are not bound by the contractual description of a fee and must instead examine the economic substance of the relationship and the functions actually performed by the purported agent. This principle underscores the insufficiency of TSL's reliance on the Procurement Services Agreement's description of Nereus as a "buying agent" or "procurement coordinator."

Second, the Court held that the assessment of whether a commission is a buying commission or a selling commission must be based on a comprehensive evaluation of all relevant facts and circumstances, including the nature of the services provided, the identity and background of the parties, and the economic incentives governing the agent's conduct.

Third, the HAVI Logistics decision implicitly affirmed the principle — consistent with WCO Commentary 17.1 — that where the evidence is ambiguous or the importer fails to establish that the agent acted genuinely and exclusively on behalf of the buyer, the commission is to be treated as a selling commission and included in the customs value.

The relevance of HAVI Logistics to the present case is direct. The formal Procurement Services Agreement label of "buying agent" does not control the analysis. AADE and any reviewing court will examine the actual functions performed by Nereus, the substance of its relationships with both TSL and Hailong, and whether the totality of the evidence supports the conclusion that Nereus acted as a genuine and independent purchasing agent on TSL's behalf. Given the red flags identified in this memorandum — the 70% Andreadis family interest, Melas's prior Hailong role, and the limited documentation of actual services — TSL faces a challenging evidentiary landscape.

VI. Risk Assessment

The following table provides a structured assessment of the key factors bearing on whether the Nereus procurement coordination fee will be treated as a buying commission (deductible under Article 72(a) UCC) or a selling commission (includable under Article 71(1)(a)(i) UCC):

Overall Risk Assessment. Based on the cumulative weight of the factors identified above, this memorandum assesses an approximately 70–80% probability that AADE will prevail on the characterization of the Nereus procurement coordination fee, resulting in the full €2,940,000 being included in the customs value of the imported equipment.

This risk assessment is based on the facts as currently understood and documented. The assessment could shift — in either direction — depending on the outcome of the factual development efforts recommended in Section VII of this memorandum. If TSL and Nereus can produce comprehensive contemporaneous documentation demonstrating that Nereus performed substantive, genuine, and independent procurement services on TSL's behalf, the risk assessment could improve. Conversely, if the document production reveals additional connections between Nereus and Hailong, or confirms that Nereus's actual activities were nominal or perfunctory, the risk assessment would deteriorate further.

Duty Impact Analysis. The financial consequences of an adverse outcome on the Nereus issue depend on the resolution of the separate classification dispute under ADAN/2022/0073. The valuation adjustment under ADAN/2022/0074 is calculated at a 2.2% duty rate, which presupposes that the reclassification from CN 8426 41 00 (0% MFN duty rate) to CN 8428 90 90 (2.2% MFN duty rate) is sustained. Under these assumptions:

• Additional duty on the Nereus fee: €2,940,000 × 2.2% = €64,680 in additional customs duties.

However, if the classification dispute is resolved in TSL's favor — that is, if the equipment remains classified under heading 8426 at a 0% MFN duty rate — then the Nereus valuation adjustment would have no duty impact whatsoever (0% × €2,940,000 = €0). In that scenario, AADE might still seek to correct the customs value on the record as a matter of administrative accuracy, but the correction would generate no additional duty liability.

This interaction between the valuation and classification issues is a critical strategic consideration that should inform the engagement team's approach to settlement discussions, as discussed further in Section VII below.

VII. Mitigation Strategies

Based on the analysis set forth in this memorandum, the following mitigation strategies are recommended:

1. Factual Development (Highest Priority)

The single most important step in assessing and potentially improving TSL's position on the Nereus issue is a comprehensive factual development effort. The current documentation is insufficient to support the buying commission defense, and the strength of that defense will depend entirely on whether Nereus can produce contemporaneous evidence of genuine buyer-side procurement services. We recommend requesting from TSL, through Elena Papadimitriou (CFO and primary financial contact), all documents in TSL's and Nereus's possession, custody, or control that bear on Nereus's actual activities in connection with the Hailong procurement, including but not limited to:

• Market research and supplier evaluation documentation, including any reports, databases, or analyses prepared by Nereus identifying and assessing potential manufacturers of marine cargo-handling equipment;

• Price negotiations documentation, including any correspondence, meeting notes, or proposals exchanged between Nereus and Hailong (or other manufacturers) reflecting Nereus's efforts to negotiate lower prices, more favorable commercial terms, extended warranties, or other buyer-favorable provisions;

• Records of site visits to potential manufacturers, including travel itineraries, booking confirmations, expense reports, and any reports or evaluations prepared by Nereus following such visits;

• Quality inspection documentation from Hailong's Ningbo facility (located at No. 288 Gangkou Road, Zhenhai District), including the three inspection reports identified by Sarantopoulos, as well as any additional inspection records, photographs, testing certificates, or deficiency notices;

• Correspondence with TSL's procurement team (specifically Dimitrios Sarantopoulos, VP Procurement & Supply Chain) demonstrating buyer-side reporting, including status updates, recommendations, advisory communications, and any requests for instructions from TSL regarding the procurement;

• Competitive tender documentation or evidence that alternative suppliers were identified, contacted, and considered by Nereus, including any requests for proposals, quotations received from manufacturers other than Hailong, or comparative analyses of supplier capabilities and pricing;

• Financial and accounting records reflecting the Nereus fee invoices, payment schedules, and any allocation of the fee to specific services or activities;

• Nereus's internal records, including board minutes, management reports, and time records reflecting the time spent by Melas and any other Nereus personnel on the TSL procurement.

In addition, we recommend scheduling an interview with Dimitrios Sarantopoulos to obtain a detailed firsthand account of Nereus's actual role in the procurement process, the decision-making process for selecting Hailong as the equipment supplier, the extent to which TSL's own procurement team performed functions that Nereus was purportedly engaged to perform, and any interactions between Sarantopoulos and Melas or other Nereus personnel.

2. Functions-Assets-Risks (FAR) Analysis by Kestrel & Palladian LLP

We recommend commissioning Spyros Makris, Partner in the Indirect Tax & Customs Valuation Practice at Kestrel & Palladian LLP (Athens office, 8 Voukourestiou Street, 106 71 Athens), to prepare a formal Functions-performed, Assets-used, Risks-assumed analysis of Nereus's role in the Hailong procurement. The FAR analysis is a structured methodology commonly used in transfer pricing and customs valuation contexts to establish the economic substance of an intermediary entity. In the context of the buying commission defense, the FAR analysis should document:

• Functions performed by Nereus: A detailed inventory of the procurement functions that Nereus actually performed on behalf of TSL, distinguished from functions performed by TSL's own procurement team. This should include an assessment of whether Nereus's functions were substantive or nominal, and whether they added genuine value to TSL's procurement process.

• Assets contributed by Nereus: An assessment of the tangible and intangible assets that Nereus brought to the engagement, including Melas's industry expertise, relationships with equipment manufacturers, knowledge of the Chinese heavy equipment market, and any proprietary databases, market intelligence, or analytical tools used by Nereus in its procurement activities.

• Risks assumed by Nereus: An evaluation of the commercial risks, if any, that Nereus bore in connection with the procurement. As noted in Section III.A, a genuine buying agent's risk exposure is typically limited to its agency fee. If Nereus assumed risks beyond those associated with its agency role — or, conversely, if Nereus bore no meaningful risk whatsoever — this factor will bear on the buying commission analysis.

The FAR analysis, if it identifies substantive procurement functions performed by Nereus, could provide valuable evidentiary support for TSL's buying commission defense. Conversely, if the FAR analysis reveals that Nereus's actual contributions were minimal, it will help the engagement team make an informed assessment of the advisability of continuing to contest the Nereus issue versus conceding it in settlement.

3. Interview of Konstantinos Melas

An interview with Konstantinos Melas, Nereus's managing director and 30% owner, is essential to developing the factual record on several critical issues. The interview should seek to establish:

• The circumstances and timing of his departure from Hailong, including whether the departure was voluntary or initiated by Hailong, and whether Melas was subject to any non-compete covenant, post-employment restriction, or other continuing obligation to Hailong following his departure;

• Whether Melas has had any ongoing relationship with Hailong, whether formal or informal, since his departure in 2017, including any consulting arrangements, referral agreements, or personal relationships with Hailong personnel;

• Whether Melas received any compensation, directly or indirectly, from Hailong after 2017, including in connection with the TSL procurement;

• The commercial rationale for establishing Nereus, including the business plan, initial capitalization, client base beyond TSL (if any), and the services Nereus was designed to provide;

• The specific services Melas personally performed for TSL through Nereus in connection with the Hailong procurement, with as much detail as possible regarding the nature, timing, and scope of those services;

• Melas's rationale for the 3% fee structure, including whether the fee was benchmarked against market rates for comparable procurement advisory services and how it compared to the commission structure he received from Hailong during his tenure as a sales agent.

The Melas interview should be conducted carefully and with an awareness that Melas's answers could either support or undermine TSL's position. If Melas can articulate a credible and detailed account of the buyer-side services he provided and establish that his Hailong relationship was fully and cleanly terminated before the TSL engagement commenced, his testimony could be helpful. If, on the other hand, the interview reveals that Melas's activities were limited, that his Hailong connections persisted, or that the fee structure was modeled on his prior Hailong sales commission, the interview could confirm AADE's characterization.

4. Alternative Argument — "Assists" Treatment Under Article 71(1)(b) UCC

As a secondary and fallback argument, if the buying commission defense ultimately fails, we should consider whether the Nereus fee could be treated as an "assist" under Article 71(1)(b) of the UCC rather than as a selling commission under Article 71(1)(a)(i). Article 71(1)(b) provides for the inclusion in customs value of the value of certain goods and services supplied by the buyer for use in the production or sale of the imported goods, including "engineering, development, artwork, design work, and plans and sketches" undertaken elsewhere than in the European Union.

This argument would be potentially applicable if Nereus provided technical or engineering services — such as equipment specification development, customization of design parameters, or technical coordination with Hailong's engineering team — that could be characterized as qualifying "assists." If the Nereus fee (or a portion thereof) were reclassified as an assist rather than a selling commission, it could potentially allow for a more favorable allocation methodology, particularly if the assists could be allocated across the total quantity of goods produced by Hailong rather than attributed solely to the goods imported by TSL.

However, this is a secondary argument with significant limitations. The factual basis for an assists characterization is not established on the current record, and the argument may provide limited or no relief if the Nereus fee is simply a selling commission that does not involve any qualifying goods or services. This argument should be developed only if the primary buying commission defense proves unviable and the factual development reveals technical or engineering activities performed by Nereus.

5. Settlement Leverage and Strategic Positioning

The engagement team should recognize that the Nereus issue may ultimately serve as a concession point in an overall settlement with AADE, depending on the resolution of the other dispute issues. Several strategic considerations bear on this analysis:

• Classification interaction. If TSL prevails on the classification dispute — maintaining the equipment under CN heading 8426 at a 0% MFN duty rate — and also prevails on the technology license fee issue, conceding the Nereus fee would have limited or no duty impact. In a 0% duty rate scenario, including the Nereus fee in the customs value would increase the declared value on the record but would generate no additional customs duties.

• Relative magnitude. Even if the classification dispute is adversely resolved and the 2.2% duty rate under CN 8428 90 90 applies, the additional duty attributable to the Nereus fee alone is €64,680 (€2,940,000 × 2.2%). This amount is modest in comparison to the classification duty impact of €1,478,400 (calculated on the full value of the reclassified equipment). From a cost-benefit perspective, investing significant litigation resources in contesting the Nereus issue may not be justified if the classification and technology license fee issues — which carry significantly larger duty exposure — are the primary battlegrounds.

• Strategic trade-off. Conceding the Nereus issue in exchange for AADE's favorable resolution of the classification dispute and/or the technology license fee issue may represent an acceptable strategic trade-off. Such a concession could demonstrate good faith, narrow the scope of the dispute, and allow the parties to focus their resources and attention on the issues with the greatest financial significance.

The decision regarding whether and when to concede the Nereus issue should be made in coordination with James Prentice (Responsible Partner) and in consultation with TSL's management, once the factual development efforts described above have been completed and the engagement team has a clearer picture of the strength of the buying commission defense.

VIII. Interaction with Other Dispute Issues

The Nereus valuation issue does not exist in isolation but interacts with several other components of TSL's customs dispute with AADE. The engagement team should be aware of the following interconnections:

Classification dependency. The valuation adjustment under ADAN/2022/0074 is calculated at a 2.2% duty rate, which presupposes the reclassification under ADAN/2022/0073 from CN 8426 41 00 (0% MFN duty rate — applicable to self-propelled machinery for handling on dock-sides and ship-to-shore container cranes) to CN 8428 90 90 (2.2% MFN duty rate — applicable to other lifting, handling, loading, or unloading machinery). If the classification dispute is resolved favorably for TSL — that is, if the equipment remains classified under heading 8426 at a 0% duty rate — the Nereus valuation adjustment has zero duty impact. This classification dependency is a key strategic consideration that should inform TSL's approach to settlement discussions and resource allocation. The team should resist the temptation to devote disproportionate resources to the Nereus issue at the expense of the classification dispute, which carries significantly greater financial exposure.

Related-party and transfer pricing scrutiny. The Nereus ownership structure — in which the Andreadis family holds controlling interests in both TSL and Nereus — may draw additional AADE scrutiny under Article 70(3)(d) UCC, which provides for heightened review of transaction values between related persons. To the extent that AADE views Nereus as a related-party vehicle rather than an independent agent, the Nereus fee could become part of a broader inquiry into whether the prices paid by TSL to Hailong (and other vendors) were influenced by the related-party relationships within the TSL/Andreadis family corporate structure. This broader scrutiny could have implications extending beyond the Nereus fee itself.

Distinction from other valuation adjustments. The Nereus issue is factually and legally distinct from the other two valuation adjustments asserted by AADE under ADAN/2022/0074: (i) the technology license fee of €4,900,000 paid by TSL to Hailong under a separate Technology License Agreement, and (ii) the commissioning services fee of €2,100,000 paid to a third-party commissioning contractor. These adjustments are analyzed in separate memoranda (see Customs Valuation Analysis Memorandum and Technology License Agreement Analysis Memorandum, respectively, in this matter file) and involve distinct legal issues under Articles 71 and 72 of the UCC. The engagement team should coordinate its positions on all three valuation adjustments to ensure consistency and to identify opportunities for strategic trade-offs in settlement discussions.

IX. Conclusion

The Nereus procurement coordination fee is TSL's weakest valuation position among the three AADE valuation adjustments asserted under ADAN/2022/0074.

The combination of the related-party ownership structure — with the Andreadis family holding a combined 70% economic interest in Nereus while simultaneously controlling TSL through AFH's 62% equity stake — the seller-side history of Konstantinos Melas, Nereus's managing director, who served as Hailong's commissioned sales agent from approximately 2012 to 2017, and the limited contemporaneous documentation of genuine procurement services performed by Nereus creates a formidable set of challenges for TSL's buying commission defense. Each of these factors, standing alone, would raise significant concerns. Taken together, they present a factual profile that AADE is well-positioned to characterize as a fee-restructuring arrangement designed to convert a selling commission into a buying commission for customs valuation purposes.

Notwithstanding these challenges, complete concession at this stage is not recommended. The engagement team should invest significant effort in factual development — including the comprehensive document request, the Sarantopoulos and Melas interviews, and the FAR analysis by Kestrel & Palladian LLP — before finalizing TSL's position. If the factual record, once fully developed, reveals substantive buyer-side procurement services performed by Nereus, the defense, while difficult, is not foreclosed.

At the same time, the engagement team should prepare for the likelihood that the Nereus fee will be included in the customs value in any eventual resolution of the dispute with AADE. The team should assess the Nereus issue in the context of the broader dispute, recognizing that the duty impact of the Nereus adjustment (€64,680 at the 2.2% rate, or €0 if the classification dispute is resolved favorably) is modest relative to the other issues in dispute, and that strategic concession on this point may be appropriate depending on the trajectory of the classification and technology license fee issues.

Immediate Next Steps:

1. Request all Nereus service documentation from TSL, coordinated through Elena Papadimitriou (CFO), including the categories of documents identified in Section VII.1 of this memorandum.

2. Schedule interview with Dimitrios Sarantopoulos, Vice President of Procurement & Supply Chain at TSL, to obtain a firsthand account of Nereus's role and activities.

3. Schedule interview with Konstantinos Melas, Managing Director of Nereus, to develop the factual record on Melas's departure from Hailong, his ongoing relationship (if any) with Hailong, the establishment of Nereus, and the services Nereus performed.

4. Engage Kestrel & Palladian LLP (Spyros Makris, Partner, Indirect Tax & Customs Valuation Practice, Athens office) to prepare the Functions-Assets-Risks (FAR) analysis of Nereus's role in the Hailong procurement.

5. Coordinate with Christy Bauer (Lead Associate) on how the Nereus issue interacts with the overall dispute strategy, including the classification challenge, the technology license fee analysis, and the pending BTI application (BTI-GR-2022-003847).

6. Inform James Prentice (Responsible Partner) of the elevated risk assessment on this issue (70–80% probability of adverse outcome) and discuss resource allocation and strategic positioning.

Garrett Simmons Associate, Tax Group Calderwood & Harkness LLP

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared in anticipation of litigation and is protected by the attorney-client privilege and the work product doctrine.

Owner	Stake	Relationship to TSL and/or Hailong
Andreadis Family Holdings LLC ("AFH")	40%	AFH is a Delaware limited liability company (File No. 5847291, registered agent: National Corporate Services Inc., 818 N. Market Street, Suite 100, Wilmington, DE 19801). AFH members are: Nikolaos Andreadis (70%), Eleni Andreadis (15%), and Georgios Andreadis (15%). AFH controls TSL with a 62% equity stake, making it the majority shareholder of the buyer. Nikolaos Andreadis serves as TSL's Chairman and Chief Executive Officer.
Konstantinos Melas	30%	Managing Director of Nereus. Former Hailong Heavy Industries commissioned sales agent for the Southern European market (Greece, Italy, Turkey, Croatia), from approximately 2012 to 2017. During this period, Melas represented Hailong's commercial interests in the region and introduced Hailong to several prospective customers, including TSL.
Eleni Andreadis	30%	Daughter of Nikolaos Andreadis. Holds a 30% personal stake in Nereus in addition to her 15% membership interest in AFH (which itself holds a 40% stake in Nereus). Serves as a non-executive director of Nereus. Currently 29 years of age.
Factor	Weight	Assessment
AFH's 40% + Eleni Andreadis's 30% = 70% combined Andreadis family economic interest in Nereus	High	Strongly disfavors buying commission characterization. The depth of the ownership overlap between TSL's controlling family and the purported buying agent undermines the independence requirement.
Konstantinos Melas's prior role as Hailong sales agent (approx. 2012–2017)	High	Strongly disfavors buying commission characterization. The transition from seller's agent to managing director of the buyer's alleged procurement agent, without a clear factual basis for distinguishing the two roles, supports AADE's fee-restructuring theory.
Timing: Nereus incorporated in Cyprus in 2018; Procurement Services Agreement executed December 1, 2018; first Hailong contract January 15, 2019	Medium	Suggests that Nereus was created specifically for the Hailong procurement and raises an inference that its incorporation was part of a fee restructuring arrangement rather than the establishment of a genuine independent procurement consultancy.
Fee structure: 3% of aggregate purchase price (€98,000,000)	Low–Medium	Percentage-based fee structures are common to both buying commissions and selling commissions and are not dispositive. However, Commentary 17.1 identifies this as a contributing red flag when combined with other concerns, and the 3% rate is within the range typical for seller-side sales agent commissions in the heavy industrial equipment sector.
Procurement Services Agreement exists with buying-agent language	Medium	Supports buying commission characterization to the extent it establishes a contractual framework consistent with a buyer-agent relationship. However, per HAVI Logistics, the contractual label is not determinative and must be substantiated by evidence of actual services performed.
Lack of documented procurement services (to date)	High	Significantly undermines the defense. The preliminary documentation — one market assessment report, correspondence of unassessed scope, and three quality inspection reports — may be insufficient to establish the breadth and depth of genuine procurement services required under WCO Commentary 17.1.

CALDERWOOD & HARKNESS LLP
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of firm attorneys working on the above-referenced matter. Any distribution, reproduction, or disclosure to third parties without the prior written consent of the responsible partner is strictly prohibited.
MEMORANDUM
TO: File (C&H-2022-ITS-04781)
FROM: Garrett Simmons
DATE: November 18, 2022
RE: Analysis of Nereus Maritime Advisory Ltd. Procurement Fee — Buying Commission vs. Selling Commission Under the Union Customs Code
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I. Issue
This memorandum addresses whether the €2,940,000 "procurement coordination fee" paid by Thalassa Shipping & Logistics SA ("TSL") to Nereus Maritime Advisory Limited ("Nereus") qualifies as a deductible "buying commission" under Article 72(a) of the Union Customs Code (Regulation (EU) No. 952/2013) ("UCC") or, alternatively, constitutes a selling commission or procurement markup that must be included in the customs value of the imported goods under Article 71(1)(a)(i) of the UCC.
The fee at issue was calculated at 3% of the aggregate equipment purchase price across four master purchase contracts (3% × €98,000,000 = €2,940,000). The fee was invoiced by Nereus to TSL and paid by TSL in installments corresponding to shipment milestones under each of the four purchase contracts.
Nereus is a Cyprus-registered private limited company, bearing Cyprus Company Registration Number HE 387214, with its registered office at 12 Griva Digeni Avenue, Office 302, 3106 Limassol, Cyprus. The company was incorporated in 2018 and has maintained its registered office at that address since incorporation.
The fee was paid in connection with the procurement of 47 units of marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a Chinese manufacturer headquartered in Ningbo, Zhejiang Province, People's Republic of China (Unified Social Credit Code: 91330211MA2GR8KT5X). The 47 units were purchased under four master purchase contracts executed between January 2019 and February 2021, identified as follows:
• Contract HHI-TSL-2019-001 (executed January 15, 2019)
• Contract HHI-TSL-2019-002 (executed July 8, 2019)
• Contract HHI-TSL-2020-001 (executed March 12, 2020)
• Contract HHI-TSL-2021-001 (executed February 3, 2021)
The total declared CIF customs value across all four contracts was €98,000,000. TSL excluded the Nereus procurement coordination fee from the declared customs value on the grounds that it constituted a buying commission deductible under Article 72(a) UCC.
This issue forms part of the valuation adjustment set forth in Additional Duty Assessment Notice AADE/ADAN/2022/0074, dated August 12, 2022, issued by the Independent Authority for Public Revenue of Greece (Ανεξάρτητη Αρχή Δημοσίων Εσόδων, "AADE"). The AADE determined that the Nereus fee did not qualify as a buying commission and accordingly included it in the customs value, resulting in additional customs duties assessed against TSL.
This memorandum analyzes the legal framework governing the distinction between buying commissions and selling commissions under the UCC, applies that framework to the specific factual circumstances surrounding Nereus's role in the Hailong procurement, assesses the risk of an adverse outcome, and recommends mitigation strategies for the engagement team's consideration.
II. Short Answer
TSL's characterization of the Nereus procurement coordination fee as a buying commission faces significant obstacles on multiple fronts.
The related-party ownership structure — in which the Andreadis family holds a combined 70% economic interest in Nereus through Andreadis Family Holdings LLC ("AFH") (40%) and Eleni Andreadis individually (30%), while AFH simultaneously controls TSL with a 62% equity stake — fundamentally blurs the distinction between the buyer (TSL) and its alleged independent purchasing agent (Nereus). The World Customs Organization's Technical Committee on Customs Valuation has consistently identified the lack of independence between buyer and agent as one of the strongest indicators that a commission is not a genuine buying commission.
This structural concern is significantly compounded by the background of Konstantinos Melas, Nereus's managing director and 30% owner. Melas served as Hailong's commissioned sales agent for the Southern European market (covering Greece, Italy, Turkey, and Croatia) from approximately 2012 to 2017. His departure from Hailong and subsequent role as managing director of Nereus — an entity receiving a 3% procurement fee from TSL on purchases from the very manufacturer for which Melas previously served as a sales agent — presents a factual profile that AADE can be expected to characterize as a fee restructuring designed to convert a selling commission into a buying commission for customs valuation purposes.
Furthermore, the limited documentation currently available regarding genuine buyer-side procurement services performed by Nereus undermines TSL's ability to demonstrate the substantive purchasing activities that the WCO and CJEU case law require for a buying commission to be deductible. While preliminary information suggests that Nereus did perform some buyer-side activities — including an initial market assessment, correspondence with TSL, and several quality inspection site visits to Hailong's Ningbo facility — these activities, without more, may be insufficient to overcome the related-party and seller-connection concerns.
Taking these factors together, this memorandum assesses an approximately 70–80% probability that AADE will succeed in including the procurement coordination fee in the customs value of the imported equipment.
However, complete concession at this stage is premature. We recommend comprehensive factual development as an immediate priority, including a Functions-Assets-Risks ("FAR") analysis to be prepared by Kestrel & Palladian LLP (Spyros Makris, Partner, Indirect Tax & Customs Valuation Practice, Athens office at 8 Voukourestiou Street, 106 71 Athens), to identify and document any genuine buying-agent functions that Nereus performed. If Nereus can demonstrate through contemporaneous documentation that it performed substantive procurement functions on TSL's behalf — including market research, identification and evaluation of alternative suppliers, price negotiations, and quality assurance activities — then the defense, while challenging, is not foreclosed. The engagement team should also consider the strategic interaction between the Nereus valuation issue and the classification dispute under ADAN/2022/0073, as the duty impact of the Nereus adjustment is entirely dependent on the applicable tariff rate.
III. Legal Framework
A. Buying Commission Definition Under the UCC
Article 72(a) of the Union Customs Code (Regulation (EU) No. 952/2013) provides that "buying commissions" — that is, fees paid by an importer to its agent for the service of representing the importer in the purchase of goods — shall not be included in the customs value of imported goods. This provision reflects the longstanding international customs valuation principle, derived from Article 8.1(a)(i) of the WTO Valuation Agreement, that a payment by the buyer to its own purchasing agent does not form part of the price actually paid or payable for the goods and should therefore be excluded from the transaction value.
The term "buying commission" is further defined in Article 127(1) of the UCC Implementing Regulation (Commission Implementing Regulation (EU) 2015/2447), which characterizes it as fees paid by an importer to its agent for the service of representing the importer for the purchase of the goods being valued. The Implementing Regulation thus emphasizes two critical elements: (i) the agent must be acting in a representative capacity, and (ii) the representation must be on behalf of the importer (the buyer) rather than the seller.
The WCO Technical Committee on Customs Valuation has provided substantial guidance on the criteria for distinguishing a genuine buying commission from other types of commissions or intermediary fees. Commentary 17.1 of the WCO Technical Committee identifies the following hallmarks of a genuine buying commission arrangement:
1. The agent acts on behalf of the buyer, not the seller. The fundamental requirement is that the agent's loyalties, obligations, and economic incentives are aligned with the buyer's interests. The agent must be acting as the buyer's representative in the purchasing transaction, not as an intermediary advancing the seller's commercial interests.
2. The agent is independent of the seller. A genuine buying agent must maintain independence from the manufacturer or supplier of the goods. Where the agent has a relationship with the seller — whether through ownership, employment, contract, or prior business dealings — the independence of the agent is called into question, and the burden on the importer to demonstrate genuine buying-agent status is correspondingly heightened.
3. The agent performs genuine purchasing services. The buying agent must provide substantive value-added services on behalf of the buyer in connection with the procurement. Such services typically include, but are not limited to: locating and identifying potential suppliers, evaluating supplier capabilities and product quality, soliciting competitive quotations, negotiating prices and commercial terms, inspecting goods prior to shipment, and arranging logistics and transport.
4. The agent's fee is separately identified and distinguishable from the purchase price. The buying commission must be invoiced and paid separately from the price of the goods. If the commission is embedded in the purchase price or paid through the seller, it is unlikely to qualify as a deductible buying commission.
5. The agent does not take title to the goods. A genuine buying agent acts as a representative and does not acquire ownership of the goods at any point in the transaction chain. If the agent purchases goods in its own name and resells them to the importer, the agent is acting as a principal, not as a buying agent.
6. The agent does not bear the commercial risk of the transaction. A buying agent's exposure should be limited to its agency fee. If the agent bears risks typically associated with ownership — such as inventory risk, price fluctuation risk, or the risk of non-payment by the buyer — the agent is more likely to be characterized as a principal or intermediary rather than as a genuine buying agent.
Commentary 17.1 further establishes that the burden of proof lies on the importer to demonstrate that a commission qualifies as a genuine buying commission. This burden allocation is significant in the present case, as it places on TSL the obligation to affirmatively establish that Nereus functioned as a bona fide buying agent — a burden that cannot be satisfied by mere contractual labeling but requires substantive evidentiary support.
B. Selling Commission Under the UCC
Article 71(1)(a)(i) of the UCC provides that the customs value of imported goods must include "commissions and brokerage, except buying commissions," to the extent that they are incurred by the buyer but not already included in the price actually paid or payable for the imported goods. Under this provision, a selling commission — that is, a commission paid to a person who represents the seller or who acts as an intermediary facilitating the sale between the buyer and the seller — must be added to the transaction value for purposes of customs valuation.
The distinction between a buying commission (deductible under Article 72(a)) and a selling commission (includable under Article 71(1)(a)(i)) turns on the actual role played by the agent in the transaction, not on the label or characterization assigned to the fee by the contracting parties. Both the WCO Technical Committee and the Court of Justice of the European Union ("CJEU") have consistently held that customs authorities are entitled — and indeed required — to look beyond the contractual description of a payment and examine the substance of the relationship and the functions actually performed by the purported agent. This substance-over-form principle is critical to the analysis of the Nereus fee.
A payment that is labeled as a "procurement coordination fee" or a "buying commission" in the parties' agreements will nonetheless be treated as a selling commission if the evidence demonstrates that the agent was in fact acting on behalf of the seller, facilitating the sale, or serving as an intermediary between the buyer and seller rather than as the buyer's independent representative. In such cases, the payment must be included in the customs value under Article 71(1)(a)(i).
C. Related-Party Transactions and Their Effect on Customs Valuation
Article 70(3)(d) of the UCC provides that the transaction value of goods imported between related persons may be accepted as the basis for customs valuation only if the relationship between the parties did not influence the price. This provision establishes a general principle of heightened scrutiny for transactions between related parties, which extends to the assessment of commissions and intermediary fees where the alleged buying agent is related to the buyer, the seller, or both.
Article 127(1) of the UCC Implementing Regulation (EU) 2015/2447 and WCO Commentary 17.1 reinforce this principle by identifying the related-party status of an alleged buying agent as a significant factor in assessing whether the agent genuinely acted on behalf of the buyer. Under the Implementing Regulation, a buying commission is deductible only if the agent acts exclusively on behalf of the buyer. Where the agent is related to the buyer or has connections to the seller, the customs authority is entitled to question whether the agent's loyalties and economic incentives are genuinely aligned with the buyer, and the importer faces a correspondingly higher evidentiary burden to demonstrate the genuineness of the buying-agent relationship.
In the present case, the related-party dimension operates on two levels. First, the 70% combined Andreadis family economic interest in Nereus (through AFH's 40% stake and Eleni Andreadis's 30% personal stake), coupled with AFH's controlling 62% equity stake in TSL, means that Nereus and TSL share common ownership and control. This raises the fundamental question of whether Nereus can be considered an independent agent at all, or whether it is simply an extension of TSL itself — a related-party vehicle through which TSL routes a portion of the procurement expenditure. Second, Konstantinos Melas's prior role as a Hailong sales agent introduces a seller-side connection that compounds the independence concerns and provides AADE with a factual basis to argue that Nereus served as a conduit between buyer and seller rather than as a genuine buyer's representative.
IV. Factual Analysis of Nereus's Role
A. Ownership Structure
Nereus Maritime Advisory Limited was incorporated in Cyprus in 2018 as a private limited company. Based on the company's incorporation documents and shareholder register, the ownership structure of Nereus is as follows:
This ownership structure gives rise to a dual concern that poses substantial challenges for TSL's buying commission defense.
Buyer-side relationship. AFH's 40% stake in Nereus, combined with Eleni Andreadis's 30% personal stake, results in a combined 70% Andreadis family economic interest in Nereus. At the same time, AFH controls TSL with a 62% equity stake, and Nikolaos Andreadis (AFH's 70% member) serves as TSL's Chairman and CEO. This ownership overlap fundamentally blurs the distinction between TSL in its capacity as the buyer and Nereus in its purported capacity as TSL's independent buying agent. The Andreadis family effectively controls both the importer and the entity receiving the procurement fee. Under these circumstances, AADE can be expected to argue that Nereus is not a genuine independent agent but rather a related-party vehicle — an economic alter ego of TSL through which a portion of the value of the imported goods is channeled outside the formal purchase price. The WCO Technical Committee's insistence that a buying agent be "independent" of the buyer is difficult to reconcile with a structure in which the buyer's controlling family holds a 70% economic interest in the agent.
Seller-side relationship. Konstantinos Melas's 30% ownership interest in Nereus, combined with his role as the company's managing director — the individual who directs Nereus's day-to-day operations and, by extension, its activities in the Hailong procurement — introduces a significant seller-side concern. Melas served as Hailong's commissioned sales agent for the Southern European market from approximately 2012 to 2017. In that capacity, he represented Hailong's commercial interests and was compensated by Hailong through sales commissions. Although Melas reportedly departed Hailong's employ in 2017 — approximately two years before the execution of the first TSL purchase contract (HHI-TSL-2019-001, dated January 15, 2019) — his prior relationship with the seller is precisely the type of seller-side connection that the WCO and CJEU guidance identifies as a strong indicator that an agent is not acting exclusively on behalf of the buyer. The temporal proximity between Melas's departure from Hailong, the incorporation of Nereus in 2018, and the commencement of TSL's procurement from Hailong in January 2019 further heightens this concern.
B. Services Allegedly Performed by Nereus
The engagement documentation governing Nereus's role in the procurement is a Procurement Services Agreement dated December 1, 2018, executed between TSL (as principal) and Nereus (as procurement agent). This agreement was executed approximately six weeks before the first Hailong purchase contract (HHI-TSL-2019-001, dated January 15, 2019).
Under the terms of the Procurement Services Agreement, Nereus was engaged to "identify, evaluate, and recommend suitable manufacturers of marine cargo-handling equipment and to coordinate the procurement process on behalf of TSL." The agreement sets forth Nereus's obligations in broad terms, encompassing market research, supplier identification and evaluation, price and commercial term negotiation, quality assurance, and coordination of logistics. In consideration for these services, Nereus is entitled to a procurement coordination fee of 3% of the aggregate purchase price of equipment procured through Nereus's services.
While the Procurement Services Agreement, on its face, contains language consistent with a buying-agent relationship, the critical question is whether the contractual description is supported by evidence of actual services performed. As both the WCO Commentary 17.1 and the CJEU have emphasized, the formal terms of an agreement are not determinative; customs authorities will examine the substance of the relationship and the activities actually undertaken by the purported buying agent.
The documents received to date from TSL regarding Nereus's actual services are limited. We have submitted a comprehensive document request to TSL, and the following categories of documentation remain pending:
• Documentation of the manufacturer identification and evaluation process, including any records of Nereus's research into potential equipment suppliers beyond Hailong;
• Evidence of alternative suppliers considered by Nereus, including any requests for proposals, competitive bids, or comparative analyses of manufacturers;
• Records of Nereus's negotiations with Hailong on pricing, commercial terms, delivery schedules, and equipment specifications;
• Inspection reports, quality assurance documentation, or testing certificates generated by Nereus in connection with the procurement;
• Internal correspondence between Nereus and TSL demonstrating buyer-side reporting, including status updates, recommendations, and advisory communications;
• Correspondence between Nereus and Hailong, which is essential to assessing whether Nereus was acting on the seller's behalf, facilitating the sale, or functioning as a conduit between buyer and seller.
The absence of contemporaneous documentation of genuine procurement services is the most significant factual weakness in TSL's position. If Nereus cannot produce evidence of substantive buyer-side services — including market research demonstrating that alternative suppliers were identified and evaluated, competitive tender or quotation processes, price negotiation documentation showing that Nereus advocated for lower prices or more favorable terms on TSL's behalf, and quality assurance reports demonstrating active oversight of the manufacturing process — AADE will argue that Nereus was either a passive intermediary whose activities did not rise to the level of genuine procurement services or, more damagingly, a vehicle for routing value to the Andreadis family and Melas outside the formal purchase price structure.
Based on preliminary information obtained from Dimitrios Sarantopoulos, TSL's Vice President of Procurement & Supply Chain, Nereus's actual documented activities to date include:
1. Initial market assessment report (November 2018). Nereus prepared a market assessment report, dated November 2018, that purportedly surveyed the landscape of marine cargo-handling equipment manufacturers. We have not yet reviewed this document and cannot assess its scope, depth, or whether it reflects genuine buyer-side research or a pro forma exercise designed to justify the Nereus engagement.
2. Correspondence between Nereus and TSL regarding the Hailong procurement. Sarantopoulos has indicated that there is email correspondence between Nereus (primarily Melas) and TSL's procurement team in which Nereus provided updates on the procurement process. The volume, substance, and frequency of this correspondence remain to be assessed upon production.
3. Three quality inspection reports from site visits to Hailong's Ningbo facility. Sarantopoulos confirmed that Nereus personnel (or contractors engaged by Nereus) conducted site visits to Hailong's manufacturing facility in Ningbo, resulting in inspection reports dated approximately February 2019, mid-2019 (exact date not confirmed), and September 2020.
These activities provide some evidence of buyer-side services. In particular, the quality inspection site visits, if substantiated by detailed reports, travel records, and demonstrable follow-up actions, could support the argument that Nereus performed one of the core functions of a buying agent — quality assurance oversight on behalf of the buyer. However, the inspection reports alone, without evidence of the broader procurement functions described in the Procurement Services Agreement (market research, supplier evaluation, competitive analysis, price negotiation), may be insufficient to overcome the related-party and seller-connection concerns detailed in the preceding section.
C. Konstantinos Melas's Prior Relationship with Hailong
The background of Konstantinos Melas is a central factual issue in the buying commission analysis and warrants detailed consideration.
Melas served as Hailong Heavy Industries' commissioned sales agent for the Southern European market — covering Greece, Italy, Turkey, and Croatia — from approximately 2012 to 2017. In this capacity, Melas was responsible for identifying and cultivating potential customers for Hailong's marine and industrial equipment in the region. His compensation from Hailong was structured as sales commissions based on the value of orders he generated. During this period, Melas introduced Hailong to several prospective customers in the Southern European market, including TSL, through Melas's pre-existing relationship with Nikolaos Andreadis.
Melas reportedly departed from his role as Hailong's sales agent in or around 2017. The precise circumstances of his departure — including whether it was voluntary or involuntary, whether Melas was subject to any non-compete or post-employment restrictive covenants, and whether any ongoing commercial arrangements remained in place between Melas and Hailong after his departure — have not yet been established. These facts are material and should be developed through an interview with Melas and, if possible, through review of any agency agreement or correspondence between Melas and Hailong relating to the termination of his appointment.
Following his departure from Hailong, Melas incorporated Nereus Maritime Advisory Limited in Cyprus in 2018. Nereus's incorporation coincided with the beginning of TSL's procurement process for the marine cargo-handling equipment that is the subject of the Hailong purchase contracts. The temporal sequence — Melas's departure from Hailong in 2017, Nereus's incorporation in 2018, the execution of the Procurement Services Agreement on December 1, 2018, and the first Hailong purchase contract on January 15, 2019 — raises an inference that Nereus was created specifically to facilitate the TSL-Hailong procurement and to provide a structure through which Melas could continue to participate economically in Hailong's sales to TSL while the fee was recharacterized from a selling commission (paid by Hailong to Melas) to a buying commission (paid by TSL to Nereus).
AADE can be expected to advance this argument forcefully. Specifically, AADE will contend that Melas's transition from Hailong sales agent to Nereus managing director — with Nereus then receiving a 3% procurement fee from TSL on the same type of equipment and from the same manufacturer for which Melas would previously have earned a sales commission from Hailong — is indicative of a fee restructuring designed to convert what was substantively a selling commission (includable in customs value under Article 71(1)(a)(i) UCC) into a buying commission (deductible under Article 72(a) UCC). This argument is strengthened by the fact that the 3% fee rate is within the range of typical sales agent commissions in the heavy industrial equipment sector, and by the absence of evidence demonstrating what, if any, substantive change occurred in Melas's actual role vis-à-vis the Hailong procurement.
The key Hailong contact who can confirm or deny the details of Melas's prior role, the circumstances of his departure, and any ongoing relationship between Melas and Hailong is Wei Junhao, Export Sales Director at Hailong Heavy Industries. Whether and under what circumstances to approach Wei for information requires careful strategic consideration, as any inquiry to Hailong could elicit responses that are either helpful or harmful to TSL's position, and TSL may have limited ability to control the narrative from Hailong's side.
V. WCO and CJEU Guidance
A. WCO Technical Committee Commentary 17.1
WCO Technical Committee on Customs Valuation Commentary 17.1 is the primary interpretive source for the buying commission/selling commission distinction under the WTO Valuation Agreement and the customs legislation of WTO member states, including the UCC. The Commentary identifies a series of criteria and "red flags" that customs authorities should consider in determining whether a commission is a genuine buying commission or, alternatively, a selling commission or other payment to be included in the customs value.
As noted above, the burden of proof rests on the importer to demonstrate that a commission qualifies as a genuine buying commission. Where the importer fails to discharge this burden, the commission is to be treated as a selling commission and included in the customs value under Article 71(1)(a)(i) UCC.
Application of the Commentary 17.1 red flags to the present case yields the following assessment:
• Agent has a relationship with the seller. This red flag is triggered. Konstantinos Melas, Nereus's managing director and 30% owner, served as Hailong's commissioned sales agent for the Southern European market from approximately 2012 to 2017. Although Melas reportedly left Hailong's employ two years before the first TSL purchase contract, his prior role as a seller's representative in the very market at issue and with the very manufacturer at issue constitutes a relationship with the seller within the meaning of Commentary 17.1.
• Agent is related to the buyer. This red flag is triggered. The combined Andreadis family economic interest in Nereus is 70% (AFH's 40% stake plus Eleni Andreadis's 30% personal stake), and AFH simultaneously controls TSL with a 62% equity stake. Nereus and TSL are related persons under any reasonable definition, and the depth of the ownership overlap — a 70% common family interest — is at the more extreme end of the spectrum of buyer-agent relatedness.
• Agent does not provide evidence of genuine procurement services. The status of this factor is to be determined pending the completion of the document review. As of the date of this memorandum, the documentation of Nereus's actual procurement activities is limited to the items described in Section IV.B above (the November 2018 market assessment report, correspondence between Nereus and TSL, and three quality inspection reports). Whether this documentation is sufficient to demonstrate "genuine procurement services" will depend on the depth and substance of the materials produced.
• Agent's fee is calculated as a percentage of the purchase price. This red flag is triggered, though it is of lower weight standing alone. Nereus's 3% fee is calculated as a fixed percentage of the aggregate purchase price (3% × €98,000,000 = €2,940,000). While percentage-based fee structures are used in both buying commission and selling commission arrangements, and are therefore not dispositive, Commentary 17.1 identifies a percentage-based fee as a factor that, in combination with other red flags, may suggest that the commission is not a genuine buying commission. In the present case, where the percentage-based fee structure is combined with the seller-side relationship and the buyer-side relatedness concerns, it adds to the cumulative weight of the evidence against TSL's position.
B. CJEU Case Law
The Court of Justice of the European Union has addressed the buying commission/selling commission distinction in several decisions, the most directly relevant of which for present purposes is the following:
HAVI Logistics (Case C-59/16, judgment of 2017). In HAVI Logistics, the CJEU considered whether payments made to an intermediary in connection with the procurement of goods should be included in the customs value as a selling commission or excluded as a buying commission. The Court held that the classification of a payment as a buying commission or a selling commission depends on "the actual role played by the agent in the transaction, assessed on the basis of all the facts." The Court emphasized several principles of direct relevance to the present analysis:
First, the label or characterization given to a payment by the parties is not determinative. The CJEU stated that customs authorities are not bound by the contractual description of a fee and must instead examine the economic substance of the relationship and the functions actually performed by the purported agent. This principle underscores the insufficiency of TSL's reliance on the Procurement Services Agreement's description of Nereus as a "buying agent" or "procurement coordinator."
Second, the Court held that the assessment of whether a commission is a buying commission or a selling commission must be based on a comprehensive evaluation of all relevant facts and circumstances, including the nature of the services provided, the identity and background of the parties, and the economic incentives governing the agent's conduct.
Third, the HAVI Logistics decision implicitly affirmed the principle — consistent with WCO Commentary 17.1 — that where the evidence is ambiguous or the importer fails to establish that the agent acted genuinely and exclusively on behalf of the buyer, the commission is to be treated as a selling commission and included in the customs value.
The relevance of HAVI Logistics to the present case is direct. The formal Procurement Services Agreement label of "buying agent" does not control the analysis. AADE and any reviewing court will examine the actual functions performed by Nereus, the substance of its relationships with both TSL and Hailong, and whether the totality of the evidence supports the conclusion that Nereus acted as a genuine and independent purchasing agent on TSL's behalf. Given the red flags identified in this memorandum — the 70% Andreadis family interest, Melas's prior Hailong role, and the limited documentation of actual services — TSL faces a challenging evidentiary landscape.
VI. Risk Assessment
The following table provides a structured assessment of the key factors bearing on whether the Nereus procurement coordination fee will be treated as a buying commission (deductible under Article 72(a) UCC) or a selling commission (includable under Article 71(1)(a)(i) UCC):
Overall Risk Assessment. Based on the cumulative weight of the factors identified above, this memorandum assesses an approximately 70–80% probability that AADE will prevail on the characterization of the Nereus procurement coordination fee, resulting in the full €2,940,000 being included in the customs value of the imported equipment.
This risk assessment is based on the facts as currently understood and documented. The assessment could shift — in either direction — depending on the outcome of the factual development efforts recommended in Section VII of this memorandum. If TSL and Nereus can produce comprehensive contemporaneous documentation demonstrating that Nereus performed substantive, genuine, and independent procurement services on TSL's behalf, the risk assessment could improve. Conversely, if the document production reveals additional connections between Nereus and Hailong, or confirms that Nereus's actual activities were nominal or perfunctory, the risk assessment would deteriorate further.
Duty Impact Analysis. The financial consequences of an adverse outcome on the Nereus issue depend on the resolution of the separate classification dispute under ADAN/2022/0073. The valuation adjustment under ADAN/2022/0074 is calculated at a 2.2% duty rate, which presupposes that the reclassification from CN 8426 41 00 (0% MFN duty rate) to CN 8428 90 90 (2.2% MFN duty rate) is sustained. Under these assumptions:
• Additional duty on the Nereus fee: €2,940,000 × 2.2% = €64,680 in additional customs duties.
However, if the classification dispute is resolved in TSL's favor — that is, if the equipment remains classified under heading 8426 at a 0% MFN duty rate — then the Nereus valuation adjustment would have no duty impact whatsoever (0% × €2,940,000 = €0). In that scenario, AADE might still seek to correct the customs value on the record as a matter of administrative accuracy, but the correction would generate no additional duty liability.
This interaction between the valuation and classification issues is a critical strategic consideration that should inform the engagement team's approach to settlement discussions, as discussed further in Section VII below.
VII. Mitigation Strategies
Based on the analysis set forth in this memorandum, the following mitigation strategies are recommended:
1. Factual Development (Highest Priority)
The single most important step in assessing and potentially improving TSL's position on the Nereus issue is a comprehensive factual development effort. The current documentation is insufficient to support the buying commission defense, and the strength of that defense will depend entirely on whether Nereus can produce contemporaneous evidence of genuine buyer-side procurement services. We recommend requesting from TSL, through Elena Papadimitriou (CFO and primary financial contact), all documents in TSL's and Nereus's possession, custody, or control that bear on Nereus's actual activities in connection with the Hailong procurement, including but not limited to:
• Market research and supplier evaluation documentation, including any reports, databases, or analyses prepared by Nereus identifying and assessing potential manufacturers of marine cargo-handling equipment;
• Price negotiations documentation, including any correspondence, meeting notes, or proposals exchanged between Nereus and Hailong (or other manufacturers) reflecting Nereus's efforts to negotiate lower prices, more favorable commercial terms, extended warranties, or other buyer-favorable provisions;
• Records of site visits to potential manufacturers, including travel itineraries, booking confirmations, expense reports, and any reports or evaluations prepared by Nereus following such visits;
• Quality inspection documentation from Hailong's Ningbo facility (located at No. 288 Gangkou Road, Zhenhai District), including the three inspection reports identified by Sarantopoulos, as well as any additional inspection records, photographs, testing certificates, or deficiency notices;
• Correspondence with TSL's procurement team (specifically Dimitrios Sarantopoulos, VP Procurement & Supply Chain) demonstrating buyer-side reporting, including status updates, recommendations, advisory communications, and any requests for instructions from TSL regarding the procurement;
• Competitive tender documentation or evidence that alternative suppliers were identified, contacted, and considered by Nereus, including any requests for proposals, quotations received from manufacturers other than Hailong, or comparative analyses of supplier capabilities and pricing;
• Financial and accounting records reflecting the Nereus fee invoices, payment schedules, and any allocation of the fee to specific services or activities;
• Nereus's internal records, including board minutes, management reports, and time records reflecting the time spent by Melas and any other Nereus personnel on the TSL procurement.
In addition, we recommend scheduling an interview with Dimitrios Sarantopoulos to obtain a detailed firsthand account of Nereus's actual role in the procurement process, the decision-making process for selecting Hailong as the equipment supplier, the extent to which TSL's own procurement team performed functions that Nereus was purportedly engaged to perform, and any interactions between Sarantopoulos and Melas or other Nereus personnel.
2. Functions-Assets-Risks (FAR) Analysis by Kestrel & Palladian LLP
We recommend commissioning Spyros Makris, Partner in the Indirect Tax & Customs Valuation Practice at Kestrel & Palladian LLP (Athens office, 8 Voukourestiou Street, 106 71 Athens), to prepare a formal Functions-performed, Assets-used, Risks-assumed analysis of Nereus's role in the Hailong procurement. The FAR analysis is a structured methodology commonly used in transfer pricing and customs valuation contexts to establish the economic substance of an intermediary entity. In the context of the buying commission defense, the FAR analysis should document:
• Functions performed by Nereus: A detailed inventory of the procurement functions that Nereus actually performed on behalf of TSL, distinguished from functions performed by TSL's own procurement team. This should include an assessment of whether Nereus's functions were substantive or nominal, and whether they added genuine value to TSL's procurement process.
• Assets contributed by Nereus: An assessment of the tangible and intangible assets that Nereus brought to the engagement, including Melas's industry expertise, relationships with equipment manufacturers, knowledge of the Chinese heavy equipment market, and any proprietary databases, market intelligence, or analytical tools used by Nereus in its procurement activities.
• Risks assumed by Nereus: An evaluation of the commercial risks, if any, that Nereus bore in connection with the procurement. As noted in Section III.A, a genuine buying agent's risk exposure is typically limited to its agency fee. If Nereus assumed risks beyond those associated with its agency role — or, conversely, if Nereus bore no meaningful risk whatsoever — this factor will bear on the buying commission analysis.
The FAR analysis, if it identifies substantive procurement functions performed by Nereus, could provide valuable evidentiary support for TSL's buying commission defense. Conversely, if the FAR analysis reveals that Nereus's actual contributions were minimal, it will help the engagement team make an informed assessment of the advisability of continuing to contest the Nereus issue versus conceding it in settlement.
3. Interview of Konstantinos Melas
An interview with Konstantinos Melas, Nereus's managing director and 30% owner, is essential to developing the factual record on several critical issues. The interview should seek to establish:
• The circumstances and timing of his departure from Hailong, including whether the departure was voluntary or initiated by Hailong, and whether Melas was subject to any non-compete covenant, post-employment restriction, or other continuing obligation to Hailong following his departure;
• Whether Melas has had any ongoing relationship with Hailong, whether formal or informal, since his departure in 2017, including any consulting arrangements, referral agreements, or personal relationships with Hailong personnel;
• Whether Melas received any compensation, directly or indirectly, from Hailong after 2017, including in connection with the TSL procurement;
• The commercial rationale for establishing Nereus, including the business plan, initial capitalization, client base beyond TSL (if any), and the services Nereus was designed to provide;
• The specific services Melas personally performed for TSL through Nereus in connection with the Hailong procurement, with as much detail as possible regarding the nature, timing, and scope of those services;
• Melas's rationale for the 3% fee structure, including whether the fee was benchmarked against market rates for comparable procurement advisory services and how it compared to the commission structure he received from Hailong during his tenure as a sales agent.
The Melas interview should be conducted carefully and with an awareness that Melas's answers could either support or undermine TSL's position. If Melas can articulate a credible and detailed account of the buyer-side services he provided and establish that his Hailong relationship was fully and cleanly terminated before the TSL engagement commenced, his testimony could be helpful. If, on the other hand, the interview reveals that Melas's activities were limited, that his Hailong connections persisted, or that the fee structure was modeled on his prior Hailong sales commission, the interview could confirm AADE's characterization.
4. Alternative Argument — "Assists" Treatment Under Article 71(1)(b) UCC
As a secondary and fallback argument, if the buying commission defense ultimately fails, we should consider whether the Nereus fee could be treated as an "assist" under Article 71(1)(b) of the UCC rather than as a selling commission under Article 71(1)(a)(i). Article 71(1)(b) provides for the inclusion in customs value of the value of certain goods and services supplied by the buyer for use in the production or sale of the imported goods, including "engineering, development, artwork, design work, and plans and sketches" undertaken elsewhere than in the European Union.
This argument would be potentially applicable if Nereus provided technical or engineering services — such as equipment specification development, customization of design parameters, or technical coordination with Hailong's engineering team — that could be characterized as qualifying "assists." If the Nereus fee (or a portion thereof) were reclassified as an assist rather than a selling commission, it could potentially allow for a more favorable allocation methodology, particularly if the assists could be allocated across the total quantity of goods produced by Hailong rather than attributed solely to the goods imported by TSL.
However, this is a secondary argument with significant limitations. The factual basis for an assists characterization is not established on the current record, and the argument may provide limited or no relief if the Nereus fee is simply a selling commission that does not involve any qualifying goods or services. This argument should be developed only if the primary buying commission defense proves unviable and the factual development reveals technical or engineering activities performed by Nereus.
5. Settlement Leverage and Strategic Positioning
The engagement team should recognize that the Nereus issue may ultimately serve as a concession point in an overall settlement with AADE, depending on the resolution of the other dispute issues. Several strategic considerations bear on this analysis:
• Classification interaction. If TSL prevails on the classification dispute — maintaining the equipment under CN heading 8426 at a 0% MFN duty rate — and also prevails on the technology license fee issue, conceding the Nereus fee would have limited or no duty impact. In a 0% duty rate scenario, including the Nereus fee in the customs value would increase the declared value on the record but would generate no additional customs duties.
• Relative magnitude. Even if the classification dispute is adversely resolved and the 2.2% duty rate under CN 8428 90 90 applies, the additional duty attributable to the Nereus fee alone is €64,680 (€2,940,000 × 2.2%). This amount is modest in comparison to the classification duty impact of €1,478,400 (calculated on the full value of the reclassified equipment). From a cost-benefit perspective, investing significant litigation resources in contesting the Nereus issue may not be justified if the classification and technology license fee issues — which carry significantly larger duty exposure — are the primary battlegrounds.
• Strategic trade-off. Conceding the Nereus issue in exchange for AADE's favorable resolution of the classification dispute and/or the technology license fee issue may represent an acceptable strategic trade-off. Such a concession could demonstrate good faith, narrow the scope of the dispute, and allow the parties to focus their resources and attention on the issues with the greatest financial significance.
The decision regarding whether and when to concede the Nereus issue should be made in coordination with James Prentice (Responsible Partner) and in consultation with TSL's management, once the factual development efforts described above have been completed and the engagement team has a clearer picture of the strength of the buying commission defense.
VIII. Interaction with Other Dispute Issues
The Nereus valuation issue does not exist in isolation but interacts with several other components of TSL's customs dispute with AADE. The engagement team should be aware of the following interconnections:
Classification dependency. The valuation adjustment under ADAN/2022/0074 is calculated at a 2.2% duty rate, which presupposes the reclassification under ADAN/2022/0073 from CN 8426 41 00 (0% MFN duty rate — applicable to self-propelled machinery for handling on dock-sides and ship-to-shore container cranes) to CN 8428 90 90 (2.2% MFN duty rate — applicable to other lifting, handling, loading, or unloading machinery). If the classification dispute is resolved favorably for TSL — that is, if the equipment remains classified under heading 8426 at a 0% duty rate — the Nereus valuation adjustment has zero duty impact. This classification dependency is a key strategic consideration that should inform TSL's approach to settlement discussions and resource allocation. The team should resist the temptation to devote disproportionate resources to the Nereus issue at the expense of the classification dispute, which carries significantly greater financial exposure.
Related-party and transfer pricing scrutiny. The Nereus ownership structure — in which the Andreadis family holds controlling interests in both TSL and Nereus — may draw additional AADE scrutiny under Article 70(3)(d) UCC, which provides for heightened review of transaction values between related persons. To the extent that AADE views Nereus as a related-party vehicle rather than an independent agent, the Nereus fee could become part of a broader inquiry into whether the prices paid by TSL to Hailong (and other vendors) were influenced by the related-party relationships within the TSL/Andreadis family corporate structure. This broader scrutiny could have implications extending beyond the Nereus fee itself.
Distinction from other valuation adjustments. The Nereus issue is factually and legally distinct from the other two valuation adjustments asserted by AADE under ADAN/2022/0074: (i) the technology license fee of €4,900,000 paid by TSL to Hailong under a separate Technology License Agreement, and (ii) the commissioning services fee of €2,100,000 paid to a third-party commissioning contractor. These adjustments are analyzed in separate memoranda (see Customs Valuation Analysis Memorandum and Technology License Agreement Analysis Memorandum, respectively, in this matter file) and involve distinct legal issues under Articles 71 and 72 of the UCC. The engagement team should coordinate its positions on all three valuation adjustments to ensure consistency and to identify opportunities for strategic trade-offs in settlement discussions.
IX. Conclusion
The Nereus procurement coordination fee is TSL's weakest valuation position among the three AADE valuation adjustments asserted under ADAN/2022/0074.
The combination of the related-party ownership structure — with the Andreadis family holding a combined 70% economic interest in Nereus while simultaneously controlling TSL through AFH's 62% equity stake — the seller-side history of Konstantinos Melas, Nereus's managing director, who served as Hailong's commissioned sales agent from approximately 2012 to 2017, and the limited contemporaneous documentation of genuine procurement services performed by Nereus creates a formidable set of challenges for TSL's buying commission defense. Each of these factors, standing alone, would raise significant concerns. Taken together, they present a factual profile that AADE is well-positioned to characterize as a fee-restructuring arrangement designed to convert a selling commission into a buying commission for customs valuation purposes.
Notwithstanding these challenges, complete concession at this stage is not recommended. The engagement team should invest significant effort in factual development — including the comprehensive document request, the Sarantopoulos and Melas interviews, and the FAR analysis by Kestrel & Palladian LLP — before finalizing TSL's position. If the factual record, once fully developed, reveals substantive buyer-side procurement services performed by Nereus, the defense, while difficult, is not foreclosed.
At the same time, the engagement team should prepare for the likelihood that the Nereus fee will be included in the customs value in any eventual resolution of the dispute with AADE. The team should assess the Nereus issue in the context of the broader dispute, recognizing that the duty impact of the Nereus adjustment (€64,680 at the 2.2% rate, or €0 if the classification dispute is resolved favorably) is modest relative to the other issues in dispute, and that strategic concession on this point may be appropriate depending on the trajectory of the classification and technology license fee issues.
Immediate Next Steps:
1. Request all Nereus service documentation from TSL, coordinated through Elena Papadimitriou (CFO), including the categories of documents identified in Section VII.1 of this memorandum.
2. Schedule interview with Dimitrios Sarantopoulos, Vice President of Procurement & Supply Chain at TSL, to obtain a firsthand account of Nereus's role and activities.
3. Schedule interview with Konstantinos Melas, Managing Director of Nereus, to develop the factual record on Melas's departure from Hailong, his ongoing relationship (if any) with Hailong, the establishment of Nereus, and the services Nereus performed.
4. Engage Kestrel & Palladian LLP (Spyros Makris, Partner, Indirect Tax & Customs Valuation Practice, Athens office) to prepare the Functions-Assets-Risks (FAR) analysis of Nereus's role in the Hailong procurement.
5. Coordinate with Christy Bauer (Lead Associate) on how the Nereus issue interacts with the overall dispute strategy, including the classification challenge, the technology license fee analysis, and the pending BTI application (BTI-GR-2022-003847).
6. Inform James Prentice (Responsible Partner) of the elevated risk assessment on this issue (70–80% probability of adverse outcome) and discuss resource allocation and strategic positioning.
Garrett Simmons Associate, Tax Group Calderwood & Harkness LLP
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared in anticipation of litigation and is protected by the attorney-client privilege and the work product doctrine.
Owner | Stake | Relationship to TSL and/or Hailong
Andreadis Family Holdings LLC ("AFH") | 40% | AFH is a Delaware limited liability company (File No. 5847291, registered agent: National Corporate Services Inc., 818 N. Market Street, Suite 100, Wilmington, DE 19801). AFH members are: Nikolaos Andreadis (70%), Eleni Andreadis (15%), and Georgios Andreadis (15%). AFH controls TSL with a 62% equity stake, making it the majority shareholder of the buyer. Nikolaos Andreadis serves as TSL's Chairman and Chief Executive Officer.
Konstantinos Melas | 30% | Managing Director of Nereus. Former Hailong Heavy Industries commissioned sales agent for the Southern European market (Greece, Italy, Turkey, Croatia), from approximately 2012 to 2017. During this period, Melas represented Hailong's commercial interests in the region and introduced Hailong to several prospective customers, including TSL.
Eleni Andreadis | 30% | Daughter of Nikolaos Andreadis. Holds a 30% personal stake in Nereus in addition to her 15% membership interest in AFH (which itself holds a 40% stake in Nereus). Serves as a non-executive director of Nereus. Currently 29 years of age.
Factor | Weight | Assessment
AFH's 40% + Eleni Andreadis's 30% = 70% combined Andreadis family economic interest in Nereus | High | Strongly disfavors buying commission characterization. The depth of the ownership overlap between TSL's controlling family and the purported buying agent undermines the independence requirement.
Konstantinos Melas's prior role as Hailong sales agent (approx. 2012–2017) | High | Strongly disfavors buying commission characterization. The transition from seller's agent to managing director of the buyer's alleged procurement agent, without a clear factual basis for distinguishing the two roles, supports AADE's fee-restructuring theory.
Timing: Nereus incorporated in Cyprus in 2018; Procurement Services Agreement executed December 1, 2018; first Hailong contract January 15, 2019 | Medium | Suggests that Nereus was created specifically for the Hailong procurement and raises an inference that its incorporation was part of a fee restructuring arrangement rather than the establishment of a genuine independent procurement consultancy.
Fee structure: 3% of aggregate purchase price (€98,000,000) | Low–Medium | Percentage-based fee structures are common to both buying commissions and selling commissions and are not dispositive. However, Commentary 17.1 identifies this as a contributing red flag when combined with other concerns, and the 3% rate is within the range typical for seller-side sales agent commissions in the heavy industrial equipment sector.
Procurement Services Agreement exists with buying-agent language | Medium | Supports buying commission characterization to the extent it establishes a contractual framework consistent with a buyer-agent relationship. However, per HAVI Logistics, the contractual label is not determinative and must be substantiated by evidence of actual services performed.
Lack of documented procurement services (to date) | High | Significantly undermines the defense. The preliminary documentation — one market assessment report, correspondence of unassessed scope, and three quality inspection reports — may be insufficient to establish the breadth and depth of genuine procurement services required under WCO Commentary 17.1.

CALDERWOOD & HARKNESS LLP

MEMORANDUM

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