The evolving tax landscape in the United States presents a significant challenge for businesses with cross-border operations. As proposed policies take shape, companies must proactively evaluate and adjust their strategies to remain competitive. While the specifics of tax and customs reforms under the new U.S. administration remain uncertain, the potential changes demand immediate attention and preparation.

Key Proposals to Watch

President-elect Trump’s potential tax and customs reforms could drastically alter the business environment, particularly for cross-border trade. Key considerations you’ll want to pay attention to include potential:

Higher Tariffs:

• 60% or higher tariffs on goods produced in China
• 25% increase in tariffs on goods from Mexico and Canada
• 10% tariffs on goods from other countries
• Increase in tariffs from EU countries
• Retaliatory measures from affected countries could further complicate supply chains and profitability

Changes in Corporate Tax Rates:

• A 15% flat corporate tax rate for domestic manufacturers
• A 20% flat corporate tax rate for U.S. non-manufacturing companies

Other Tax Adjustments:

• Retention of the FDII (Foreign-Derived Intangible Income) tax rate of 13.125%
• Continued application of the GILTI (Global Intangible Low-Taxed Income) tax rate of 10.5%
• Maintaining interest expense limitations under the TCJA (Tax Cuts and Jobs Act)
• Possible adjustments to BEAT (Base Erosion and Anti-Abuse Tax) and R&D expense treatment.
• Possible extension of many of the expiring provisions of the 2017 tax reform (TCJA)

If enacted, these changes will likely benefit domestic manufacturers but could disrupt longstanding cross-border trade and operational models.

Strategic Considerations for Businesses

To mitigate risks and seize opportunities, companies should prioritize the following areas:

Onshoring and Reshoring Opportunities

• Evaluate the feasibility of relocating production and critical functions back to the U.S. to capitalize on favorable tax rates and mitigate tariff impacts
• Reassess intellectual property (IP) ownership and strategies to ensure tax efficiency and compliance, including onshoring IP or significant R&D functions

Supply Chain Restructuring

• Explore alternatives to sourcing and manufacturing in countries subject to higher tariffs
• Review the tax aspects of supply chains, including embedded IP payments and potential duty impacts
• Utilize Free Trade Zones (FTZs) to reduce tariff exposure and streamline customs compliance

Impact on Intercompany Transactions and Transfer Pricing

• Align transfer pricing policies with shifting supply chains and value chains
• Amend intercompany agreements to reflect changing commercial metrics
• Evaluate alternative transfer pricing models to optimize global tax positions

Tax and Customs Efficiency

• Assess potential customs refunds, exemptions and their implications
• Ensure accounting systems and processes can accurately trace and comply with new requirements
• Monitor legislative developments to adapt strategies as new details emerge

Preparing for the Future

The anticipated reforms could transform the tax and business landscape, necessitating strategic planning to manage increased tax liabilities and maintain operational efficiencies. Businesses should take the following steps:

1. Model financial impacts — Evaluate how tariff increases, tax rate changes and transfer pricing adjustments will affect profitability
2. Develop action plans — Identify strategies to mitigate tax liabilities, including restructuring entity models and operations
3. Engage tax advisors — Collaborate with experts to design tax-efficient structures and adapt to evolving regulations
4. Stay informed — Monitor legislative updates and proactively align your strategy with emerging policies

By addressing these considerations now, companies can position themselves for success in a shifting regulatory environment