Key Takeaways
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Tariffs have been creating challenges and forcing tough decisions for business owners, resulting in reductions in workforce, price increases for consumers, delays in investment, and other negative impacts. The reality is that these tariffs are not likely to go away in the short term, and business owners must be able to adapt and take action to mitigate the impact.
Our Transfer Pricing Practice has been actively evaluating global transfer pricing (TP) strategies as a means to mitigate the impact of newly imposed tariffs. These tariffs introduce additional uncertainty and complexity into TP compliance for multinational enterprises (MNEs), but strategic transfer pricing efforts may be useful in combating tariff challenges. Below are key transfer pricing considerations as they relate to tariff mitigation.
Tariff impact and arm’s length profitability
Tariffs borne by U.S. importers, typically U.S. distributors, are considered product-related costs. These costs reduce the operating income of the tested party. MNEs may adjust intercompany pricing to reflect these changes, provided the results remain within arm’s length ranges.
Annual review and adjustments
Transfer pricing policies should be reviewed annually and adjusted as necessary to reflect changes in economic conditions, regulatory environments, and business operations. Tariffs are a prime example of an economic factor and regulatory environment that may impact current transfer pricing and warrant changes or updates.
Documentation as a protective measure
Robust transfer pricing documentation is essential to defend MNEs against audits and penalties. It should clearly demonstrate how pricing decisions align with arm’s length principles and account for tariff-related impacts. It is critical to consult a qualified professional to ensure that you are compliant and not exposing your business to unnecessary risk.
Ongoing monitoring – A best practice
Evaluating the tested party's financial performance throughout the year is now more critical than ever. Proactive monitoring allows for timely adjustments and ensures compliance with evolving regulations. Allowing for ongoing monitoring throughout the year will allow you to stay ahead of trends and ensure that your transfer pricing is maximizing value.
Trusted transfer pricing guidance
Our Transfer Pricing Practice has assisted multinational clients with their transfer pricing needs, providing a competitive advantage in various sectors, read a recent success about our TP work. Companies with existing transfer pricing strategies need to reevaluate their efforts, and companies without need a proven partner they can trust. Fill out the form on this page to connect with a transfer pricing specialist.
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Author
DONNA FRYE
Director of Transfer Pricing, UHY Advisors
Donna Frye has nearly 20 years of transfer pricing knowledge focused on transfer pricing compliance; planning and controversy services, including responding to IRS notices; filing competent authority; and advance pricing agreements. She performs benchmarking analyses to provide arm’s length intercompany pricing for tangibles, services, and royalties for all industries.