Scott Letourneau | | 0 Comments

Transfer Pricing For Non-Resident Brands

Read this first: the transfer pricing move that decides everything

If you sell in Europe today and want to expand to the U.S. next, the first decision is not “Which transfer pricing model?” It is where you will operate: keep selling through your foreign company, or add a U.S. company because of marketplace rules, liability, banking, or exit goals. Once that call is made, transfer pricing becomes the wiring that moves cash between the two companies without inviting an IRS problem.Transfer pricing is just pricing between related entities. Done right, it lowers risk, keeps your books clean, and can legally shift routine profit back home. Done poorly, it triggers audits, penalties, and lost time.

Who this article is for

Brands doing roughly $1M to $20M that plan to enter the U.S. via Amazon, TikTok Shop, Walmart, or DTC.
Companies that already sell in the EU or AU and are weighing a U.S. company for credibility, insurance, KYC, or retail partnerships.
Founders who want a simple, defensible way to route profit, not a 50-page treatise.

The three models you will hear about

1) Cost-Plus Services

Your foreign company provides services to your U.S. company and charges its costs plus a markup. Use this when the home team runs management, creative, ads, or ops for the U.S. arm.

Typical markups: 5–10% for admin/back office; 10–15%+ for management or high-value work.
Watch out: an invoice alone is not “compliance.” You need a short services agreement and a memo that shows why the markup is arm’s-length.

2) Limited-Risk Distributor (LRD)

Your U.S. company buys from your foreign company at a wholesale price and resells in the U.S. The U.S. earns a routine margin; the foreign company keeps the entrepreneurial upside.

Typical U.S. margin: consumer goods often 1.5–3.5% operating margin on sales; industrial B2B can be higher (4–7%).
Why founders like it: clean, boring, accepted. Easy to true-up at year end so the U.S. lands on target.

3) IP Royalty or Brand Commission

When the foreign company owns the brand or tech, it charges the U.S. company a royalty or brand commission. Useful if the U.S. buys from factories directly but relies on foreign-owned IP.

Note: royalties can trigger withholding tax. You still need an agreement and a supportable rate.

Real-world example (the trap we see every month)

Background: An Australian brand wanted U.S. reach through a logistics/retail platform. The platform asked for a U.S. EIN and a “discount percentage” from AU to U.S. They did not ask for transfer pricing documentation.

What went wrong in their first draft: they picked a round number for the discount and started shipping. No intercompany agreement, no memo, and invoices that did not match the story in their tax return. That may be fine for the platform’s onboarding, but it is not fine for the IRS if anyone asks questions later.

The fix: we set a U.S. company as LRD, put a short distribution agreement in place, documented a target U.S. margin, and added a quarter-end true-up. Same business. Less audit risk.

One-minute math: what a true-up looks like

U.S. sales = $3,000,000. The plan is a 5% U.S. operating margin. Actual results end the year at 9%.

Target profit = 5% × $3,000,000 = $150,000
Actual profit = 9% × $3,000,000 = $270,000
True-up back to the foreign company = $120,000

One debit/credit note, books match the policy, and your return, Form 1120, and Form 5472 all tell the same story.

Marketplace and platform reality check

Marketplaces care about onboarding and KYC. The IRS cares about pricing between related parties. Passing a platform checklist does not equal tax compliance. If you pick a discount or a fee without a short paper trail, you are hoping no one asks why the number makes sense. Hope is not a strategy.

How we sequence this so you stay in control

Map the go-to-market. Amazon vs TikTok Shop vs Walmart vs DTC, plus any retail plans. KYC and payments often decide the entity question.
Decide the entity path. Stay foreign, or add a U.S. company for credibility, insurance, banking, and exits. If you add the U.S., LRD is our default unless facts say otherwise.
Pick the transfer pricing model. Cost-plus services, LRD, royalty, or a clean combination. Keep it simple and defensible.
Paper it once, keep it light. One intercompany agreement and a 6–10 page memo that supports the numbers and provides penalty protection if examined.
Operate and true-up. Quarterly check, year-end adjustment, and a tidy tie-out to your 1120 and 5472. Boring is the goal.

Common mistakes to avoid

Picking a discount or monthly “management fee” with no agreement or memo behind it.
Treating high-value management work as “back office” to force a low markup.
Running a U.S. single-member LLC disregarded while trying to look like a full buyer for customs and brokers.
Forgetting year-end true-ups, then scrambling when the CPA asks for support.
Letting 1120, 5472, invoices, and the intercompany agreement tell different stories.

Quick checklist before year-end

Do we have a signed services or distribution agreement that matches reality?
Did we hit the target U.S. margin, or do we need a true-up note?
Do Form 1120 lines and Form 5472 totals reconcile to our policy and invoices?
Are services marked up correctly (admin vs management), and are loans priced within safe ranges?
Is our short transfer pricing memo current for this fiscal year?

FAQ

Do I need transfer pricing if I only have one company?

No. Transfer pricing applies when related entities transact. If you later add a U.S. company, revisit this.

Can this work outside the U.S.?

Yes. The same principles apply to related-party transactions between other countries. We focus this article on U.S. expansion because most readers are adding a U.S. company for marketplaces and banking.

Is this a one-time setup or annual?

Paper it once, then refresh the memo annually with your actual numbers. Keep the agreement and the true-up running.

Next step

Book a strategy session with Scott Letourneau.
Use this call to decide the right path first, then we execute.

On the Zoom call, Scott will:

Map your marketplace plan (Amazon, TikTok Shop, Walmart, DTC) and KYC realities.
Decide entity strategy (stay foreign or add a U.S. company) based on taxes, liability, banking, and exit goals.
Outline where profit should land and when transfer pricing helps move routine profit back to your home country while staying compliant.

If a U.S. company is the right move:

You will get our transfer pricing bonuses as part of the package after the session.
We will introduce you to the proper transfer pricing professional with transparent, reasonable fees to set up the agreements and documentation you need for U.S. compliance.
You leave with a recording and transcript of the call to use as a simple playbook: which model to use (cost plus, LRD, royalty/commission), what to file, and how to operate with year-end true-ups.

Ready to get clear and move fast?
Book your planning session with Scott here:
Schedule your session.