Swap Clear is designed to support merchants realising B2B2C transactions when selling goods internationally.
Specifically, Swap ensures that a merchant’s B2B2C set-up is reflected throughout the supply chain of the transaction, from the values for duties and taxes applied at checkout through to the commercial invoice and subsequent customs entry documentation.
This means Swap will calculate the correct duty amount at checkout based on the merchant’s transfer pricing logic, for example cost + 5%, provided cost prices are available in Shopify.
In addition, all standard Global features are included, such as:
Pricing strategies
Dynamic shipping rules
Compliance management
Analytics
This set-up enables merchants to optimise international sales with regard to duties, as goods can cross the border at a lower price by leveraging a local entity that facilitates the sale.
Structure
A B2B2C set-up can be realised in several different ways. The structure outlined below is generally considered suitable for mid-market e-commerce merchants.
In summary:
The US entity acts as a limited-risk service provider.
The US entity is the seller of goods to the end consumer.
The US entity buys goods at cost + markup from the HQ (UK) entity.
A typical transfer pricing markup is 5 to 10 per cent, but this is ultimately determined by the merchant and then implemented by Swap in the supply chain logic.
To support this structure, merchants generally require:
A US legal entity and subsequent administration, including accounting, secretarial, taxation and compliance
The US entity acting as the seller of goods to consumers for US transactions
Transfer pricing agreements between the HQ (UK) and US entity, accurately reflected in accounting
Adequate substance in the US to justify routine services
A commercial rationale that justifies the existence of the US entity
Sales tax registration of the US entity
Cost data for each item in Shopify, as Swap leverages this to reflect transfer pricing in the supply chain and apply associated duties and taxes at checkout
It is preferable that this structure is reflected in:
The invoice shared with the consumer
The terms of service accompanying the purchase, for example clarifying that US transactions are facilitated by the US entity
A US payment processor for US sales
Transfer Pricing Transactions
Transfer pricing within this set-up is typically managed via two separate transactions:
1. Product resale (cost +)
The US entity purchases goods from the HQ (UK) at cost plus an agreed markup.
2. Services under cooperation agreement (service fee)
The US entity pays the HQ (UK) entity a service fee for services that allow it to perform distribution activities. These may include:
Warehousing
Customer service
Back-office support
Foreign exchange risk management
Marketing, if not charged locally in the US
Adequate Substance in the US
Adequate substance to support routine services may include one or more of the following:
A local full-time employee, for example a legal director
Staff travelling regularly from HQ to the US
A local office
Commercial Rationale
The commercial rationale for the US entity can be supported by activities such as:
A US payment processor for US transactions
A US office or warehouse
Marketing spend from the US entity
Frequent travel to the US
A US business plan and related operational meetings
The structure can be implemented in a lighter or more exhaustive way, depending on the merchant’s governance, audit requirements and internal policies.
Merchants may choose to pursue a stronger rationale with greater operational substance, or apply a lighter model.
Swap does not have full knowledge of each merchant’s corporate structure and does not provide formal tax or legal advice regarding the activities implemented on the merchant side.
Further Support
Swap can refer merchants to transfer pricing advisors if required to:
Prepare documentation associated with the structure
Establish appropriate transfer pricing levels
For a basic structure, advisory fees typically start at approximately £5,000, depending on merchant requirements and scope.
This support can also be bundled with legal service providers specialising in US company registration and documentation.