Customs and Trade: 2025 Year-End Planning Guide for Private Companies
- HFM CPAs + Business Advisors
- 6 days ago
- 5 min read
The current trade environment is marked by rapid and often unpredictable changes, posing significant challenges for businesses. Since the Trump administration took office in January, the president has implemented, paused, retracted, and then changed a series of tariffs targeting both major—and not so major—U.S. trading partners, as well as various industry sectors (e.g., autos and auto parts, steel and aluminum, and copper), with pledges of more sectoral tariffs in the future (e.g., pharmaceuticals). The administration's tariff authority is also subject to ongoing legal challenges.
The impact of the tariffs—within and outside the U.S.—has been consequential and includes threats of retaliatory actions from trading partners, increased costs, and supply chain disruptions, and has resulted in considerable uncertainty for businesses engaged in international trade. Businesses may face unexpected duties on goods they import or export, impacting pricing strategies and profit margins. Additionally, the uncertainty can hinder long-term planning and investment decisions, as companies struggle to anticipate future trade policy shifts. In the M&A world, it's becoming more challenging to conduct proper due diligence for any mergers, sales, or acquisitions given the complexity of the tariff liability (spanning at least 11 different kinds of tariffs) and significant cash amounts in play.
Staying informed and proactive is key to navigating these challenges and increasing duty savings, and there are duty and supply chain strategies importers can consider to mitigate the impact of increased costs. Public companies may be able to benefit from the following strategies to manage costs, improve compliance, and maintain agility in their international trade operations.
DUTY DRAWBACK
Private companies should take advantage of opportunities for cash refunds of up to 99% of duties, fees, and taxes paid through the duty drawback program. This incentive allows for a refund on imported goods that are subsequently exported, unused, destroyed, or used to manufacture a product that is exported. Note that duty drawback is not available for certain tariffs, including Section 232 and International Emergency Economic Powers Act (IEEPA) fentanyl-related tariffs.
To enhance this benefit, it is essential to:
Identify the full scope of imports and exports eligible for drawback;
Estimate the potential cash benefit; and
Test data and document readiness, especially when the exporter is not the importer of record.
This process involves gathering comprehensive import, production (if applicable), and export data for the five-year look-back period, defining a process for ongoing claim data preparation, and conducting additional data and document testing to support compliance and enhance refund opportunities.
First Sale Rule (FSR)
Goods imported into the U.S. must be properly valued at the time of import for U.S. Customs and Border Protection (CBP) to assess the correct amount of import duties. The primary method for determining customs value is transaction value, which refers to the price actually paid or payable for the merchandise when sold for exportation to the U.S. CBP generally presumes the dutiable value is the price paid by the U.S. importer to its direct supplier.
The FSR principle is a customs valuation strategy that allows importers to declare the value of goods based on the price paid in the earliest sale in a multitiered international supply chain leading to the import transaction. This often applies when a middleman is involved in the invoice flow but not in the product flow. In such cases, the original factory invoice can serve as the customs value, rather than the marked-up invoices in multitiered transactions, potentially reducing the dutiable value and resulting in significant duty savings. Companies with only a single sale can also create a new middleman (typically, a trading company) to insert a new sale into the import flow to take advantage of FSR.
To utilize this rule, clients must support the claim with sufficient documentation, including:
Evidence that goods are clearly destined for export to the U.S.;
Proof of a bona fide sale, e.g., valid title transfers; and
Confirmation that all intercompany pricing is arm's length.
COST UNBUNDLING
Companies can consider conducting a cost unbundling analysis to reduce tariff liability. By evaluating whether certain cost elements associated with imported merchandise can be excluded from the calculation of the final customs value, companies may be able to lower the existing customs value of their goods and, consequently, reduce the duties owed.
Examples of potentially nondutiable cost elements include:
Certain management services fees;
Buying commissions;
Exclusive distribution rights fees; and
U.S.-based R&D costs.
If these costs or fees are included in the value of the imported merchandise, U.S. importers may be able to deduct them from the final customs value.
CUSTOMS VALUATION AND TRANSFER PRICING
The interaction between customs valuation and transfer pricing should not be overlooked, as this may have a significant economic impact on companies involved in imports of tangible goods from related parties. The connection is all the more important today because with 50% of all world trade in merchandise taking place between related parties, many U.S. distributors will be paying more in customs duties than income taxes.
Companies that use transfer pricing studies or advance pricing agreements must pay close attention to CBP's arm's length pricing rules, such as the need to document the basis for the declared customs transaction value of imported merchandise and how transfer prices under the IRS rules support the central goal of CBP's rules, i.e., that the parties' relationship did not influence the price of any class or kind of merchandise. Keeping up with volatile trade policies and ensuring that transfer pricing policies and supporting documentation are current and compliant for both customs and tax purposes is demanding but can yield impactful results, including potential customs duty refunds for year-end transfer pricing adjustments.
OTHER CONSIDERATIONS
Tariff classification is a critical aspect of international trade because it determines the duty rates and regulatory requirements that apply to imported and exported goods. In the current trade environment, it is especially important for companies to review the tariff codes of any merchandise subject to additional trade remedy tariffs such as Section 301 tariffs and confirm their accuracy.
If the codes are correct, businesses should determine whether the merchandise qualifies for any product exemptions from additional duties, which could help avoid additional duties.
Additional 2025 Year-End Tax Guides for Private Companies:
Questions?
Contact HFM CPAs for questions on how this change may affect your specific situation. Our team stays current with evolving tax and related legislation to help you navigate new opportunities and requirements.
HFM CPAs provides specialized accounting, tax, and assurance services to individuals and businesses across Connecticut and Rhode Island.