Taking Your First Steps in the United States? Part 4. Business Models and Transfer Pricing




In this four-part series, Antoine Guillaud, President of International Management Solutions (IMS) and Advisor to the French Ministry of Foreign Commerce, shares key tax and HR issues related to expansion into the United States.

  1. State vs. Federal Taxation
  2. Use of Independent Contractors and Employee Transfers
  3. Setting up a Legal Entity
  4. Business Models and Transfer Pricing

Business Models

Once a US subsidiary is established, there are two common operating models:

  • The US subsidiary is a full-fledged distributor of the parent’s products and or services, or
  • The US subsidiary operates as an agent. For example, it provides sales and technical support in the US market while the parent company still sells directly to US customers

The second option has recently become less attractive since the parent company may generate economic nexus in states where it has sales. On the other hand, operating as an agent is an easier and less expensive route. Because there is no inventory or customer accounting to manage. Typically, the value of services provided by the US subsidiary, in this case, is a total of expense plus a small percentage mark-up. The US subsidiary is then profitable and liable for a small amount of taxes.

Transfer Pricing

Transfer pricing deals with the pricing between two related parties – in our case, a UK company with common ownership. With a UK parent and US subsidiary, the UK parent management typically sets the price for the goods and services for sale to the US subsidiary. If it is high, more profit stays in the UK. If it is low, more of the profit flows to the US. However, the taxing authorities in both countries require that the pricing between the related parties be conducted at “arm’s length” as if the parties were unrelated.

“The US transfer pricing regulations apply to all US taxpayers that have relationships with related parties, no matter the size of the transactions. Therefore, this topic must be addressed.”

Antoine Guillaud

Antoine Guillaud

PresidenT, IMS

Firstly, transfer pricing regulations apply to more than the exchange of goods or services. They also apply to all transactions within a group. This includes interest on loans and advances, management fees, leasing of tangible property, use and licensing of intangible property and more.

The IRS requires all US taxpayers to assemble transfer pricing documentation. To demonstrate arm’s length pricing each year before the filing of the tax return. Many taxpayers utilize outside consultants to prepare transfer pricing reports for this purpose. Admittedly, preparing documentation that meets the US regulations can be daunting in the start-up years. Nevertheless, your pricing strategy can be benchmarked to avoid major adjustments.

Find out More

To find out more, you can meet Antoine and his team at one of GTM’s FREE USA Expansion Workshops. These are held on a regular basis and forthcoming events are shown below. If there are no upcoming events, you can contact us here or visit our events page here to view the latest schedule.


Ian Collins
Ian Collinshttps://www.gotomarket.global/
Ian Collins co-founded GTM Global in 2017, with over 30 years’ experience of business development and general management in hi-tech industries including security, artificial intelligence, business intelligence and enterprise software solutions. Ian specialises in developing business strategy, maximising the potential of existing product/market opportunities and taking new propositions to market.