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USA Tariffs & Transfer Pricing

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Tariffs & Transfer Pricing

Smart Strategies for International Trade Costs

Wat zijn Tariffs en Transfer Pricing?

Tariffs are duties or levies that a country imposes on imported goods. For companies operating internationally, these tariffs – such as a general import duty of 15% or a specific 50% steel levy – can represent a significant cost burden.

Transfer Pricing refers to the prices that companies set for goods and services traded between their own branches in different countries. The manner in which these prices are determined directly impacts both profit tax and the amount of import duties.
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How can you manage your tariffs with Transfer Pricing?

Smart transfer pricing strategies can help to reduce the threshold for customs duties, as long as they comply with fiscal and customs regulations.

THREE KEY INSIGHTS

1. Volume Discount Methodology

Instead of a standard markup (for example, cost price +5%), you can implement a volume discount based on actual customer data.
For instance, a customer purchasing $100,000 annually receives a 20% discount, while a customer buying $200,000 gets a 40% discount. It follows that a U.S. subsidiary purchasing $20 million per year should be entitled to an even greater discount.
By substantiating these volume discounts with a logarithmic formula and customer comparisons, you can realistic ally and defensibly lower the dutiable value (the value upon which duties are calculated).

2. Three-Document Strategy

An effective approach consists of three coordinated documents:
  • Transfer Pricing Calculation: Specifically for customs purposes, with a volume discount curve.
  • Transfer Pricing Study: For the tax authorities, comparing the profit of the U.S. entity with independent companies (typically a 5-10% margin).
  • Management Services Agreement: To invoice costs for management services (such as logistics, engineering, marketing) separately and not count them as cost of goods for customs duties.

3. Separate Invoicing for Management Services

Many companies make the mistake of recording year-end adjustments as cost of goods sold, leading customs to possibly impose a higher tariff. By invoicing management services (which are not subject to import duties) separately, you reduce the portion of revenue on which import duties are levied, without fiscal risks.

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CASUS TRANSFER PRICING STRATEGY

Anonymous Case Study

A European manufacturer of industrial equipment with years of experience in the U.S. faced the challenge of rising import duties on their machines. By implementing a new transfer pricing strategy:
  • They applied volume discounts based on customer data, supported by a logarithmic formula.
  • They separated management services (such as engineering, logistics, and marketing) into a separate agreement.
  • They documented everything through three coordinated documents, ensuring clear justification for customs and tax authorities.
Result:
Lower dutiable value, reduced import duties, and full compliance with applicable regulations. The strategy was implemented starting from the new fiscal year and supported by automation, making the implementation quick and cost-effective.
By strategically implementing transfer pricing, you can gain control over your import duties as an international company. It does require a well-founded approach and clear documentation, but the result is a structural cost saving and peace of mind regarding tax authorities and customs.
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FAQ's Tariffs & Transfer Pricing

1. What are tariffs and why are they important for foreign companies in America?

Tariffs are import duties imposed on goods entering the U.S. They affect the cost, margins, and competitive position of foreign companies exporting to America.

2. What is transfer pricing and how does it work?

Transfer pricing refers to the determination of prices for transactions between affiliated companies within an international group. It is crucial to comply with U.S. and international tax regulations and to avoid double taxation.

3. Why is transfer pricing such an important consideration in international trade?

Tax authorities strictly monitor transfer pricing to combat tax evasion. A solid strategy prevents fines, back assessments, and damage to reputation.

4. How can Van Holland Group assist with tariffs and transfer pricing?

We advise on optimal pricing structures, compliance with US regulations, documentation requirements, and minimizing tax risks.

5. What are the repercussions of inaccurate transfer pricing for my business?

Inaccurate transfer pricing can lead to significant penalties, double taxation, and extended disputes with tax authorities in both the home country and the U.S.

6. What documentation is required for transfer pricing in America?

U.S. regulations require extensive documentation regarding the prices used and justification of the business rationale. We assist in preparing and maintaining this documentation up to date.

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