How to reduce the effects of tariffs: acting on supply chains

In order to contain the impact of the higher costs expected from the tariff war, it is essential to analyse the bill of material of products and their components throughout the international supply chain to identify possible remedies with a global and multidisciplinary approach, involving the commercial and taxation functions, particularly from a transfer pricing and VAT perspective:

1 Firstly, based on the international supply-chain, certain customs regimes can be evaluated that allow for the suspension of all tariff measures on goods to be re-exported to other countries, also by asking suppliers and sub-suppliers to do likewise in order to avoid rising costs in the supply-chain;

2 then there is the opportunity to review the customs classification assigned to the goods, with a possible request for binding tariff information, where the goods are likely to be classified under one of the customs codes not affected by the new tariffs;

3 Furthermore, the rules of origin of goods and their components in the EU and the US can be compared, as the rate of additional tariffs differs depending on the country where the goods originate, and the non-preferential origin of imported goods must be determined according to the rules in the country of importation.

With regard to transfer pricing, possible impacts of duties on prior agreements in place or under discussion should be considered.

A thorough analysis of the points of differentiation between transfer pricing and customs value is then useful, in order to identify any non-deductible elements that can be separated from the purchase price, such as - in certain cases - exclusive distributor rights, other types of services or intangible goods, provided they are not attributable to royalties or other elements to be added to the customs value (also paying attention to deductibility under US regulations such as Base Erosion and Anti-Abuse Tax, Beat, etc.). In this context, it is important, also for customs purposes, to prepare specific documentation, not only documentary burdens, but also contracts and transfer pricing policies.

At the same time, it has to be established on the basis of the functional analysis which entities involved in the supply chain have to bear the duties economically. This is done in order to understand, for example, whether the increased cost of the additional tariffs may lead to a reduction in the importer's margin in light of the benchmark, and whether it should be charged back to other counterparties in the group. In this context, where permitted by customs authorities, there are customs procedures to reduce ex post the originally declared customs value by an amount corresponding to the transfer pricing adjustments (e.g. authorisation for simplified declaration under Article 166 of the Union Customs Code in the EU and Reconciliation Progam in the US).