Tariffs and Tax Planning in the Trump Era

The U.S. government recently imposed tariffs on a wide range of imported goods, including goods from Canada, Mexico and China. The tariffs are part of ongoing trade measures aimed at addressing perceived unfair trade practices and protecting domestic industries. Currently the rates include:

• Canada - 25% (10% for certain energy goods)

• Mexico - 25%

• China - 10% 

The tariffs were scheduled to be effective February 4th, 2025, though a 1-month suspension is in effect for Canada and Mexico.

Considerations:

Addressing the complexities of the new tariff regime typically requires a combination of advisors, including customs attorneys, logistic companies, supply chain specialists, U.S. and foreign tax advisors, etc. to ensure all business aspects of the tariff are considered. A few common considerations related to tariff planning include:

1. Tariff Impact Assessment – identify which products / product lines are impacted and whether exemptions / reduced tariff rates apply.
2. Stakeholder Identification – confirm who within the company undertakes tariff functions and has knowledge into the company’s approach and historical planning. Further, identify which divisions will be impacted.
3. Tax Free Zones – determine if the company uses tax free zones and if there are opportunities to leverage.
4. Contingency Plans – consider if the company has a plan A, B, C, etc. for approaching tariffs. For example, is the company able to adjust supply chains to countries with more favorable tariff rates? What’s the timeline to shift production? Can actions be taken today to facilitate a more efficient transition?
5. Transfer Pricing – determine the tariff impact on intercompany pricing of cross-border transactions and whether there are opportunities to reevaluate transfer pricing policies to reduce the tariff impact (while balancing global income tax considerations of taxable income shifting jurisdictions).
6. Vendor / Customer Relations – consider if the company is in a position to negotiate with current suppliers to share the cost. Can vendor prices be lowered (or customer prices be increased)?

Although tariffs may be temporary, companies should consider the financial impact of the tariff if they last 1-month, 6-months, 12-months, etc. and whether it’s worth performing financial modeling to determine when the company will want to pivot to a more tariff friendly approach.

Next Steps:

Companies should consider creating a plan to address tariffs and form an advisor team to address the numerous issues. Such advisors may include customs attorneys, logistic companies, supply chain specialists, and U.S. and foreign tax advisors (and potentially others).

Eide Bailly continues to monitor the tariff and income tax impact to U.S. and foreign companies. Please reach out to Aaron Boyer, Shannon Smith or Chad Martin with questions or to discuss how the new tariffs impact your business’s tax considerations.