Trump Tariffs Make Tax, Customs Link Key for Managing Audit Risk

A year into the Trump administration’s global tariff campaign, many companies are still struggling to coordinate their trade functions with their tax and transfer pricing teams, risking messy audits in the years to come.

Failing to coordinate can risk examination by tax or customs agencies, tax practitioners warned. While many industries have been handling these issues for decades, the Trump swath of tariffs has caught up nearly every sector, including many with little to no experience navigating these waters.

Transfer pricing, which governs how businesses price intercompany transactions, is deeply intertwined with tariffs, as the prices have a huge impact on both what taxes are owed and what duties are levied. Typically, the two are handled by different teams.

“Tax departments don’t always necessarily do trade or tariffs. And the treasury function is different, and sometimes they do something small which can have a big implication, for example, in your transfer pricing,” Alvarez & Marsal managing director Kevin Jacobs said.

Roughly half of US imports are between related parties, according to US Census data. The price companies put on those cross-border affiliate transactions determines where profits are allocated for tax purposes and what duties are levied on imports.

Both tax and customs agencies require that affiliate deals be made as though they were done in the marketplace, with customs officials adding trade-specific factors to the considerations. And both agencies conduct audits when they aren’t satisfied with the pricing, amplifying the need for companies to coordinate these functions internally.

Nonetheless, a recent survey by PwC found that just over 50% of respondents said their companies coordinate transfer pricing adjustments with their trade teams and make corresponding customs adjustments.

“Over half the companies surveyed have coordinated with the transfer pricing team, but nearly half have not, which is scary,” PwC principal Chris Desmond said.

‘Everyone in the Tent’

The need for coordination is particularly acute for companies that use their transfer price as their customs price.

Typically, companies set their transfer prices at the beginning of the year, and then make adjustments at the end, depending on how things played out in real life, EY principal Ana Maria Romero said.

“You need to make sure that your transfer pricing team’s talking to your customs team so that the transfer pricing adjustments get captured,” she said.

Referring to Customs and Border Protection, Romero said companies also must “be able to show to CBP that you’re setting your prices in accordance to industry best practices. And if CBP doesn’t agree, they may just choose a different number to apply the duties on.”

The need for coordination between customs and transfer pricing builds on an ongoing trend of tax departments pushing for greater involvement in each function of the business amid growing international tax and supply chain complexity.

“It’s not just, ‘OK, tax is working in its silo, and treasury is working in its silo, and trade is working in a third silo,’” Jacobs said. “Everything is modeled together, and there’s an importance to say we really need everyone in the tent talking from one voice, because one thing clearly impacts the other.”

Additionally, companies need to stay flexible amid a rapidly changing global tax, trade, and business landscape.

“That’s why the flexibility and nimbleness is really, really key, and you can’t do that if you don’t have your data,” Jacobs said. “You can’t do that if you’re not having tax, trade, and treasury all working together and if you’re not working cohesively with your advisers.”