These are not sales-channel labels. They assign different contracting parties, customer relationships, inventory risk, import responsibility, income source and profit. The website, invoice and conduct must support the selection.

1. Compare all three models with one fact matrix

A distributor generally buys goods, bears inventory risk and resells to customers. A commission agent generally promotes transactions for a foreign principal and earns a fee. In DTC, the brand sells to U.S. consumers through a website or marketplace. Actual terms can depart from labels, so inspect customer contract, title, price, credit, returns and fulfillment.

Hold the SKU, customer and logistics scenario constant while changing entities and risks. Otherwise wholesale revenue in one model and retail revenue in another make margins incomparable. Model customs, Sales Tax, business tax, Payroll, transfer pricing and accounting together.

  • Seller of record and customer agreement
  • Inventory title and loss risk
  • Pricing, discounts and credit
  • Returns, warranty and customer data
  • Importer of Record and fulfillment

2. A distributor locates U.S. profit and operations in the local entity

A genuine U.S. distributor records sales, COGS, inventory and local expense and addresses federal and state business tax, Sales Tax and Payroll. Its related-party purchase price needs an arm's-length result under Section 482 and coordination with customs value.

The structure makes customer, inventory and compliance ownership clearer but requires more U.S. working capital and profit. Do not reverse-engineer one margin percentage; support functions, assets and risks with policy, agreement, invoices, inventory records and appropriate benchmarking.

  • U.S. gross revenue and COGS
  • Inventory and credit risk
  • Federal, state and Sales Tax
  • Related-party purchase pricing
  • Customs-value reconciliation

3. An agent model turns on authority and actual conduct

Calling the U.S. party a commission agent does not guarantee the foreign principal avoids a U.S. trade or business, ECI or treaty PE. Examine whether the agent habitually concludes contracts, plays the principal role in negotiations, holds inventory, delivers goods or binds the principal. The U.S.-China treaty has conditions for independent and dependent agents.

The commission also needs arm's-length support for people, market activity and risk. A U.S. team controlling customers and price while earning a small service fee creates conflicting evidence. Whether a protective Form 1120-F is appropriate depends on the foreign corporation's facts and treaty position.

  • Contract and negotiation authority
  • Independence and multiple principals
  • Inventory, delivery and after-sales work
  • Commission transfer pricing
  • USTB, ECI, PE and protective return

4. DTC increases customer control and direct obligations

In DTC, a foreign or U.S. entity sells to the consumer. Website terms, merchant account, invoice, logistics and refunds should identify the same seller. A foreign company with U.S. inventory, employees or agents, or U.S.-completed sales can face ECI, Form 1120-F, state tax and Sales Tax exposure.

DTC also needs an IOR, product-liability, consumer-return, chargeback, privacy and marketplace-facilitator design. Retail margin includes acquisition, fulfillment, duty, tax software, returns and service costs. Compare contribution margin, not only retail price and transfer price.

  • Website and payment seller
  • Inventory, 3PL and IOR
  • Sales Tax and marketplaces
  • USTB, ECI and state Nexus
  • Returns, service and channel cost

5. Execute the selected model through contracts and data

The decision memo should compare after-tax cash, working capital, customer control, compliance and exit under stated assumptions. Once approved, intercompany agreements, customer terms, invoices, broker instructions, platform accounts, Payroll and the chart of accounts need aligned configuration.

Quarterly, test actual conduct: contracting, inventory, discounts, returns, U.S. personnel and margin relative to function. When the model changes substantively, update transfer pricing, registrations and filings from the effective date instead of using a year-end journal entry to force profit to a target.