The drop usually happens at the system boundary. The import record lives in the broker's files and the first warehouse's receipts, costed properly at entry. The transfer order generated for the second site carries quantity and a price field somebody populated with the catalogue's standard cost or the last purchase price, neither of which includes the duty and freight stack for these units. Receiving books them at that figure. The duty has not been recovered or refunded. It has been forgotten, which in accounting terms means it will be expensed somewhere unexplained or discovered somewhere embarrassing.
Mixed stock deepens it. Two shipments of the same SKU landed at different duty rates, a Section 301 change or a different origin between them, now sit in one bin with one average that describes neither. Average costing is a legitimate method applied consistently. It is not a licence to average away a known, documented difference that a regulator or a tax authority would want traced.
A transfer between legal entities, a domestic company to its foreign subsidiary, a parent to a regional distributor, is also a sale or a movement with customs and tax consequences of its own: valuation for the new border crossing, export documentation, and in many structures a second duty event that no relief fully unwinds. The model for such stock is a chain: original landed cost, transfer price supported by the group's transfer pricing position, new freight, new duty at destination on the applicable value, and the records connecting them. Each link documented, because the chain will be read by two countries' authorities with opposite preferences about where value sits.
Returns and rebalancing flows deserve the same care in miniature. Stock shipped back from a regional hub to the home warehouse for a promotion is not new stock at product cost. It is the same duty history travelling again, plus new freight, and occasionally a duty relief question on re import that a broker should answer before the truck is booked rather than after it is unloaded.
Lot or batch level costing at receiving is the robust answer for imported goods with variable duty exposure: the entry number and its landed cost travel with the lot through every transfer, and systems consume lots in a stated order. Where the ERP cannot carry lot costs, a controlled side ledger reconciled monthly to inventory value is a workable second best, provided one named owner maintains it and finance signs the reconciliation. An unowned spreadsheet is a rumour with formulas.
Physical process helps the data: transfer paperwork that prints the lot and entry references, receiving checks that refuse a transfer with no cost lineage, and cycle counts that sample lineage as well as quantity. Warehouses are good at counting units. The discipline here is counting the paperwork with the same seriousness, because the cost error never announces itself in the unit count.
Margin decisions run on these records. A region priced from understated transferred cost wins internal comparisons it should lose, takes volume it cannot profitably serve, and sets customer prices the true cost cannot sustain. Drawback and relief claims run on them too: claiming duty recovery on units whose records lost their entry lineage fails at the documentation step, money the business paid and cannot prove. And at sale or audit of the company, inventory valuation built on forgotten duty is a diligence finding with a number attached.
The fix is unglamorous and finite: pick the costing method, wire the entry reference into the transfer flow, reconcile monthly, and price transfers from the record. The duty was real money, paid at a real border, for these specific units. The least the model can do is remember.
It adds the transfer freight and handling, but it does not erase the original duty and import costs. The unit's landed cost is its import cost plus the movements since, all documented.
Track them as separate lots with their own entry references and costs, or apply a consistent, documented averaging method your finance and broker both accept. What you cannot do is book later transfers at bare product cost.
Crossing a border into another entity generally creates a new customs event with its own valuation and duty, on top of the original landed cost chain. The transfer price needs support under the group's transfer pricing position.
Potentially, where the programme's conditions are met, but claims stand on documentation linking the exported units to their original entries. Lot level lineage is what makes that link provable.