US and EU Tariffs - the Transfer Pricing impact

Tariff overview

The imposition of tariffs by the United States on a range of EU-originating goods, including those from Ireland, creates significant and immediate challenges for multinational enterprises (“MNEs”) operating across transatlantic borders. 
 

To recap, from 12 March 2025 EU businesses are subject to a 25% import tariff on cars, steel and aluminium to the US market. 
 

A broader 20% tariff was announced by the US to be effective from 9 April on all goods entering the US market. This blanket 20% tariff is paused for a period of 90 days, offering a welcome opportunity for a negotiated resolution between the US and EU. Despite this pause, a universal 10% tariff for all countries including Ireland remains in place, as introduced from 5 April. 
 

The Trump administration introduced these tariffs as part of its "America First" trade policy. These measures aim to address perceived trade imbalances and protect domestic industries.
 

The European Commission favours negotiation and has mooted a zero for zero tariff arrangement with the US. In response to the US measures, it had proposed to introduce counter tariffs on a range of US goods. These counter tariffs have also been paused for a period of 90 day to allow for trade negotiations. 
 

Ultimately, a US-EU deal to step back or significantly reduce proposed tariffs may be possible. However, given the significant complexity of trade flows and competing interests, it will be a significant challenge to reach a trade pact to the satisfaction of both blocs in a 90-day period. Supply chain disruption for Irish and European business is also being driven by the trade war unfolding between the US and China.  In this evolving climate of change, businesses must plan to navigate a significantly reshaped international trading landscape, and even a potential further escalation of tariffs. Trade tariffs have far-reaching implications, particularly for intercompany transactions between US and Irish entities, which are central to multinational operations.

 

What's the transfer pricing impact? 

For Irish businesses involved in cross-border transactions with US affiliates, the following areas warrant close analysis:

1.    Impact on cost structure and profit allocation
Tariffs represent a material increase in the cost of goods sold for the US importing entity. If these goods are acquired from an Irish related party under a buy-sell arrangement, the question arises as to who should bear the economic burden of the tariff: the US distributor, the Irish manufacturer, or shared between the two? Transfer pricing policies will need to be assessed for alignment with the arm’s length principle considering these increased costs.

2.    Effect on tested parties margin
When the US counterparty serves as the tested party in a transfer pricing analysis, particularly in distribution models, tariff-induced cost increases can reduce profit margins below the benchmarked arm's length ranges. This situation may attract scrutiny from tax authorities, necessitating year-end true-up adjustments or revisions to the transfer pricing policy.

3.    Risk allocation in existing TP models
Many intercompany arrangements are governed by contracts that delineate specific risks, such as market, inventory, or foreign exchange risk. However, few contracts explicitly address trade policy risk, leaving ambiguity around whether tariff costs should be absorbed by the importer or reimbursed by the related seller. This ambiguity may necessitate updates to intercompany agreements or supporting documentation to clarify risk allocation and ensure compliance.

4.    Customs valuation interaction
Tariffs based on import values can create tension between customs valuation and transfer pricing policies. For instance, if an Irish exporter increases / decreases its intercompany prices to offset the US affiliate's tariff burden, it may trigger customs compliance issues if not properly substantiated. Therefore, coordination between transfer pricing and customs functions is critical to avoid double taxation or penalties.

5.    Operational and cash tax impact 
Supply chain realignment and TP policy adjustments to deal with the new trade tariff environment may have a knock-on impact on VAT accounting. Reconstituted supply chains must be fully assessed from a VAT operational and compliance standpoint & any changes required by businesses in respect of tax reporting and related controls. Businesses should consider the cash tax impact of transfer pricing policy changes. 
 

How can businesses react? 

While the new tariff measures create immediate cost pressures and operational uncertainties, proactive strategies such as revising transfer pricing policies and diversifying markets and supply chains can help mitigate long-term risks. 
 

While a negotiated resolution between the EU and the US remains critical to stabilizing trade relations, businesses must plan for the reality of fundamentally reshaped global trade environment of significant counter tariffs.  

In the short term, businesses may consider: 
-    Temporary pricing adjustments.
-    Supply chain re-routing.
-    Changes to invoicing structures to mitigate the financial and compliance impact of tariffs. 
 

Strategically, these measures may accelerate longer-term shifts in supply chains and functional profiles, especially for Irish-based principal or IP-owning entities.
 

RSM can support you

Our Transfer Pricing team and other tax experts can help businesses plan for this changed trading environment. Reach out to our team below or your usual contact at RSM.