Managing Tariffs After a Cross-Border Acquisition

When a U.S.-based manufacturer recently acquired a Canadian company, both continued to operate much as they had before, even though they were under common ownership. For the Canadian entity, this meant continuing to contract with a U.S. company, ship to U.S. customers, and price transactions under established transfer pricing arrangements.

In many ways, the post-acquisition integration was simply business as usual. The two entities maintained arm’s-length behaviors and straightforward documentation. For transfer pricing compliance, this meant minimal disruption.

That changed abruptly when the Trump administration instituted a new wave of tariffs on Canadian imports in mid-2025. The once-stable flow of goods now carried a significantly higher cost. Customers in the U.S. suddenly faced steeper landed prices and began demanding concessions. The Canadian entity, now part of the U.S. parent’s structure, bore the pressure – and needed to formulate a smart response.

Short-term considerations

Crowe tax professionals were brought in to help the client navigate the new landscape. The initial focus was on tactical compliance adjustments that could soften the blow without triggering red flags.

Repositioning within the interquartile range

Using benchmarking studies, Crowe helped the client explore transfer pricing adjustments that remained within the defensible arm’s-length range. Even modest changes – such as shifting from the median to the lower quartile – provided financial relief while remaining audit-resilient.

Reclassifying tariffs as extraordinary costs

To avoid distorting profit-level indicators used in comparables, Crowe helped the client look at reclassifying tariffs as extraordinary or nonoperating expenses in transfer pricing documentation. While not universally accepted across jurisdictions, this approach provided a more accurate picture of operating performance.

Contractual and risk adjustments

Crowe facilitated a review of intercompany contracts, including incoterms. Moving from cost, insurance, and freight (CIF) to free on board (FOB) shifted certain shipping and tariff risks, aligning contractual terms with the new economic reality. Inventory holding responsibilities also were reconsidered to optimize logistics and tax outcomes.

Elasticity and cost-sharing discussions

As Canadian product pricing came under scrutiny, the question emerged: Who absorbs the tariffs? Crowe helped the client weigh customer price elasticity, competitive positioning, and distributor agreements to evaluate scenarios – absorbing costs internally, passing them on, or cost-sharing with intermediaries. Each approach required robust documentation to defend the economic logic.

Soon it became clear that these stopgap measures, though helpful, were insufficient in the long run. As additional tariffs loomed and political uncertainty grew, so did the realization that deeper transformation was required. The company needed a more strategic, sustainable approach to its cross-border operations – one that would reduce tariff exposure while maintaining commercial efficiency.

The long-term solution: Tax-enabled supply chain redesign

Crowe collaborated with stakeholders across tax, finance, and operations to identify and assess end-to-end solutions. The goal: Redesign the supply chain and legal structure with resilience in mind. This process included exploring the following activities.

Intellectual property (IP) unbundling or licensing

Previously bundled intangibles – such as proprietary manufacturing know-how, customer relationships, and branding – were dissected and licensed strategically between entities. This exercise created opportunities for royalties and service fees to be reallocated within the group in a way that reduced goods-based transaction volume across borders.

IP sale across borders

Crowe evaluated the sale of Canadian-developed IP into the U.S. group. While this move had the potential to consolidate control domestically, it raised complex exit tax, valuation, and documentation questions – each addressed through coordinated support from our valuation and international tax teams.

Location strategy

Crowe helped the client assess which U.S. states offered manufacturing incentives, workforce advantages, and favorable tax climates. By building out an additional facility in the Midwestern U.S., the client was able to both mitigate tariff risk and improve delivery times.

What companies should do now

For multinational companies operating in a volatile trade environment, both short- and long-term strategies should be considered simultaneously.

Short-term actions

• Reassess transfer pricing positioning within the interquartile range
• Review and adjust risk allocations in intercompany contracts
• Document any extraordinary cost reclassifications related to tariffs
• Decide whether to absorb, share, or pass tariff costs – and support your choice with analysis

Long-term imperatives

• Begin modeling alternative supply chain structures across tax, operational, and commercial dimensions
• Evaluate whether entity roles and IP ownership align with market realities
• Consider potential for licensing, IP migration, or onshoring to reduce exposure to cross-border tariffs

As global trade rules continue to shift, agility no longer is optional – it’s a competitive necessity. Our integrated tax and supply chain consulting team is ready to guide clients through any and every stage of this journey, from initial diagnostics to full redesign.