Off to Liechtenstein, send individual parts, delete software: How Swiss companies are avoiding Trump's tariff hammer – and risking high fines

And already everything is different again. Just two weeks after Trump's tariff crackdown, Switzerland is being hit by the next earthquake from Washington. Over the weekend, US customs authorities reclassified over 400 products.

Steel and aluminum tariffs now apply to them. Instead of 39 percent, tariffs of 50 percent will be due. This change is even troubling professionals. Packaged milk, for example, is also affected – because of its aluminum packaging.

"The change from the White House came at extremely short notice," says Claudia Feusi, customs and trade consultant at Douana. Unlike before, this time it also affects goods that have already left Switzerland and are in transit. "This shows how unpredictable the situation has become," says Feusi.

Switzerland, a center of finance, civil service, and consumerism, is seeing little of the tariff war. Large corporations can adapt to the new situation thanks to their branches around the globe. But for export-oriented SMEs, nothing is the same. Their most important market is on the brink, and some businesses have become loss-making overnight.

Companies are frantically searching for ways out. In theory, they have three options: lower the customs value of the exported goods, change the origin to a country with lower tariffs, or reclassify the goods so that they are exempt from the punitive tariffs. In practice, there are many pitfalls, as the following examples demonstrate.

Switzerland has recently become not only a high-price and high-wage island in Europe, but also a high-tariff island. So what could be more sensible than exporting goods from Liechtenstein or an EU country whose exports account for only 15 percent of the US?

But the trick with the Ländle fails due to the so-called non-preferential rules of origin. They require that the origin be where the last substantial processing step takes place. "Simply putting the parts together locally isn't enough," says Simeon Probst, Head of Customs Consulting and International Trade at PwC Switzerland. The more extensive the manufacturing process, the greater the chances that the American customs authorities will accept the "renationalization." "But there are no generally recognized rules," says Probst. Therefore, each case must be considered individually.

Swiss companies can also use the rules of origin to their advantage. If the processing step at the local factory is minimal, they can retain the last country of origin. Claudia Feusi cites a Swiss high-tech company that now declares its products as British – and benefits from a 10 percent tariff.

Many Swiss companies are leaders in the engineering, design, and production of key components, sourcing the rest from suppliers around the globe. Some are now considering exporting the machines disassembled and declaring the origin of each component to customs.

But there are two pitfalls lurking here, as customs consultant Claudia Feusi explains. "The decisive factor for the customs tariff remains whether a functional unit exists and whether a component of the delivery determines its essential character," she says. The first pitfall: Customs considers individual parts delivered together as a whole and adds the Swiss tariff. The second pitfall: The parts could be subject to the American special tariff of 50 percent for steel and aluminum. "The supposed optimization through the delivery of individual parts can therefore even have negative financial consequences," says Claudia Feusi.

Those who relocate production from Switzerland to other countries and benefit from EU tariffs can breathe a sigh of relief for the time being, but they are creating new problems for themselves. "As important as tariffs are today, direct taxes cannot be ignored," says Simeon Probst. Because in some cases, relocating production can only be reversed at great expense.

Probst cites the example of Germany: "If a Swiss company closes its subsidiary there after a few years and wants to relocate production back to Switzerland, it can face high exit taxes," he says. Countries use this to compensate for lost tax revenue. "Companies also need a strategy to return when tariffs converge," says Probst. In practice, this leads to companies waiting to make binding decisions. "Many have decided to halt deliveries to the US until mid- or late September." Only then will they decide on further steps.

Just as popular as playing with the rules of origin is tweaking the customs value. The example of a Swiss watch suggests that there is some leeway here. The advertising expenditure of Rolex and others suggests that production accounts for only a fraction of the selling price. So why not export the watch at cost price? Measured against the retail price, this would likely reduce the customs burden to less than 5 percent.

Customs experts have nothing but a weary smile for such speculation. "You can't tweak the costs at will; the US regulations for customs valuation are very precise," says Claudia Feusi. The US has ramped up its controls, she says. "If you can't prove price changes, you're at risk."

PwC expert Probst also warns his clients against creating problems with seemingly creative solutions that could prove costly. "If the US Customs Authority detects conspicuous price fluctuations, they will intervene and may conduct an audit," he says. This could result in additional charges and fines.

When purchasing a machine, buyers also pay for software, licenses, and warranties. Manufacturers might be tempted to invoice these separately from the machine itself—as services, they would be duty-free. But customs law limits the scope here as well. "The composition of the price must make economic sense; it must include all direct and indirect costs," says PwC consultant Probst.

"You can't simply test the finished machine and then delete the software to get a lower assessment basis." However, there is certainly some flexibility. For example, you can equip a machine with only the inexpensive basic software when exporting it and download the more expensive full version only in the US.

The first sale rule also promises a reduction in customs value. It states that in multi-stage supply chains, the first sales price can determine the customs value. If the core components of a machine, for example, were produced in Eastern Europe and then shipped to Switzerland, the Swiss exporter can declare that price as the customs value upon sale. "But this is a very sensitive issue," says Claudia Feusi. Nothing will work without strict and legally compliant documentation.

These examples show that customs law is a minefield. Apparent tricks can become costly own goals. "The smallest wording in contracts and invoices can result in punitive tariffs amounting to millions," says Claudia Feusi. It's also clear that even if individual companies can navigate the new world, the Swiss manufacturing base is the loser. "People are trying to bypass Switzerland as a country of origin, and that's dangerous," says Feusi.

An article from the « NZZ am Sonntag »