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As the global trade environment adjusts to a 10% baseline tariff on imports into the US, alongside elevated rates for goods from specific countries such as China, UK startups exporting physical goods to the US face a new layer of complexity.

For sectors like technology and med-tech, where Chinese components are deeply embedded in supply chains, these tariffs can significantly impact profitability and pricing strategies.

Yet, these challenges also present an opportunity for strategic rethinking. Through international structuring, transfer pricing optimisation and supply chain redesign, UK businesses can mitigate tariff exposure while enhancing operational efficiency.

Adverse Tariff Implications on Bundled Exports

Consider a UK-based tech company that imports hardware from China, installs proprietary software in the UK and exports the bundled product to the US. The final unit, priced at $5,000, includes $1,000 worth of hardware. Under the current tariff regime, the entire $5,000 value becomes subject to a 30% tariff—resulting in an additional $1,500 per unit.

The challenge with this structure is that it subjects the UK-developed software, ordinarily exempt from tariffs, to additional tariff costs. The bundling of software and hardware inflates customs value, significantly increasing costs and ultimately undermining both margins and global competitiveness.

A Strategic IP Delineation Approach to Reduce Financial Impact

Now consider an alternative structure. The company ships only the hardware to a US-based warehouse, where the software is installed locally. In this model, only the $1,000 hardware component is taxed—resulting in a $300 tariff per unit. The software, deployed domestically, avoids tariffs entirely.

This approach not only preserves the value of intellectual property but also enables more competitive pricing in the US market. It reflects a more accurate delineation between goods and services, aligning with international trade norms.

Key Levers for Tariff Mitigation

1. International Structuring

UK MNCs could consider establishing a US subsidiary to manage a US warehouse for post-import software integration. This segmentation ensures that only physical goods are subject to tariffs and not the component value of services and IP.

2. Transfer Pricing Models

The choice of intra-group operating model is important. A risk-bearing distributor in the US may absorb the financial impact of the increased tariffs, while a limited-risk distributor can pass them back to the UK parent. Appropriate characterisation of the selling entity's operating model ensures that profits are allocated in line with value creation.

3. Route-to-Market Adjustments

Higher tariff regimes often prompt a reassessment of go-to-market strategies. Some companies may shift to contract manufacturing in the US or restructure their supply chains to reduce exposure. These changes must be supported by robust transfer pricing analysis to ensure scalability, efficiency, and regulatory compliance.

Rethinking the Global Operating Model

The example of delineating IP from hardware illustrates how some operational restructuring can reduce tariff exposure while preserving its value. It also highlights the importance of aligning supply chain design with tax and trade considerations.

In a world of evolving trade policies, operational agility is essential. UK startups that proactively adapt their international structures and pricing models will be better positioned to navigate uncertainty and maintain their competitive edge.

Tax
By Jaydeep Menon Jaydeep Menon, Global Transfer Pricing Leader, Frazier & Deeter

Jay Menon is the Global Transfer Pricing Leader at Frazier & Deeter, bringing over 19 years of international experience across the UK, US, and India. A Chartered Accountant certified by the Institute of Chartered Accountants of India (ICAI), Jay has spent more than 14 years with Big Four consulting firms before joining Frazier & Deeter.

Jay specializes in global business expansion, with a focus on designing operating models and transfer pricing strategies for both mid-market enterprises and large multinational corporations. He has advised over 500 UK and European companies on successful entry and growth in the US market over the past six years.

With deep expertise in cross-border structuring and intercompany transaction planning, Jay is particularly passionate about supporting entrepreneurial and mid-sized businesses across the UK, EU, and US. His work empowers companies to scale internationally with confidence, clarity, and compliance.