US imports: How to legally save duties with the "First Sale" and other strategies

Anyone who regularly exports or imports goods to the USA knows the dilemma: the tariffs imposed by the US government in recent weeks have not only become more numerous, but also more opaque. Every percentage point counts - especially when punitive tariffs, Section 232 measures or the infamous " Carpet Bombing Tariffs " (Global Tariffs) hit.

However, there are several legal levers that can often be used to significantly reduce customs duties or even obtain refunds. One particularly tried and tested method is the use of the so-called "first sale" principle. And there are other strategies that can be used both preventively and retrospectively.

Strategies for avoiding customs duties

Classification engineering

The US Customs and Border Protection (CBP) only levies duties on goods in the condition in which they are imported. Companies can therefore reduce or avoid customs duties by cleverly classifying goods in the nomenclature (USHTS). Individual components often fall under completely different tariff headings than finished products and can therefore be imported at a significantly lower price or duty-free.

Particularly relevant are the provisions in Chapter 98 of the HTSUS, which cover products with a specific use or origin and can offer significant customs benefits.

Origin regulation (Origin Engineering)

If it is not possible to change the classification, the country of origin determination can be adjusted. Substantial processing, e.g. through complex assembly processes, can lead to a change of origin. This can be used to relocate goods from countries with high customs duties to those with more favorable conditions.

First sale principle

The first sale principle offers companies exporting to the USA considerable potential savings on customs duties. Especially in times of increased trade tensions and special tariffs, this method can lead to significant cost savings. The following article explains the mechanisms, prerequisites and practical application of this principle using a specific example from the German mechanical engineering industry.

The First Sale principle at a glance

If goods enter the USA via several trade stages, US customs law allows, under certain conditions, the transaction value of the first sale in the supply chain to be used as the basis for calculating customs duties. In concrete terms, this means that instead of taking the last sales price to the US importer as the basis, the lower price of the first transaction (e.g. from the manufacturer to an intermediary) can be used to calculate the customs value. This approach results in a lower customs duty, as the transaction value of the first sale is typically significantly lower than the final price paid by the US importer. The difference results from the margins of the intermediary trading companies, distribution costs and other mark-ups in the supply chain.

The importance of this principle has increased, particularly in recent months, as various trade disputes have led to increased tariffs for certain product groups . In some product categories, tariffs of 25% or more have been introduced, which can significantly impair the competitiveness of imported goods on the US market.

In this context, the first sale principle acts as a permanent customs advantage that remains in place even after temporary special tariffs have expired.

Requirements for the application of the first sale principle

The application of the first sale principle is linked to several cumulative requirements that must be strictly adhered to and proven:

Genuine sale with economic substance

The first transaction must represent an actual, economically viable sale. This means that there must be a legally binding sales contract in which ownership of the goods is actually transferred. Mere sham transactions or transactions without economic substance are not recognized by US Customs. The transaction must have all the elements of a regular business transaction, including a profit margin for the seller and an economic risk for the buyer.

Arm's length transactions

The parties involved must act independently of each other or - if they are related - be able to prove that the price was not influenced by the relationship. In the case of transactions between affiliated companies, particular attention is paid to whether the agreed price corresponds to an arm's length price. Transfer pricing documentation and transfer pricing studies play a decisive role here as a means of proof.

US determination already at first sale

It must be established at the time of the first sale that the goods are intended for the US market. This designation must be clearly documented and can be reflected, for example, in technical specifications (such as US-specific voltage), labeling or contractual agreements. Ideally, the US designation should already be recognizable on the products, packaging or accompanying documents.

Complete documentation

All business transactions must be documented with the corresponding documents. This includes purchase contracts, orders, invoices, payment receipts and delivery documents. The documentation must demonstrate a clear link between the first sale and the final import into the USA and prove a consistent flow of goods.

Practical example: Customs optimization of a German mechanical engineering company

To illustrate the practical application and economic benefits of the first sale principle, we will look at the case of a mechanical engineering company from Stuttgart with its own sales subsidiary in Ireland:

Initial situation and structuring

The machine manufacturer develops and produces highly specialized systems, which it sells to customers in the USA via its Irish sales subsidiary. The sales subsidiary acts as an independent legal entity with its own business activities and assumes specific functions in the sales process, including customer acquisition, technical consulting and after-sales services.

The special system is sold by the German manufacturer to the Irish subsidiary for USD 280,000. The Irish company then sells the system to the US customer for USD 350,000. The difference of USD 70,000 corresponds to a margin of 25%, which reflects the added value and risks of the sales subsidiary.

Customs calculation and potential savings

Without applying the first sale principle, the US duty would be levied on the full import value of USD 350,000. At a duty rate of 25%, this would result in a duty charge of USD 87,500 per machine.

By applying the first sale principle, the tax base is reduced to USD 280,000, which means a burden of USD 70,000 at the same duty rate. The savings therefore amount to USD 17,500 per machine. With annual sales of ten machines, the savings add up to a considerable USD 175,000 per year.

Fulfillment of the requirements

The machine manufacturer has taken several measures to successfully implement the first sale principle:

1. The Irish subsidiary operates as a fully-fledged company with its own staff, business premises and independent business activities.
2. A transfer pricing report shows that the transfer price of USD 280,000 is in line with the market and complies with the OECD guidelines for intra-group transfer prices.
3. The machines are configured specifically for the US market during production in Germany, with 110V power supply and English controls.
4. All transactions are documented by long-term supply contracts, orders, invoices and payment receipts.

Critical checkpoints and pitfalls

The application of the first sale principle is critically examined by US customs, particularly in the case of intra-group transactions. The focus is on the following aspects:

Business risks of the intermediate company

The sales subsidiary must demonstrably bear real business risks. For example:

• Assumption of guarantee and warranty obligations
• Independent price negotiations with end customers
• Financial responsibility, e.g. in the event of payment defaults

Pure "letterbox companies" or companies without substantial business activities are not recognized by US Customs.

Standard market margins

The profit margin of the intermediate company must be in line with the market. In mechanical engineering, typical distribution margins range from 15-25%, depending on the product, the complexity of the distribution and the risks assumed. A margin that is too low could be seen as an indication of artificial pricing, while an excessive margin could raise other tax issues.

Consistency of cash flows

The actual cash flows must correspond to the contractual agreements. Deviations could indicate that the documented business transactions do not correspond to economic reality. US Customs therefore compares contracts, invoices and payment documents for consistency.

Practical implementation tips

For companies wishing to benefit from the first sale principle, the following specific recommendations for action can be made:

Consider the dual role of sales

The sales company must act as an independent economic actor both in the initial sale and in the resale. This requires a clear organizational demarcation, independent decision-making powers and a comprehensible economic function. The sales company should have its own staff who are actively involved in the sales process and interact independently with customers.

Ensure comprehensive documentation

The following documents should be carefully prepared and stored:

• Long-term supply contracts between parent company and sales subsidiary
• Independent price appraisals or transfer pricing documentation that prove the market conformity of the prices
• Technical documentation that demonstrates the US-specific adaptations as early as the production phase
• Complete records of all orders, invoices and payments
• Documentation of the sales company's business activities, including customer correspondence and contract negotiations

Obtain advice at an early stage

Due to the complexity and strict auditing practices of US customs, it is advisable to involve specialists in US customs law at an early stage. They can provide support in structuring the transactions, preparing the necessary documentation and communicating with the US customs authorities.

Long-term strategy and sustainability

The first sale principle should not be seen as a short-term tactic, but as a long-term strategy. Once correctly established, it acts like a permanent "customs rent" that continues even after temporary special duties have expired. The continuous reduction of duties in the spare parts business should also not be underestimated. For a sustainable application , regular reviews of the business structure and documentation should be carried out to ensure ongoing compliance with all requirements.

Especially in times of uncertain trade policy and volatile customs tariffs, the first sale principle offers a reliable way to optimize customs costs and thus contributes to planning security and competitiveness on the US market.

Further strategies to mitigate customs burdens

Further customs valuation

Certain costs such as purchasing commissions, shipping costs or assembly work after importation can be excluded from the customs value under certain circumstances. The use of transfer prices can also influence the customs value of affiliated companies.

Examination of trade policy remedies (trade remedy reviews)

With over 700 anti-dumping or countervailing duties in force, administrative or new shipper reviews and scope rulings can lead to certain products being excluded or rates being reduced.

In addition, these review procedures provide companies with the opportunity to obtain individually determined duty rates if they can demonstrate that their export prices or subsidy practices differ from those originally determined. Administrative reviews are carried out regularly at the request of interested parties and may lead to an adjustment of duties for individual companies, for example if their trade practices have changed or new information becomes available.

New Shipper Reviews allow new exporters not previously covered by the original procedure to have their trade practices reviewed separately in order to obtain an individual, often lower, rate of duty. During the process, importers can, under certain conditions, provide security in the form of deposits instead of cash deposits until the final duty rate is determined. This can facilitate market access for new suppliers, but also carries the risk that duties are not fully collected.

Scope rulings clarify whether a particular product actually falls under the scope of an existing anti-dumping or countervailing duty order. Unclear wording in the original order text can lead to companies requesting a binding ruling on whether their goods are covered. A positive scope ruling can exempt products from duty or confirm that they are still covered by the measure.

These review mechanisms ensure that trade policy remedies remain targeted and proportionate. At the same time, they create legal certainty and allow companies to defend themselves against unjustified burdens or to be exempted from measures.

Duty deferral models (Duty Deferral)

Duty-free storage in a foreign trade zone or duty-free warehouse allows storage, processing or packaging - without immediate customs clearance. Imports can take place when the goods are subsequently exported or when customs duties no longer apply. Temporary imports under bond are also possible.

Strategies for reclaiming duties paid

Refund procedure & Section 301 action (refunds)

Importers of Schedule 3 and 4A goods from China can continue to join a class action claiming refunds. Refunds are also possible for goods with approved exemptions.

Transfer price adjustments (transfer pricing)

Subsequent price adjustments between affiliated companies must be reported to CBP. This can result in both subsequent payments and refund claims, provided that the procedures were set up correctly beforehand.

Subsequent import declaration (reconciliation)

With this procedure, imports can be declared with provisional information and later corrected (e.g. on classification, value, FTA eligibility). Overpayments can then be refunded.

Procedures after import clearance (post-entry procedures)

Corrections before and after customs clearance (e.g. Post Summary Corrections or Protests) enable the recovery of overpaid customs duties if all requirements are met.

Summary

Customs strategies such as the first sale principle or origin engineering offer legal opportunities to significantly reduce the customs burden on US imports. Whether through forward-looking structuring, clever use of free trade agreements or targeted post-processing of imports - those who take a systematic approach and comply with all legal framework conditions can reduce their import costs in the long term.

If you have any questions about implementation or need support in analyzing your supply chain, please contact me. And as always - the correct US customs code number is and remains the be-all and end-all.