In an article published in Tax Notes International, Anuar Estefan, senior counsel in Chamberlain Hrdlicka’s San Antonio Tax practice, explores business restructuring alternatives under a full-fledged distribution model for exporters facing U.S. tariffs. Although with special emphasis on Mexican and Canadian exports, Anuar's proposed business model could also apply to exporters from other jurisdictions.
Estefan recommends the use of a U.S.-based full-fledged distributor, owned and controlled by Mexican or Canadian enterprises, which would assume nearly all contractual risks in a first sale for export of Mexican or Canadian manufactured goods for subsequent resale in the U.S. marketplace.
“By assuming a greater risk, the distributor should be entitled to, and must earn, a higher profit,” says Estefan. “The distributor will therefore pay corporate income tax in the United States on its higher profit at a rate of 21 percent, while the dutiable value of imported goods is reduced, neutralizing, or at least mitigating, the adverse effect of tariffs.”
For a deeper understanding of the proposed model and its implications, subscribers may click here.