When tariffs rise, the price your US company pays its foreign affiliate does double duty. It sets the company's taxable income, and it sets the value US Customs taxes at the border. In 2026, with duty rates shifting under court rulings and new tariff actions, that one price is under pressure from two directions at once. Companies that review their intercompany pricing now can avoid paying too much duty, reporting too little income, or both.
Why 2026 is different
The tariff rules changed shape this year. On February 20, 2026, the US Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) does not authorize tariffs. That decision wiped out the "reciprocal" tariffs and the fentanyl-related tariffs on China, Canada, and Mexico that had applied since early 2025.
The money at stake is large. The Penn Wharton Budget Model puts potential refunds at $133 billion to $175 billion, owed to more than 330,000 importers across 53 million entries. Importers of record who paid IEEPA-based duties are entitled to get them back, and CBP built a new CAPE module inside its ACE portal to process the claims. The process is not automatic, so preserving entry summaries and duty payment records now is the first step.
What replaced the struck-down tariffs
Within hours of the ruling, the administration imposed a temporary surcharge under Section 122 of the Trade Act of 1974, a statute that allows tariffs of up to 15% for 150 days. At the same time, it moved to replace the lost IEEPA duties with tariffs under Section 232 (national security) and Section 301 (unfair trade practices), which carry no such time limit. Section 232 tariffs on steel, aluminum, copper, autos, and other goods were already in place and had previously been upheld by the Court.
The numbers show how far the baseline moved. The average US statutory tariff rate rose from 2.6% to a peak of 24.8%, and stood at 17% just before the ruling. For transfer pricing, the point is simple: duty rates are no longer a fixed background assumption. Any intercompany price set when rates were stable may now produce the wrong tax result, the wrong duty result, or both.
One price, two agencies, opposite pressures
Here is the core problem in plain terms. When a US distributor buys goods from its own foreign affiliate, the transfer price usually becomes the declared customs value under 19 U.S.C. 1401a, the "transaction value." Two federal agencies then judge that same number, and they want opposite things.
US Customs (CBP) wants the value high enough that duties are fairly collected. A price that looks artificially low draws scrutiny, because a low declared value means low duties. The IRS wants the value to reflect where profit was really earned. A price set low to cut duties shifts profit out of the US, which the IRS can challenge under Section 482, the arm's length standard. Section 1059A adds a direct link: it can limit the importer's US tax cost basis to the value declared to Customs.
So lowering the transfer price saves duty but invites an IRS adjustment, and the penalties are real: 20% for substantial valuation misstatements under Section 6662, 40% for gross misstatements. Raising the price to keep the IRS happy inflates the duty bill. Every point of transfer price is now also a duty decision.
Why your transfer pricing study will not satisfy Customs
A transfer pricing study does not satisfy CBP on its own, and this surprises many companies. CBP accepts a related-party transaction value only if the "circumstances of sale" show the relationship did not influence the price, or if the value closely matches recognized test values. A Section 482 study answers a different question: is the price arm's length for income tax? It does not answer whether the relationship influenced this particular sale.
A price can pass one test and fail the other. The practical fix is to build the evidence once, for both audiences: describe how the price was set, show it matches how unrelated parties price the same or similar goods, and keep the story consistent across tax and customs files. Inconsistent stories are what auditors on both sides look for first.
The year-end adjustment trap
Most transfer pricing policies include true-ups. At year-end, the company compares actual results to the target margin in its policy and books a compensating adjustment, up or down. That adjustment changes the price of goods already imported and already cleared through Customs at the old value.
CBP knows this happens. Its position is that importers making post-importation transfer pricing adjustments are "strongly encouraged" to use the reconciliation program: file entry summaries with the best information available at import, then true up to the final customs value later. The program allows importers to declare provisional values and correct them within 21 months of the entry date.
The trap works like this. If the year-end adjustment lowers the transfer price, the company may have overpaid duties and can seek them back through reconciliation, but only if it is in the program and files correctly. If the adjustment raises the price, duties were underpaid, and the company owes the difference. Companies that book TP adjustments for tax purposes and forget the customs side end up with two sets of books telling two different stories about the same goods.
What to review when duty rates change
Treat a tariff change the way you would treat a tax law change: as a trigger to re-read the documents. Start with the intercompany agreements. Many were written when duties were an afterthought. Check who bears duty costs, whether the pricing formula references a fixed duty assumption, and whether the agreement allows price changes when rates move.
Next, look at the transfer pricing policy itself. Benchmarking studies built on pre-tariff comparable companies may no longer describe reality. If tariffs now fall heavily on the tested party (often the US distributor), its operating margin shrinks, and a margin that was arm's length last year can fall outside the range this year. The analysis should model duties as a real cost in the tested party's results, not as a footnote.
Build documentation for both agencies at once
The IRS wants contemporaneous evidence that pricing was arm's length when set. CBP wants evidence that the relationship did not influence the declared value. One set of facts can serve both, but only if it is built that way from the start.
Finally, revisit entity and supply chain choices with the combined math in hand. Shifting functions, changing the importer of record, or rerouting goods can change both the duty and the tax outcome. Those are structural moves with real costs, so model the duty-plus-tax effect together before deciding, not the duty effect alone. The cheapest duty answer is not always the cheapest combined answer.
Three levers worth knowing about
First, the First Sale for Export rule. When goods pass through a middleman, usually a related trading company, before reaching the US, the "first sale" price (manufacturer to middleman) can sometimes be used as the customs value instead of the higher middleman-to-US price. The first sale value is almost always lower, which cuts duties. But the first sale must satisfy the related-party customs valuation rules, so confirm the pricing holds up before relying on it.
Second, duty deferral and recovery programs. Foreign-Trade Zones, bonded warehouses, and duty drawback can defer, reduce, or recover duties for companies that re-export or manufacture with imported components. These programs do not change the transfer price, but they change the duty math around it, which can relieve some of the pressure.
Third, advance agreements. An Advance Pricing Agreement (APA) with the IRS, ideally bilateral with the foreign tax authority, locks in the transfer pricing method before audits happen. It does not bind Customs, but a method both tax authorities have blessed is far easier to defend to CBP than one invented after the fact.
Related reading on wtpadvisors.com
Our transfer pricing hub covers the full service offering, including policy design and documentation. For the compliance side, see transfer pricing compliance services. And if tariff pressure is pushing you toward structural changes, our cross-border tax structuring work covers redesigning where functions, assets, and risks sit.
Frequently asked questions
We lowered our transfer price to cut duties. Can the IRS really challenge that?
Yes. A lower transfer price moves profit out of the US, which is exactly what Section 482 polices. The IRS can adjust the price upward for tax purposes, and Section 6662 penalties apply to valuation misstatements: 20% for substantial misstatements and 40% for gross misstatements. Duty savings do not protect a price that is not arm's length.
Does our transfer pricing study satisfy US Customs?
Not by itself. CBP applies its own tests under 19 U.S.C. 1401a: either the circumstances of sale show the relationship did not influence the price, or the value closely matches test values. A Section 482 study helps tell the story, but Customs needs evidence aimed at its own question.
We already paid IEEPA tariffs that the Supreme Court struck down. Can we get the money back?
Importers of record who paid IEEPA-based duties are entitled to refunds. CBP built the CAPE module inside its ACE portal to process claims at scale. Preserve entry summaries and duty payment records now; the process is not automatic and requires formal claims.
Our year-end TP adjustment raised the transfer price. Do we owe more duty?
Quite possibly. If the adjustment means the declared customs value was too low, the additional duty is owed. This is what the CBP reconciliation program is for: participants can true up declared values within 21 months of entry. Companies outside the program face a harder path.
Should we just move production to a lower-tariff country?
Maybe, but model the full picture first. A move changes customs value, duty rates, transfer pricing, foreign tax credits, and sometimes Pillar Two exposure. Run the duty-plus-tax math before committing.
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