by Michael Bredahl, WTP Advisors
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As global trade shifts in response to tariffs being employed as a key tool of economic policy, U.S. multinationals should urgently reassess their legacy transfer pricing strategies, particularly regarding intangible property (IP).  The structure and location of IP ownership can either mitigate or exacerbate tariff exposure, fast becoming a focal point for many multinational companies.

The IP Imperative

Intangible assets—such as patents, trademarks, trade secrets, and software—provide barriers to entry and enable companies to generate non-routine profits. But where and how these assets are owned, developed, and used have significant tax and tariff implications.

Key Considerations

1. Evaluate IP Location and Ownership Structures
   Reassessing IP economic ownership, location, or licensing arrangements may reduce customs duties and align with shifts in the supply chain.
2. Reassess Cost-Sharing and DEMPE Functions
   Cost-sharing (similar to cost contribution) arrangements and the entities contributing to the Development, Enhancement, Maintenance, Protection, and Exploitation (DEMPE) of IP should be analyzed to ensure alignment with economic substance and the arm’s-length standard, particularly where trade flows or production hubs are changing.
3. Adapt to Supply Chain Realignment
   Many U.S. companies are reconfiguring supply chains to avoid high-tariff jurisdictions. These operational changes should be reflected in intra-group transfer pricing agreements and corresponding practices (e.g., royalty flows, licensing fees, and payments for IP-related services) to ensure compliance and defensibility.
4. Review Customs Valuation Consistency
   Royalty payments for IP embodied in products may need to be included in the customs value of imported goods. Consistency between transfer pricing documentation and customs declarations is critical to avoid double taxation or penalties.
5. Coordinate Tax and Trade Teams
   Cross-functional teams, including tax, legal, and supply chain functions, are essential. Cohesive strategies and planning can identify opportunities to optimize IP deployment, minimize tariff burdens, reduce global effective tax rates, and successfully mitigate risk.

Final Thought

With tariff rules in flux and ever-increasing tax authority scrutiny on cross-border IP transactions, U.S. companies should act to ensure transfer pricing policies and practices are not only well-documented and defensible but also flexible and optimized for the evolving global trade landscape.

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For over 30 years, Michael Bredahl has delivered global IP strategies and solutions to clients and led this function within a top 50 multinational. Contact Michael at michael.bredahl@wtpadvisors.com to explore opportunities in Global IP Strategies and Solutions.