The hidden transfer pricing risks in Trump’s new tariffs – What Australian and New Zealand based multinationals need to know

On 3 April 2025, the United States administration announced the imposition of a 10% universal tariff on all imports, including those from Australia and New Zealand, as part of a broad new trade regime aimed at addressing perceived trade imbalances and safeguarding US economic dominance. This new tariff applies from 5 April 2025, alongside more severe tariffs targeted at other major economies and products.

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While the immediate trade and commercial implications of this announcement have received significant attention, there are deeper, less visible challenges that demand the attention of Australia and New Zealand multinational businesses: the transfer pricing ramifications of these new tariffs.

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This article explores the transfer pricing considerations arising from these measures and outlines the practical steps that multinationals should be taking to manage the associated financial, technical and compliance risks.

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The transfer pricing challenge

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For many Australian and New Zealand businesses with US operations, these tariffs will affect far more than the immediate costs of doing business. The tariffs will likely influence profit allocations, tax liabilities, compliance exposure, and potentially trigger double taxation disputes.

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Most commonly, multinationals export goods to the US via related-party structures such as wholly owned US based distributors. These related-party transactions are governed by transfer pricing policies designed to reflect arm’s length conditions, as supported with benchmarking analyses. The imposition of a sudden 10% tariff materially alters the economics underlying these arrangements and introduces several technical and practical challenges.

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Key transfer pricing implications

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1. Supply chain implications

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The new tariffs may prompt multinationals to rethink their country of production, as well as broader supply chain strategies including sourcing of materials, component parts, finished goods, and potential trans-shipment through countries like Canada. These changes bring with them a range of complex transfer pricing implications that need to be carefully managed.

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2. Risk allocation and intercompany agreements

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In many cases, existing intercompany agreements will not clearly allocate responsibility for unanticipated tariff costs. Historically, Australian and New Zealand exporters have not faced material tariffs when supplying to the US market, and contractual terms may not have contemplated such costs, especially where such costs can not be fully passed-through to customers because of competitive pressures.

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Businesses will need to revisit these agreements to determine whether the risks and costs of tariffs have been contractually allocated and, if not, whether amendments are necessary to clarify responsibility in a manner consistent with arm’s length principles.

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3. Impact on profitability of US entities

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The imposition of a 10% tariff will directly impact the cost of goods sold of the US distribution subsidiaries. For businesses using a “Limited Risk Distribution” model or similar, this could erode target profit margins, potentially driving the US entity into a loss-making position (thereby potentially triggering transfer pricing adjustments which would financially and economically shift such costs and risks to the Australian or New Zealand supplier).  This outcome may not meet the arm’s length principle and could result in a breach of either US or Australia/New Zealand tax laws.

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This will require careful consideration of whether existing transfer pricing policies and/or Advanced Pricing Agreements remain appropriate, or whether price adjustments are required to reflect the new economic reality and US market circumstance.

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4. Customs valuation risks

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Any attempt to retrospectively adjust transfer prices to reflect tariff costs may create compliance risks with US Customs and Border Protection (CBP). Post-importation adjustments to reduce declared customs values will not typically be accepted unless these fall within specific procedural frameworks, such as CBP’s “Reconciliation Program.”

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Businesses must be mindful of the interaction between transfer pricing policies and customs valuation rules to avoid audit risks and penalties.

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5. Benchmarking and comparability issues

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The introduction of tariffs will distort market conditions, making it more difficult to determine appropriate arm’s length pricing. Comparable businesses may react differently to tariffs, or have differing levels of traffic costs, reducing comparability and reliability in benchmarking data and analyses. Some importers will pass on these costs to customers, while others will absorb the costs likely creating inconsistencies in profitability data used for benchmarking purposes.

Businesses will need to consider whether adjustments to their benchmarking studies are appropriate and whether to engage with tax authorities proactively, if appropriate and possible.

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6. Benchmarking and comparability issues

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The introduction of tariffs will distort market conditions, making it more difficult to determine appropriate arm’s length pricing. Comparable businesses may react differently to tariffs, or have differing levels of traffic costs, reducing comparability and reliability in benchmarking data and analyses. Some importers will pass on these costs to customers, while others will absorb the costs likely creating inconsistencies in profitability data used for benchmarking purposes.

Businesses will need to consider whether adjustments to their benchmarking studies are appropriate and whether to engage with tax authorities proactively, if appropriate and possible.

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Recommended actions for Australian and New Zealand based multinationals

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To effectively manage the financial, technical and compliance implications of these new tariffs, multinational businesses should consider taking the following steps:

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Quantify the financial impact and determine the optimal operational / supply chain alternatives:

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Undertake detailed modelling to assess the impact of the 10% tariff on competitive positioning, broader economic conditions, group profitability, cash flows, and tax positions, including the effect on the US subsidiary and/or supplier margins, and develop alternatives to address the issues.

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Review and update intercompany agreements

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Where fundamental supply chain restructuring is not required, review existing intercompany agreements to determine whether these address the allocation of tariff risks and costs. Where necessary, amend agreements or issue clarifying documentation to ensure risk allocations are commercially supportable and defensible.

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Assess transfer pricing policies

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Assess transfer pricing arrangements in light of increased costs, any supply chain changes, altered competitive/economic conditions. Consider whether adjustments are required to maintain compliance with the arm’s length principle and whether existing Advance Pricing Agreements remain appropriate, especially the critical assumptions contained therein.

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Align transfer pricing and customs strategies

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Ensure that customs valuation implications are considered alongside transfer pricing changes. Engage customs advisors to determine whether participation in CBP’s Reconciliation Program or other mechanisms is appropriate.

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Review benchmarking and comparability analyses

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Evaluate whether existing benchmarking studies remain reliable, and whether evidence related to arm’s length allocations of tariff costs can be obtained. Determine whether additional comparability adjustments or alternative methods are necessary to reflect the impact of tariffs.

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Prepare for potential further tariffs

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The current measures may be the first step in a broader protectionist policy shift. Businesses should build flexibility into transfer pricing and commercial / supply chain models to prepare for possible further tariffs, particularly in sensitive sectors such as agriculture, technology, and pharmaceuticals.

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Engage with Government and industry bodies

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Share information on the commercial and financial impacts of the tariffs with government agencies such as Austrade, the Ministry of Foreign Affairs and Trade (MFAT), Department of Foreign Affairs and Trade (DFAT), NZTE. Coordinated industry engagement will support bilateral discussions and dispute resolution efforts.

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Final thoughts

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The imposition of universal tariffs by the US represents a significant commercial and financial challenge for Australian and New Zealand exporters. Beyond the immediate trade, operational and economic impacts, these tariffs have far reaching consequences for transfer pricing policies, tax compliance, and financial reporting.

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With proactive review and strategic action, businesses can manage these risks and ensure their transfer pricing arrangements remain robust, defensible, and aligned with arm’s length principles.

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TPEQ supports Australian and New Zealand multinationals in navigating complex transfer pricing, customs, and cross-border tax challenges arising from evolving global trade policies. Our team can help you assess the implications of the new US tariffs, review your transfer pricing arrangements and supporting analyses, and develop practical, compliant strategies tailored to your business. Contact us to discuss how we can support your business in this changing environment.