From compliance to competitive advantage: Transfer pricing and supply chains

Despite the complexities of geopolitical volatility, integrating transfer pricing into corporate planning helps businesses to mitigate risks, optimise resources, and maintain competitiveness. This shift highlights the need for a holistic approach that aligns tax strategy with supply chain agility in a dynamic global trade environment. 

The interconnection between transfer pricing policies and customs valuation directly influences the tariff cost base, so both cannot be considered in isolation. In particular, embedding transfer pricing within the broader context of international tax and corporate tax planning ensures that cross-border operations are not only compliant but strategically aligned across jurisdictions.

Transfer pricing and tariffs, while governed by separate regulatory frameworks, are interconnected in practice because transfer pricing policies can influence the customs valuation of imported goods, thereby affecting the tariff cost base. 

The U.S. Customs and Border Protection (CBP) frequently challenges the value for duty on importation of goods into the U.S., particularly by related entities. 

Tax and customs authorities in the United States and the EU often coordinate to ensure consistency in the values reported for both tax and customs purposes. Although transfer prices are not directly used to calculate tariffs, any adjustments made by tax authorities may prompt a review by customs officials, potentially leading to further scrutiny or reassessment. 

Artificially lowering transfer prices to minimise tariff liabilities can trigger regulatory investigations and result in tax reassessments by the relevant authorities.

Companies dealing primarily in services and intangibles are currently insulated from tariff impacts, as tariffs apply only to tangible goods. However, for multinational enterprise (MNE) integrating tangible goods with services or intellectual property, evolving trade policies may soon require a reassessment of transfer pricing strategies.

In the short term, businesses should focus on legally minimising the tariff cost base for cross-border transactions, such as by updating transfer pricing studies, reviewing intercompany agreements, and considering the allocation of tariff costs between related parties. Proactive documentation and alignment with the arm’s length principle are essential to withstand regulatory scrutiny.

For long-term resilience, companies should look beyond immediate tariff relief and strategically diversify their supply chains to mitigate ongoing protectionist risks. This may involve relocating or duplicating operations, optimising trade routes, or prioritising partnerships with countries that have reliable trade agreements. By continuously evaluating their global footprint and integrating transfer pricing considerations into supply chain decisions, businesses can remain agile and competitive in a landscape defined by persistent tariff uncertainty.

By taking a deliberate, phased approach to strategic change and integrating customs and transfer pricing considerations into every supply chain decision, multinational companies can not only mitigate immediate tariff risks but also build long-term resilience and maintain a competitive edge in a dynamic global trade environment.

Our highly experienced team at BDO is ready to guide you through this complex global tariff landscape, leveraging the interconnected nature of transfer pricing and customs valuation to unlock significant cost savings and enhance your global operational efficiency.

Content adapted from BDO Canada.