Refunds of Trump Tariffs Set Stage for Transfer Pricing Headache

The Trump administration has started refunding the tariffs that the US Supreme Court overturned in February. Distributors—companies that purchase goods from manufacturers and resell them to customers—often serve as importers of record and would be entitled to refunds of tariffs paid under the International Emergency Economic Powers Act, or IEEPA.

For transactions between related companies that are part of multinational groups, this presents a transfer pricing issue.

Foreign-parented multinational groups often sell their products in the US (and other international markets) through a local subsidiary that serves as a distributor. Transactions between the foreign manufacturer and its US distributor are subject to transfer pricing rules, which require that intercompany transactions are priced at arm’s length.

Most multinational groups determine intercompany prices for the sale from the foreign manufacturer to the US distributor by “benchmarking” the profits earned by the US distributor against public-company distributors that mainly buy from and sell to unrelated parties. The companies in the benchmarking set are known as “comparables.”

The transfer pricing for the allocation of IEEPA tariffs and IEEPA tariff refunds therefore will typically follow how tariff costs and refunds are reflected in the comparable distributors’ financial results. There are three likely outcomes:

• Distributors that bore the initial tariff costs themselves likely will retain the economic upside of the refunds.
• Distributors that passed their initial tariff costs to suppliers likely would remit tariff refunds to their suppliers.
• For distributors that passed tariff costs to their customers, refunding becomes more complex. It may not be possible to locate and refund many small customers, in which case distributors could see a windfall as the importers of record.

Now-available data from April 2025 through December 2025 reveal how parties at arm’s length handled tariffs initially. This data consists of the financial results of the public-company distributors that serve as comparables for transfer pricing purposes.

Across all publicly traded, US-based distributors, the quarter-to-quarter range of gross margins was virtually identical between 2024 and 2025. The median gross margins for distributors of non-durable goods only decreased from 17.1% in 2024 to 16.9% in 2025. A distributor’s gross margin is its revenue minus its costs of goods sold—that is, its variable costs directly related to sales—divided by its revenue.

If distributors themselves bore tariff costs, their gross margins would have decreased. They didn’t—so most distributors likely passed tariff costs to suppliers or customers. We expect the refunds that distributors are now receiving to follow. But what does this mean for related-party transactions?

First, multinationals should review their US distributor’s 2025 results against the 2025 results of the comparables used for benchmarking before filing the US distributor’s tax return this fall.

If the distributor’s profits fall outside of the benchmarked range, multinationals may want to consider an affirmative adjustment under Treasury Regulation Section 1.482-1(a)(3). Before making any adjustment, they should consider whether a corresponding adjustment may be claimed in the other jurisdiction, such as if an intercompany agreement allows prices to be adjusted to comply with the arm’s-length standard.

Second, multinationals should allocate tariff refunds received in 2026 to the party that economically bore the tariffs in 2025, considering any adjustments to 2025 pricing. It will be important to pay careful attention to the accounting treatment of tariff refunds and to potential timing differences to avoid inconsistencies between the US distributor’s financial data and the financial data of the comparable companies used for benchmarking.

Third, taxpayers should consider how tariff refunds received by unrelated distributors may affect the 2026 results of the comparable companies in their benchmarking sets. If possible, we recommend investigating the tariff positions of individual companies, which may entail additional qualitative research into statements made by these companies related to their ultimate net tariff positions.

Assuming that tariff refunds will be recorded in 2026 for financial accounting purposes, how the comparable distributors used for benchmarking handle tariff refunds could affect their 2026 profits. The 2026 profits of these public-company comparable distributors in turn will be used to benchmark the transfer pricing for US distributors.

If a distributor reduced amounts paid to its suppliers in 2025 due to tariffs, one would expect the tariff refunds received from the government in 2026 and the payment of those refunds to the suppliers in 2026 to offset for accounting purposes. The distributor’s 2026 profits wouldn’t increase as a result of the refunds.

In other cases, if a distributor increased amounts paid to many small customers in 2025 due to tariffs, it may be difficult to locate specific customers to issue refunds. If the distributor receives tariff refunds from the government in 2026 and keeps those amounts, without an offsetting expense, the distributor’s 2026 profit margin could be increased artificially.

Because related-party transfer pricing is benchmarked based on the profits of public-company distributors, these distributors’ financial results will determine the 2026 transfer pricing for multinationals.

Therefore, multinationals should consider whether adjustments to the underlying financial data will be necessary to account for different treatment of tariff refunds. Another alternative would be to use a multiyear average to smooth out potential skewing of 2026 data or to remove 2026 from multiyear averages.

The tariff landscape continues to evolve, with new tariffs and challenges to those tariffs. Multinationals should monitor each quarter the profitability of the public-company US distributors that they use to benchmark the results for their US subsidiary distributors and proactively make necessary adjustments to their transfer prices or their benchmarking studies.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Lauren Ann Ross is special counsel at Covington & Burling, focusing on tax controversy matters and transfer pricing issues.

Brian Vincent is a principal at Ryan specializing in international transfer pricing, audit and controversy defense, and tax-efficient supply chain planning.

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