New US tariffs: strategies for Swiss companies

With the recent announcement of increased import tariffs, 31% for Switzerland and 37% for Liechtenstein-on goods entering the United States, Swiss exports will become substantially more expensive.

What do increased US tariffs mean for Swiss companies?

Given that the US represents Switzerland's largest export market, accounting for 18.6% of its total exports, these tariff hikes pose acute challenges for Swiss industries, particularly those exporting high-value products such as luxury goods (notably "Swiss Made" watches), machinery, chemicals, and consumer electronics, and will significantly disrupt existing value chains of these goods.

Businesses operating in these sectors must swiftly reassess their pricing models, supply chain structures, and their tax and transfer pricing strategies to mitigate the impact and maintain competitiveness.

Short-term options for Swiss companies

With no one size fits all solution, there are multiple approaches for the Swiss corporates to consider. In the short term, companies could strategically unbundle intercompany transactions by distinctly separating the sale of affected goods from intangible elements such as software, services, and any IP-related royalties. This splitting approach needs to be carefully analyzed to determine if the split elements such as royalties are subject or not to the same duty rate as the imported product.

Depending on the form and kind of split charges, the customs impact may be impacted, reducing some immediate tariff exposure.

Additionally, exploring nearshoring options to jurisdictions with favorable trade agreements or lower tariff regimes can swiftly mitigate tariff impacts and ensure continued market accessibility.

Long-term prospects for Swiss exporters

In the long term, tailwinds favor a business restructuring in the context of structural realignment of global value chains. Depending on the situation, companies could benefit by from limited-risk entities in Switzerland while progressively relocating key intellectual property rights and manufacturing operations in or closer to the U.S. market.

Even though, in the current political environment, there is no clearance or certainty about the next developments, groups with an international supply chain should now carefully analyze and manage their business setup to remain competitive.

US tariffs: How BDO can support you with the right approach

With our international network of specialists, we can support you with a wide range of issues relating to US tariffs.

Pertinent questions relating to the effects of the new US tariffs

• How is your business affected, and which transactions will be subject to the announced U.S. trade tariffs?
• Is there any potential for improvement by adapting your overall business concept, transfer pricing, and value chain?
  • Examining the interplay of transfer pricing and tariffs.
  • Implementing transfer pricing adjustments to reflect changes in cost structures considering the country of origine of the goods or single components comprising the goods.
• Identifying new trade partners or nearshoring opportunities to minimize tariff impact.

We support you as a sparring partner with whom you can discuss the potential risks, challenges, and opportunities you might face in this rapidly changing environment.