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authorities may make adjustments if they deem the   methods, and making necessary allocations of
             declared value to be inaccurate.                  the increased tariff costs.
             The escalation of tariffs between China and the US   Companies must be cautious not to overstep
             may incentivize MNCs to adjust their transfer pricing   regulatory boundaries, as signi昀椀cant deviations
             policies to offset the import tariff burden. This is   from market-based benchmarks or historical
             primarily achieved by reducing the prices charged   pricing norms can trigger scrutiny from tax
             by the exporting subsidiaries for goods and services   authorities. Any adjustments to intercompany
             sold to af昀椀liated importing entities. However, while   pricing should be supported by robust
             this strategy can mitigate tariff-related costs, it has   documentation and a clear economic rationale,
             the secondary effect of increasing the pro昀椀t margin   especially given the dual compliance challenges
             of the importing entity, leading to higher income   posed by both transfer pricing and customs
             tax exposure in that entity’s jurisdiction. As the US   valuation rules.
             currently imposes a lower corporate income tax
             rate than China (21 percent 昀氀at rate on resident   Impact on comparabIlIty analysIs 
             companies to China’s 25 percent 昀氀at rate), this will
             mostly be a concern for arrangements that increase   The introduction of tariffs may distort pro昀椀t
             the pro昀椀ts of the Chinese af昀椀liate (however, various   margins, making it dif昀椀cult to rely on historical
             preferential tax arrangements in both countries   comparables due to 昀氀uctuations in their
             could affect this dynamic).                       昀椀nancial statements, as the tariffs impact
                                                               different competitor companies in varying
             Such pricing adjustments often involve a trade-off   ways. For instance, entities subject to tariffs will
             between reduced customs duties and increased      experience increased costs, which in turn can
             corporate tax liabilities. The overall 昀椀nancial impact   reduce their operating margins.
             depends on a range of factors, including tariff   In contrast, companies that are not exposed
             rates, pro昀椀t margins, applicable income tax rates,   to similar tariff burdens may show signi昀椀cantly
             and the structure of the MNC’s supply chain. In   higher pro昀椀tability, resulting in an apparent
             practice, companies may weigh these competing     discrepancy between the tested party
             outcomes to assess the net economic effect of     and the external comparables. Therefore,
             modifying intercompany pricing in response to     there may be fewer comparable companies
             higher tariffs.                                   available on databases than before. This can
                                                               lead to challenges in demonstrating that the
             complIance wIth arm's length prIncIple            intercompany pricing is consistent with arm’s
                                                               length principles.
             Both China and the US adopt the arm’s length
             principle to assess the legitimacy and fairness of   ImplIcatIons for tp results
             intercompany transfer prices. Mitigating TP risks
             created by the increased cost of import tariffs,   The tariffs may also impact TP results by
             therefore, requires careful navigation to ensure   altering a company’s pro昀椀tability. For instance,
             compliance with transfer pricing regulations. This   as tariffs increase the costs of goods sold
             means taking care when transferring tariff costs,   (COGS) for the importing af昀椀liate, it can reduce
             making necessary changes to the operational       its operating pro昀椀t unless transfer prices are
             transaction models, being 昀氀exible in the face of   adjusted or the costs are passed on to the
             changes in customs valuation and transfer pricing   consumer (where applicable). This means the



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