Page 6 - The South China Business Journal
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       Impact of US-China Tariffs



       on Transfer Pricing --




       Considerations for MNCs



          By Arendse Huld,  China Brie昀椀ng

                                                                            brings potential tax implications for
        On April 2, 2025, Trump announced sweeping reciprocal tariffs       the importing companies, as well
        on around 90 trade partners and a 10 percent minimum baseline       as the risk of noncompliance with
        tariff on  obal imports, spar ng turmoil in  obal markets. While    the arm’s length principle. To ensure
        the reciprocal tariffs on the majority of most partner’s have been   that the tax bene昀椀ts of reducing the
         ven a 90-day pause, the 10 percent universal base tariff and       transfer price are not outweighed
        the tariff on China remain in place. In addition to the immediate   by the risks of violating transfer
        serious implications for the  obal economy, the tariff escalation also   pricing regulations, multinational
                                                                            corporations (MNCs) must conduct
        has important consequences for transfer pricing, particularly for   thorough analyses and maintain
        multinational corporations involved in intercompany transactions. We   robust documentation to withstand
        look at how tariffs impact transfer pricing and discuss strate es   scrutiny from both customs and tax
        companies can adopt to mitigate the risks.                          authorities in both jurisdictions.

                                                                            In this article, we look at the possible
            n April 2, 2025, Trump         companies can adopt to mitigate   implications of the rising tariffs on transfer
        Oannounced sweeping reciprocal     the risks.                       pricing and discuss steps MNCs can take
        tariffs on around 90 trade partners                                 to overcome these complications.
        and a 10 percent minimum baseline   At the time of writing, tariffs on
        tariff on global imports, sparking   imports from China to the US   Impact of tarIffs on transfer
        turmoil in global markets. While   are at 145 percent, while imports
        the reciprocal tariffs on the      from the US to China face an 125   prIcIng between chInese and
        majority of most partner’s have    percent tariff. US imports from all   amerIcan subsIdIarIes 
        been given a 90-day pause, the     other jurisdictions are subject to
        10 percent universal base tariff   a 10 percent baseline minimum    Under both US and Chinese import
        and the tariff on China remain in   tariff. Certain products, including   regulations, tariffs are usually
        place. In addition to the immediate   smartphones, computers, and   imposed on the value of the
        serious implications for the global   semiconductors, are exempt from   transaction at the time of import.
        economy, the tariff escalation also   the US import tariffs.        This means that the 145 percent tariff
        has important consequences for     In response to the rising tariffs,   currently imposed on Chinese goods
        transfer pricing, particularly for   companies may look to adjust their   entering the US and the 125 percent
        multinational corporations involved   transfer prices or prepare transfer   tariff on US goods entering China
        in intercompany transactions. We   pricing (TP) risk mitigation plans   will be applied to the transfer price
        look at how tariffs impact transfer   to offset the increased costs of   agreed upon between the af昀椀liated
        pricing and discuss strategies     imports. However, this strategy   entities. In both cases, customs



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