By Chad Martin; Principal, Transfer Pricing, Eide Bailly LLP (HLB USA), Marina Gentile; HLB Global Transfer Pricing Leader, and Kimberlee S.P. Murphy; Tax Partner, Withum (HLB USA)
The threat of new or increased tariffs between major world economies has created a volatile situation for companies with multinational operations. Recent examples include the reintroduction of tariffs on all steel and aluminium imports into the United States, new and increased levies between the US and China, and new 25% tariffs on US imports from Mexico and Canada are due to be implemented in early March 2025.
For now, these appear to be across the board tariffs, however time will tell if the impact will be narrowed to include only specific product categories. HLB International has been coordinating our international tax and transfer pricing experts across the United States, Mexico, Canada, and China to provide our clients with practical guidance on some of the most pressing questions to a global business facing the prospect of new or elevated tariffs.
While customs and tariffs affect each global company in a unique way, common best practices can help tax, finance, and operational departments navigate the complexities of a fast-changing world trade environment in which the cost of raw materials, inputs, and finished goods can spike with little warning.
This uncertainty creates a stress on global businesses of all sizes where the cost of importing and exporting products may change with no recourse and the company is faced with either passing on the cost to the consumer or bearing it themselves. Neither is an attractive option.
Based on numerous discussions with our clients over the past several weeks, and global collaboration within our international network, HLB has developed a three-phased approach to assessing the impact of, and adjusting to, a new customs and tariff footprint. This strategy is intended to help companies make well-informed, proactive decisions while ensuring compliance with relevant tax, transfer pricing, and trade rules, and consists of the following:
The first action any company should take when evaluating the potential effect of new tariffs is to ensure a thorough understanding of its own internal and external supply chains, its stakeholders, and processes. This process entails answering the following key questions, among others:
Once internal and external supply chains, stakeholders, and processes are thoroughly mapped, the next step for global companies is to evaluate the potential levers at their disposal to modify and/or optimise their customs footprint. Examples of questions to answer in this phase include:
Only after the mapping and evaluation in Phases 1 and 2 are complete should companies begin the process of planning changes to business and financial operating models.
Depending on the company’s facts and circumstances, strategies may include realignment or renegotiation of product and/or contractual flows, valuation planning (possibly in conjunction with changes to transfer pricing policies), and other measures intended to reduce the margin impact of tariffs.
Importantly, companies should continuously track national and jurisdictional policies, as changes to these can be swift and disruptive, and consider starting with more broad-based changes that can accommodate a range of scenarios
HLB tax, transfer pricing, and international trade experts are ready to assist your company throughout each of these three phases. These matters are very fact-specific, so it’s important to understand your business and develop a bespoke strategy to meet your unique needs. Contact our team today for a no-cost, no-risk consultation.
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