By Jayanti Singh
Evolving tariff policies are a key focus for businesses in their day-to-day operations. The Trump administration’s wave of new tariffs have threatened to dramatically shift global supply chains, leading to rising costs and strategic uncertainty.
Tariffs do more than increase the cost of goods—they disrupt entire business models. Companies face an increasingly volatile and opaque regulatory environment, rising costs, supply chain disruptions, and mounting compliance burdens. Organizations must understand the full scope of tax and legal implications of tariffs to remain profitable and competitive.
In a recent webinar hosted by Bloomberg Tax & Accounting and Bloomberg Law, tax and legal professionals examined the ramifications of these changes and provided insights for professionals navigating emerging complexities.
The current landscape of tariffs
Since February 2025, the United States has introduced a range of tariffs affecting critical imports, including:
- A 25% tariff on Canadian and Mexican goods that don’t fall under the United States-Mexico-Canada Agreement (USMCA).
- A 25% global tariff on aluminum, steel, and derivatives.
- A 25% global tariff on automobile imports and parts.
- A 10% blanket reciprocal tariff on most countries, including China, with some countries subject to higher rates.
- An additional 20% tariff on all Chinese imports.
These measures have prompted swift retaliatory tariffs from Canada, China, and the European Union (temporarily paused). For example, China imposed its own 20% tariff on certain U.S. imports of natural resources and agricultural goods.
On April 9, 2025, President Trump paused higher tariffs for most countries for 90 days, with the 10% global tariff remaining in place. The higher rates for China were paused for 90 days on May 14, 2025.
As this uncertainty around tariffs increases, the administration’s policies and retaliatory measures create an unpredictable and fragmented trade environment.
Legal foundations for tariffs
Under Article I, Section 8 of the U.S. Constitution, the power to levy tariffs resides with Congress. Over time, Congress has delegated portions of this authority to the executive branch, including through Section 301 of the Trade Act of 1974, Section 232 of the Trade Expansion Act of 1962, and The International Emergency Economic Powers Act (IEEPA).
The 2025 tariffs are primarily grounded in IEEPA, which permits the president to regulate commerce in response to “unusual and extraordinary threats” to national security, foreign policy, or the economy. However, using the IEEPA in this context raises legal questions around whether trade deficits and economic conditions meet the statute’s threshold for emergency action.
Congress can terminate an IEEPA-declared emergency by joint resolution. However, doing so would require a veto-proof majority, limiting its practical use.
Tariff challenges for businesses
Tariffs can bring significant operational and financial challenges for organizations. Here are some problems businesses must navigate to balance profitability and regulatory requirements.
Profitability pressures and shared cost models
Tariffs have an impact on a business’s production costs, possibly for both manufacturers and distributors.
Companies are likely to feel inflationary pressures because an increase in production costs is likely to require changes to the valuation of goods. Low-margin commodities (e.g., perishable food, gasoline) are most likely to increase in price for the consumer. Valuation for high-margin commodities is more likely to depend on price demand elasticity, both in the short term and in the long term.
The manufacturer and the distributor would also likely have to share the cost of tariffs to avoid severe price hikes. Calculating this would require an iterative process that can become quite complex, especially given that tariffs rates are changing at a rapid pace.
Transaction value and customs valuation
Tariffs are calculated as a percentage of the import value, most commonly determined using the transaction value method, which reflects the price paid or payable.
In related-party transactions, this method of valuation can only be used if the “circumstances of sale” demonstrate that the relatedness of the parties did not affect the price.
This creates potential friction with transfer pricing principles because companies have increasingly used the transfer price to set their import value, with the U.S. distributor functioning as the tested party. Tariff costs often reduce the operating income of U.S. distributors, changing the benchmark returns that transfer pricing looks at. The timing of market evidence also means that companies may not know how to price transactions until after tariffs have already been paid. This would require companies to engage in a lot of forecasting that may be complex given the volatility of U.S. tariff policy.
During the webinar, the hosts illustrated a scenario in which absorbing the full cost of a 25% tariff would drive the distributor’s margin into negative territory.
If a distributor is at a loss because of tariffs, this would not be considered an arm’s length level of profitability for the related party, prompting businesses to engage in post-importation adjustments to maintain arm’s-length results. Doing so changes the transfer price itself.
Once post-importation adjustments are made, the valuation of the goods goes down, meaning the distributor paid more tariff than they would need to have under that lower price. The distributor is therefore entitled to a refund from U.S. Customs and Border Protection (CBP), which presents administrative issues that companies now have to deal with.
Moreover, a company may be entitled to tax refunds because they paid income tax in another country on profits based on the initial higher price, which is now lower after importation. To obtain this refund, they need to utilize the mutual agreement procedures (MAP) under tax treaties. While this process is usually straightforward, that may not be the case when you factor in the complexities that tariffs introduce.
Intellectual property (IP) and valuation
Tariffs also influence decisions around repatriating offshore IP and intangible assets. Increased uncertainty requires companies to adjust their valuation models. For example, adjustments might include applying risk premiums to discount rates or weighing potential tariff costs in projected cash flows. Companies should also consider the effects of tariff-induced volume reductions due to price elasticity.
These inputs are also part of valuing intangible property for income tax and financial reporting purposes.
Strategies for navigating tariff volatility
Businesses can take several steps to address volatility through short, medium, and long-term strategies, which may be tailored to different planning horizons.
Short-term strategies
- Anticipate the requisite shifts in transfer pricing explained above and assess strategies for valuing the import price on which tariff is paid at a rate that avoids the need for post-importation adjustments.
- Review supplier and intercompany contracts to determine who should bear the tariff risk based on the impact the tariff will have on the profit margins of the various actors at play (thereby potentially lowering the import price of the goods and lowering the tariff paid).
- Perform scenario modeling and sensitivity analysis for multiple tariff outcomes.
- Initiate cost-sharing discussions with manufacturers and suppliers.
- Engage policymakers to advocate for favorable tariff treatment or exemptions.
Medium-term strategies
- Explore alternative Harmonized Tariff Schedule (HTS) classifications.
- Implement “first sale for export” strategies to reduce dutiable value.
- Reassess product bundling to unbundle tangible and intangible components, thereby limiting tariff exposure.
Long-term strategies
- Explore reshoring or nearshoring, particularly for goods vulnerable to tariff escalation.
- Evaluate legal and compliance risks under free trade agreements (FTAs).
- Redesign global supply chains to enhance flexibility, resilience, and tax efficiency.
Legal recourse
Governments may challenge the legality of U.S. tariffs under World Trade Organization (WTO) frameworks or bilateral trade agreements. However, the WTO’s appellate body is currently nonfunctional due to stalled staff appointments, and dispute resolution mechanisms under bilateral agreements can be slow and uncertain. For the foreseeable future, legal challenges are likely to proceed slowly, with limited short-term relief.
Free trade agreements like the USMCA offer duty-free access for qualifying goods, but in the past, the heavy documentation and compliance requirements involved deterred many businesses from claiming preferential tariff treatment.
With higher import costs, companies might want to reconsider previously ignored certifications of origin to benefit from preferential tariff treatment.
The role of tax professionals
Tax professionals play a crucial role in helping companies navigate tariff volatility. Here are a few ways they can help their clients right now:
- Transfer pricing: Ensure intercompany pricing reflects economic realities and complies with global standards.
- Customs valuation: Ensure companies have proper documentation to support defensible transaction values.
- Tax and legal compliance: Advise on structuring transactions, preparing financial statement disclosures, and navigating regulatory audits.
- Strategic planning: Help companies model outcomes and advise on selecting the proper business entity structure, designing supply chains, and managing risk through contracts.
Given the rapid pace of change, companies and their advisors must continuously monitor tariff developments. Tax professionals should establish internal processes to track updates, assess risks, and help clients respond quickly to changes.
Planning through uncertainty
Between domestic executive action and international responses, there’s a lot of uncertainty around tariffs for the remainder of 2025 and beyond. For now, businesses should operate under the assumption that rates may continue to change and plan accordingly.
While there’s no one-size-fits-all solution, thoughtful planning can soften the blow and help companies stay compliant. Whether through analyzing the legal and financial reporting ramifications, modeling different tax and trade scenarios, or reconfiguring supply chains, tax and accounting professionals must prepare their clients to respond to volatility.
[Editor’s note: The Bloomberg Tax & Accounting and Bloomberg Law webinar was held prior to yesterday’s ruling by the U.S. Court of International Trade that deemed the bulk of President Donald Trump’s global tariffs illegal and were blocked by the court.]
ABOUT THE AUTHOR:
Jayanti Singh is a senior director at Bloomberg Tax.
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Tags: Accounting, Small Business, tariffs, Taxes, trump tariffs
