Full Impact of Trump Tariffs Will Shake Transfer Pricing in 2026

Transfer pricing, which is how companies price transactions between affiliates, underwent colossal changes in the US over the past year, and the new year promises to be at least as tumultuous.

The IRS will need to adjust its transfer pricing enforcement efforts to fit its substantially reduced resources and its substantial inventory of ongoing transfer pricing examinations and litigation. Transfer pricing adjacent cases involving economic substance arguments and a shareholder lawsuit involving disclosure of transfer pricing information remain outstanding.

The full impact of tariffs and transactional changes sparked by the tariffs will complicate transfer pricing compliance in 2026.

Enforcement Challenges

Over the last few years, the IRS has hired experienced transfer pricing specialists, increased its investment in technology, and expanded its transfer pricing enforcement coverage. National oversight of case selection and development has produced some wins and partial wins in important transfer pricing cases.

The IRS issued generic legal advice memorandums, or GLAMs, to inform taxpayers of its position on important related party indebtedness and intangibles issues. And it used data analytics to identify and inform perceived noncompliant foreign-owned distributors through “compliance alerts.”

Then early last year, the IRS budget was slashed, thousands of probationary employees were terminated and later reinstated, and a return-to-office policy was implemented. The IRS lost approximately 25% of its workforce in 2025 and many of its executives in international tax. The House subcommittee responsible for IRS funding recently approved a bill to further cut the IRS budget to $9.5 billion in 2026.

The IRS will need to reduce its coverage of transfer pricing issues to fit its smaller workforce and budget. But it also will need to commit resources to support an unusually large inventory of ongoing examinations and transfer pricing litigation.

Transfer pricing cases involving Coca-Cola Co. and Meta Platforms Inc. are pending appeal, while cases involving Medtronic plc and 3M Co. were remanded to the US Tax Court. A US district court ruled in favor of Perrigo in an economic substance case with a transfer pricing alternative argument, which the IRS may appeal.

Given the IRS’s favorable experience with compliance alerts, the data analytics-driven compliance efforts are expected to continue. The expansion of transfer pricing coverage to additional taxpayers and issues may become a lower priority.

Section 6662 Penalties

The IRS didn’t always apply the provisions under Section 6662 as assertively as the statute allows. However, over the last few years, the IRS has consistently applied these penalties when thresholds are met and the IRS deems documentation is insufficient. There’s no indication this approach will change.

Financial Reporting

Taxpayers must report uncertain tax positions under generally accepted accounting principles. Transfer pricing is considered a tax position for this purpose. Due to its materiality and potential for dispute, transfer pricing has become one of the most significant uncertain tax positions.

The IRS’s improved record in transfer pricing litigation and increased assertion of penalties have raised questions about how best to measure transfer pricing exposure.

The uncertain tax positions disclosure for transfer pricing is being contested. Investors have sued Amgen Inc. based on the company’s alleged failure to adequately disclose information about a transfer pricing dispute with the IRS.

Amgen did disclose a transfer pricing dispute with the IRS concerning Puerto Rico transactions in its 10-Q, explaining that the IRS positions were “without merit.” But Amgen didn’t mention that the total amount in question amounted to $10.7 billion.

It is the only investor lawsuit regarding the relevance of financial statement disclosure of transfer pricing disputes. An investor win in this case could greatly increase the exposure to shareholder litigation regarding transfer pricing uncertain tax positions disclosures.

Advance Pricing Agreements

Throughout these changes, the IRS advance pricing and mutual agreement program has endured and continued to resolve advanced pricing agreements.

The program has been estimated to have lost a good chunk of its workforce, and case development has slowed during the government shutdown, but the program’s experienced workforce and robust procedures have allowed the advanced pricing agreement process to function in largely the same manner as before.

Tariff Fallout

New US tariffs as high as 200% have been threatened, imposed, withdrawn, deferred, and litigated throughout 2025. These tariffs directly affect transfer pricing compliance because they’re a new material cost that reduces the operating profit of the party bearing the tariff.

Their unprecedented can damage transfer pricing compliance abilities. Due to the three-year averaging aspect of most transfer pricing analysis, the less-than-full-year in 2025 for these tariffs, companies’ efforts to stockpile pre-tariff inventory, and the potential for many of the tariffs to be declared unconstitutional, the tariffs may not fully affect transfer pricing compliance for 2025.

Recommendation

IRS resources for enforcement may currently be reduced; however, taxpayers should keep up reasonable compliance efforts as IRS data analytics may identify taxpayers with potential issues and penalties could be asserted. Finally, taxpayers impacted by tariffs will need to appropriately reflect those tariffs in transfer pricing analysis to satisfy the IRS and any other involved countries.

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

Steven C. Wrappe is Grant Thornton’s transfer pricing technical leader in its Washington National Tax Office.

Write for Us: Author Guidelines