Transfer Pricing has been a hot topic and the biggest tax uncertainty for multinationals for years; somehow, it just keeps getting hotter.
The global trade uncertainty that’s driven by the U.S. administration increase in tariffs for products crossing into the U.S. border is amplifying the need for strategic, transactional transfer pricing. With multinationals transferring products into the U.S., 2025 has become a year of stress and uncertainty.
While there is no option for multinationals to eliminate or decrease the tariff amounts, there is a lot of opportunity to take a strategic approach in reducing dutiable customs value. The key is to do so in a very strategic and quantifiable way, with economic analyses (mostly transfer pricing, sometimes other approaches) to support the drop in customs value, thus reducing the impact of these increased tariffs. Transfer pricing and now tariffs continue to be a focus area in the international community.
Multinational companies of all sizes – from public companies to middle-market companies to family-owned business – need to take steps to ensure they are in a position of strength in this area. With increased scrutiny on cross border transactions, having a consistent global strategy that reflects the economic substance of the overall business and is compliant with regulations in all countries, goes a long way to stay off the radar of the world’s tax authorities.
Transfer Pricing plus Global Trade, Supply Chain and Tariff Mitigation
In both the global and domestic arenas, it is about planning and compliance. This includes applying transfer pricing alongside considerations unique to each business such as optimal tax efficiencies, streamlined cashflow management, minimizing transfer pricing audit risk, and protecting intellectual property. In the current tax environment, it is more important than ever for taxpayers to take a proactive approach to their global transfer pricing strategy, and make sure they are operating as efficiently as possible. Taxpayers need to be diligent in their compliance, ensuring preparation of robust transfer pricing documentation annually. In addition, the contemporaneous documentation study must align with both the intercompany legal agreements and the substance of the accounting/ financial statements. Taxpayers should also consider following the “substance over form” doctrine while avoiding indefinite accrual of intercompany revenue/expenses.
Transfer Pricing – and other economic analyses – matters more than ever given this year of tariff increases and global trade uncertainty. Tariffs are very much an immediate issue for MNEs, time is literally money when product sits on the border with tariffs increasing, and transfer pricing provides a solution. We take a detailed and transactional approach to company’s transfer pricing and identify and eliminate the “noise” that is often in the product price. This will organically bring down the dutiable customs value and will provide the quantifiable support to Customs and Border Protection (“CBP”) for doing so.
It has never been more important for companies to carefully consider – or reconsider – related-party transactions and proactively plan transfer pricing strategies that best fit the current environment. Remember, transfer pricing is not just about the transfer of products/tangible goods. It is also about accounting for services, intercompany financing, intangible valuation and their license, and cost allocations, among other things.
More and more state tax auditors are getting involved, primarily driven by revenue shortfalls resulting from the COVID-19 pandemic. Transfer pricing also has a seat at the transaction advisory table now, as buyers become more in tune with the risks around uncertain transfer pricing positions. Every international company that is a potential acquisition target should ensure they are transaction ready; this involves understanding the location of their intellectual property and protecting it from other tax authorities via smart transfer pricing strategies that reflect the true economic substance of the business. Once the diligence begins, target companies should feel confident that they have the optimal global strategy in place, and that there is consistency in three key areas: the transfer pricing study, the intercompany legal agreements, and the accounting/financials.
Eight Opportunities and Challenges You Should Discuss with Withum’s Transfer Pricing and Tariff Mitigation Team
Consider alternative strategies to eliminate, mitigate, or defer customs payments such as first sale for export, bonded warehouses, free trade zones, duty drawback, and customs reconciliation programs. Traditional transfer pricing planning focused on unbundling the cost of goods sold (COGS) and reducing dutiable product price while increasing non-dutiable services and transactions is another viable option for mitigating tariffs impact.
This two-phase approach ensures taxpayers have the most tax efficient global structure, supported by transfer pricing. Working with our International Tax colleagues to come up with a combined strategy for the optimal global structure. This year, it’s critical to revisit any previous global tax and transfer structures based on the new U.S. tax law, The One Big Beautiful Bill Act.
There is no better way to be in the best negotiating position in an audit situation. Plus, it takes the 20% or 40% of penalties for income adjustments off the table.
Intellectual Profit strategies make clear which entity is the IP owner/funder/developer versus the service provider or licensee. This consideration protects the MNEs valuable assets from other tax authorities that may try to claim IP ownership in their markets.
Consider cost allocations and arm’s-length pricing in the domestic arena to allocate HQ costs throughout the various entities and to protect against single-filing state tax bills.
Are your Transfer Pricing policies current and reflective of your business? Are you minimizing transfer pricing risk around the world? Review, update, or create intercompany agreements. It is important to add this substance to support your arm’s-length transactions between and among affiliates.
Transfer pricing is a very hot topic in the transaction space, where buyers targeting global businesses are far more informed on the need to understand transfer pricing. It is important to get the right people in the right room at the right time, and as early as possible, ideally before a transaction even begins. Taking proactive steps ensures that uncertain transfer pricing does not impact the purchase price or delay the deal. Now, supply chain and tariff efficiencies diligence should be part of the process for buyers targeting global businesses that move products around the world.
For many businesses, international expansion is a natural step along the growth curve as new markets create additional revenue opportunities – but it is certainly not without its fair share of challenges. There are many issues to consider and plan for, and while operational and commercial issues can occupy management’s attention, the global tax and transfer pricing implications that come with a decision to go global need to be prioritized. Withum takes a streamlined approach, partnering with its HLB International affiliates around the globe, to assist businesses in establishing entities in new global markets, or those establishing in the U.S.
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With continued shifts in tax policy, staying proactive with your tax planning can help you take advantage of new opportunities and avoid unexpected liabilities. Withum’s Tax Planning Resource Center provides timely insights, planning tips and compliance reminders tailored to your needs.
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Reach out to Withum’s Global Transfer Pricing Services Team for guidance as year-end approaches.
Disclaimer: No action should be taken without advice from a member of Withum’s Tax Services Team because tax law changes frequently, which can have a significant impact on this guide and your specific planning possibilities.
