Page 7 - The South China Business Journal
P. 7
export to the US. For example, the goods are Maxfield Brown, Business Intelligence Manager at Dezan
shipped directly from the supplier to the US, or the Shira & Associates, said, “Application of the First Sale rule
goods are specially designed or labeled according to is a smart tax optimization strategy for US companies
the standards of the US market or according to the purchasing goods from international markets.”
requirements by the US importer.
Brown explained, “In the case of a Chinese good sold
Secondly, to prove that the initial “first sale” price is accurate, through a wholesaler in Hong Kong to a US buyer, the
the manufacturer, the intermediary, and the US buyer have to good would still be subject to US import tariffs set for
be prepared to submit the following documents: China but the value of the Chinese good, on which
taxes are calculated, would be lower.”
• Purchase orders with copies of terms between all parties;
• Confirmations; While this strategy has clear benefits, experts caution
• Invoices; that not all businesses qualify to use it. Dezan Shira &
• Written contracts or sales agreements; Associates Partner Hannah Feng warned, “The First Sale
• Bills of lading for final products and materials; rule is subject to a strict assessment by US Customs, so
• Proof of payment (e.g. letters of credit); it is not possible for all firms to use this strategy.”
• Production orders and/or manufacturing
instructions and other unique specifications of the “Firms that are seriously considering using the
merchandise to conform to the buyer’s standards; First Sale rule should closely study whether they are
• Examples of labels, logos, stock numbers, bar codes, eligible,” Feng said, “or else they risk being overturned
and other unique merchandise or carton marks; and by US Customs at a time they are likely paying closer
• Examples of country of origin marking on finished attention to the rule.”
goods, hang tags, etc.
Besides legal eligibility, Brown also said that the rule
Why don’t more companies take is not suited to all types of businesses. “The ability of
advantage of the First Sale rule? companies to leverage the First Sale rule in the context
of the US-China trade war will depend on the presence
There are various reasons why more companies and mark-up of wholesalers between a Chinese
haven’t employed the First Sale rule, but the manufacturer and US buyer.”
main reason is that businesses need to expend a
considerable amount of time and resources to ensure Brown continued, “If wholesalers are not present in
a given transaction meets compliance and internal the supply chain or the First Sale rule is already being
control requirements. applied, there will be little benefit in exploring this
option as a trade war mitigation instrument.”
Since the information as mentioned above is often
kept by different partners in the supply chain, Although it is not a universal solution for all companies
cooperative relationships and responsibilities need hit by the trade war, it can still be an effective tool for
to be developed between the manufacturer, the those whose business model and legal status fit. “If
intermediary, and the importer. wholesalers are present and the First Sale rule is not being
applied, larger wholesaler mark-ups will provide greater
Importers need to persuade other partners to disclose room for manoeuvrability,” Brown said.
the “first sale” price and ensure only the right people
see the sensitive documentation and data, which With businesses on both sides of the Pacific feeling
requires tight control over the process. the impact of eight months of US-China tariffs,
affected businesses are eager to explore any solution to
In addition, there are risks of errors and non- minimize their costs.
compliance, and failure to comply with the
requirements of the First Sale rule could be construed In this regard, the First Sale rule could be an effective
as a lack of reasonable care and may result in a fine. option for businesses to lower costs without sacrificing
operational inputs or significantly altering pre-existing
What are the experts saying? supply chains.■
A growing number of foreign firms are studying the This article was by China Briefing, which is produced by Dezan
applicability of the First Sale rule, as they look to offset Shira & Associates. The firm assists foreign investors throughout
rising costs stemming from the trade war. Asia from offices across the world, including in in China, Hong
Kong, Vietnam, Singapore, India, and Russia.
South China Business Journal 4
shipped directly from the supplier to the US, or the Shira & Associates, said, “Application of the First Sale rule
goods are specially designed or labeled according to is a smart tax optimization strategy for US companies
the standards of the US market or according to the purchasing goods from international markets.”
requirements by the US importer.
Brown explained, “In the case of a Chinese good sold
Secondly, to prove that the initial “first sale” price is accurate, through a wholesaler in Hong Kong to a US buyer, the
the manufacturer, the intermediary, and the US buyer have to good would still be subject to US import tariffs set for
be prepared to submit the following documents: China but the value of the Chinese good, on which
taxes are calculated, would be lower.”
• Purchase orders with copies of terms between all parties;
• Confirmations; While this strategy has clear benefits, experts caution
• Invoices; that not all businesses qualify to use it. Dezan Shira &
• Written contracts or sales agreements; Associates Partner Hannah Feng warned, “The First Sale
• Bills of lading for final products and materials; rule is subject to a strict assessment by US Customs, so
• Proof of payment (e.g. letters of credit); it is not possible for all firms to use this strategy.”
• Production orders and/or manufacturing
instructions and other unique specifications of the “Firms that are seriously considering using the
merchandise to conform to the buyer’s standards; First Sale rule should closely study whether they are
• Examples of labels, logos, stock numbers, bar codes, eligible,” Feng said, “or else they risk being overturned
and other unique merchandise or carton marks; and by US Customs at a time they are likely paying closer
• Examples of country of origin marking on finished attention to the rule.”
goods, hang tags, etc.
Besides legal eligibility, Brown also said that the rule
Why don’t more companies take is not suited to all types of businesses. “The ability of
advantage of the First Sale rule? companies to leverage the First Sale rule in the context
of the US-China trade war will depend on the presence
There are various reasons why more companies and mark-up of wholesalers between a Chinese
haven’t employed the First Sale rule, but the manufacturer and US buyer.”
main reason is that businesses need to expend a
considerable amount of time and resources to ensure Brown continued, “If wholesalers are not present in
a given transaction meets compliance and internal the supply chain or the First Sale rule is already being
control requirements. applied, there will be little benefit in exploring this
option as a trade war mitigation instrument.”
Since the information as mentioned above is often
kept by different partners in the supply chain, Although it is not a universal solution for all companies
cooperative relationships and responsibilities need hit by the trade war, it can still be an effective tool for
to be developed between the manufacturer, the those whose business model and legal status fit. “If
intermediary, and the importer. wholesalers are present and the First Sale rule is not being
applied, larger wholesaler mark-ups will provide greater
Importers need to persuade other partners to disclose room for manoeuvrability,” Brown said.
the “first sale” price and ensure only the right people
see the sensitive documentation and data, which With businesses on both sides of the Pacific feeling
requires tight control over the process. the impact of eight months of US-China tariffs,
affected businesses are eager to explore any solution to
In addition, there are risks of errors and non- minimize their costs.
compliance, and failure to comply with the
requirements of the First Sale rule could be construed In this regard, the First Sale rule could be an effective
as a lack of reasonable care and may result in a fine. option for businesses to lower costs without sacrificing
operational inputs or significantly altering pre-existing
What are the experts saying? supply chains.■
A growing number of foreign firms are studying the This article was by China Briefing, which is produced by Dezan
applicability of the First Sale rule, as they look to offset Shira & Associates. The firm assists foreign investors throughout
rising costs stemming from the trade war. Asia from offices across the world, including in in China, Hong
Kong, Vietnam, Singapore, India, and Russia.
South China Business Journal 4
