• Aligning international tax strategy with global supply chain planning helps reduce tax exposure, capture incentives, and increase operational agility.

• Ignoring exit taxes, transfer pricing, or cross-border compliance risks can create multi-year tax liabilities, penalties, and restructuring costs.

• Involving tax leaders early in global supply chain restructuring leads to smarter decisions, improved timelines, and long-term business scalability.

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In today’s dynamic global business environment, aligning your organization’s international tax planning with supply chain planning strategy isn’t just a best practice — it’s essential. From shifting trade relationships and tariffs to increased scrutiny from global tax authorities, your company’s ability to make tax-informed supply chain decisions can directly impact cash flow, risk profile, and competitive positioning.

Here’s how your tax and operations leaders can collaborate to build a globally agile structure, and why international tax strategy must be at the core.

Why International Tax Strategy Must Drive Global Supply Chain Decisions

Mid-market organizations are rethinking their operational footprint — reshoring, nearshoring, or diversifying supplier bases. But without a clear international tax lens, these shifts can trigger unintended consequences: exit taxes, loss of treaty benefits, or transfer pricing risks.

A tax-aligned supply chain strategy allows you to:

• Forecast and manage global tax liabilities

• Capture incentives and avoid inefficiencies

• Make faster, more informed decisions across jurisdictions

Integrate International Tax Early in the Planning Process

Waiting until after operations moves are underway can leave your business with a fragmented tax structure that requires costly remediation. This is especially critical for mid-market companies operating across the U.S., EMEA (Europe, the Middle East, and Africa), or APAC (Asia-Pacific) regions, where cross-border structuring can create unexpected tax burdens. Tax should be involved from the outset — modeling scenarios across jurisdictions, projecting costs, and identifying risk exposure.

For example:

• Moving production from China to Mexico might avoid certain tariffs — but could expose your business to exit taxes in China or permanent establishment risk in Mexico.

• Relocating intellectual property (IP) from Ireland to the U.S. might trigger a deemed disposal event under local exit tax regimes.

Technology platforms and predictive models can help tax teams simulate these impacts before major decisions are finalized.

Strengthening Transfer Pricing and Global Compliance

Global tax authorities are tightening enforcement — especially around transfer pricing and cross-border restructurings. If your tax structure no longer reflects your actual operations, you may face:

• Double taxation

• Disallowed deductions

• Penalties and disputes

Update your transfer pricing documentation to reflect the new supply chain model. Intercompany agreements, economic analyses (including IP valuation), and jurisdictional reporting must all align with your post-transition structure.

Unlock Incentives Through Coordinated Strategy

Supply chain shifts aren’t just about avoiding risk — they’re also an opportunity to capture new value. Jurisdictions including the U.S., Canada, Mexico, and certain European Union countries offer targeted tax incentives for reshoring, green investment, R&D, or job creation.

If these incentives aren’t launched early in planning, your business could miss out. Tax should coordinate with operations and finance teams to explore:

• U.S. federal and state credits for manufacturing investment

• R&D credits tied to newly localized functions

• Foreign tax credits or deferrals available in new jurisdictions

Create a Globally Scalable Tax Playbook

Reactive tax planning doesn’t scale. As your organization enters new markets, integrates M&A targets, or adds new suppliers, your international tax model must be flexible and supported by a clear global tax governance framework.

A forward-looking playbook helps you:

• Align tax structure with business decisions

• Build global tax governance into location changes, IP moves, and new legal entities

• Reduce friction during rapid growth or operational transformation

The Path Forward: Strategy, Agility, and Risk Reduction

International supply chain restructuring can unlock efficiency, improve margins, and reduce geopolitical exposure — but only if tax is at the table from the start.

Organizations that treat tax as a strategic partner rather than a compliance function are better positioned to navigate volatility and create long-term value.

How MGO Can Help

At MGO, we help companies navigate the complexities of global tax strategies and cross-border operations. From international structuring and transfer pricing to tax technology and incentive optimization, we serve clients across manufacturing, life sciences, technology, and more.

We work closely with CFOs and tax executives to align tax planning with business transformation — supporting global agility, regulatory compliance, and strategic growth. Let’s talk about how your international tax strategy can support your global operations.

The post How to Align Your Global Supply Chain and International Tax Strategy appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Cross-border supply chain changes can trigger exit taxes, compliance penalties, and tax inefficiencies if not planned with international tax in mind.

• Proactive coordination between tax and operations helps reduce global tax exposure, unlock incentives, and speed of execution across jurisdictions.

• Country-by-country reporting (CbCR), transfer pricing alignment, and entity structuring are critical to avoiding double taxation and audit risk.

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Global supply chain changes are rarely just operational — they’re deeply connected to international tax exposure. From exit taxes and transfer pricing risks to missed incentives and compliance hurdles, tax leaders must be part of the decision-making process from day one.

6 Supply Chain and International Tax FAQs

In this FAQ, we answer the most frequent questions our clients ask when planning cross-border restructurings, relocations, or supplier changes — so your business can move faster, smarter, and with fewer tax surprises.

1. What are the international tax risks when shifting supply chain operations?

Relocating manufacturing, coordination, or key functions across borders creates exposure to multiple tax regimes. Common risks areas include exit taxes, transfer pricing, permanent establishment issues, and customs duties. Without early tax planning, these costs can result in long-term liabilities or missed opportunities.

2. How do exit taxes work, and when do they apply?

Exit taxes are levied when valuable functions, assets, or risks — such as intellectual property (IP), staff, or customer relationships — are moved between countries. For example, transferring IP from Ireland to the U.S. may trigger a deemed disposal under Irish tax law. These taxes can be significant and must be modeled early in any restructuring.

3. What should I know about transfer pricing when moving suppliers or functions?

Transfer pricing must reflect your current business operations. If you shift suppliers, relocate production, or move functions without updating your intercompany pricing, tax authorities may challenge the arrangement — leading to adjustments, penalties, and double taxation. All intercompany agreements and transfer pricing documentation must align with your post-change structure.

4. Are there tax incentives available when reshoring or nearshoring operations?

Yes. Countries such as the U.S., Canada, Mexico, Ireland, and Singapore offer targeted tax credits and incentives for domestic investment, clean energy transitions, and R&D localization. Examples include:

• U.S. federal/state manufacturing credits

• Job creation and infrastructure grants

• R&D and capital investment incentives

However, these must be planned early to capture their full value.

5. How can technology help manage international tax complexity?

Tax technology platforms help model jurisdictional impact, manage data for compliance reporting (like CbCR), and simulate the tax effects of operational changes. Integrated enterprise resource planning (ERP) and tax systems also improve visibility and reduce risk in real-time decision-making.

6. What role should international tax play in supply chain strategy?

International tax teams should be involved from the start of any supply chain realignment. Embedding tax early helps you find risks, unlock incentives, and structure deals for long-term compliance and flexibility. A reactive approach often results in avoidable costs, delays, and exposure.

Next Steps for Smarter Global Planning

Successfully navigating international tax risks requires more than compliance — it takes a forward-thinking approach aligned with your global operations. At MGO, we support CFOs and tax leaders with international tax planning, transfer pricing analysis, and incentive identification to help reduce exposure and drive business agility.

Learn more about our International Tax and Transfer Pricing services or contact us to discuss how we can support your global growth strategy.

The post Frequently Asked Questions About International Tax and Supply Chain Realignment appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• State tax restructuring helps reduce income and franchise tax liabilities through legal, operational, and financial structure adjustments. 

• Businesses with separate filing states, foreign ops, or upcoming transactions can benefit from tailored state tax restructuring strategies. 

• Intercompany transactions and transfer pricing studies are essential tools for compliant, audit-ready state tax restructuring plans. 

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As organizations expand organically or conduct strategic transactions or acquisitions, their state tax liabilities are likely to increase. State tax restructuring can be key to reducing state tax liabilities. Many companies are unaware of the restructuring options available and the opportunities they offer. State income tax restructuring can help organizations improve state tax efficiency and reach business objectives. By understanding the types of restructuring opportunities available, tax leaders can help their organizations become more state tax efficient.  

When Should a Company Consider State Tax Restructuring? 

State tax restructuring involves evaluating an organization’s state tax profile and identifying ways to change its operational, financial, or legal entity structure to help improve tax efficiency.   

While every organization’s situation is unique, the most common business profiles considered for restructuring include: 

• Organizations paying significant taxes in separate filing states;  

• Organizations that pay large amounts of state income taxes and have considerable foreign operations; 

• Organizations planning strategic transactions; and  

• Organizations with substantial franchise tax liabilities. 

Organizations Paying Significant Taxes in Separate Filing States 

There are opportunities to restructure to help reduce state tax liabilities — particularly for organizations that have significant state tax liabilities in separate filing states. Separate filing states impose tax on each corporation with nexus in the state, while mandatory combined filing states assess tax on the combined income of affiliates operating as a unitary business group. The orange states in the map below are separate filing states.  

Separate Filing States 

Map indicates U.S. separate filing states based on information available as of May 27, 2025: Alabama, Arkansas, Delaware, Florida, Georgia, Iowa, Indiana, Louisiana, Maryland, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, and Virginia. 

Organizations can leverage different filing methodologies across states and set up legal structures for tax planning purposes. For example, affiliated groups that have entities filing in separate and combined filing states can restructure their operations to report more income in combined filing states and less income in separate filing states, provided the restructuring is properly implemented and any intercompany dealings are well documented, at arm’s length, and consistent with applicable state tax laws. Reporting more income in combined filing states may reduce state tax liabilities in separate filing states while having minimal to no impact in combined filing states. 

Organizations That Pay a Significant Amount in State Income Taxes and Have Significant Foreign Operations 

Organizations that have foreign operations or plan to expand internationally can sometimes leverage their international presence to save state taxes. For instance, numerous unitary combined states exclude foreign corporate affiliates or “80/20 corporations” (that is, a corporation with more than 80% of its payroll, property, and/or sales outside the U.S.) from the combined group. Companies with foreign operations may be able to restructure their operations to minimize their state income tax liabilities but with minimal to no impact to their foreign tax liabilities. As with any planning, the restructuring must be properly implemented and documented to achieve state tax savings.     

Organizations Planning a Strategic Transaction 

Corporate and pass-through entities might also consider restructuring their businesses to help prepare for a major transaction or liquidity event. For instance, pass-through entities such as partnerships or S corporations can properly plan and restructure in anticipation of major transactions to help minimize the transactions’ state tax burdens on their owners. 

Organizations Paying Significant Franchise Taxes 

There are planning and restructuring opportunities for companies that pay substantial state franchise taxes based on their assets or net worth. Companies might also be able to use planning strategies to reduce their franchise tax bases or conduct business in alternative structures that can reduce their franchise tax liabilities. At times, the restructuring strategies that help minimize state franchise taxes may also serve to minimize state income taxes.    

Using Intercompany Transactions for State Tax Efficiency 

Intercompany transactions can help organizations reduce their state tax liabilities. However, to withstand audit scrutiny, transfer pricing studies must be performed to ensure intercompany transactions are conducted at arm’s length and consistently with applicable federal and state tax laws. Companies should consider restructuring strategies that incorporate intercompany transactions to mitigate state tax costs. However, it is critical that all intercompany transactions comply with federal and state transfer pricing rules, have legitimate business purposes, and are properly documented. 

What Is the Process for State Tax Restructuring? 

Restructuring an organization for tax efficiency purposes can be time and resource intensive, involving numerous internal and external advisors, including financial, legal, and tax professionals. Restructurings typically are executed in four phases: strategic assessment, design, implementation, and maintenance.  

Phase 1: Strategic Assessment 

Review the organization’s business data and information, including operations, financial data, income projections, and tax position. 

Develop various structural options, outlining associated business implications and the potential state tax impact and savings of each structure.  

Present a summary of findings to management and key stakeholders to evaluate the various restructuring options. 

Phase 2: Design 

• Conduct a comprehensive evaluation of the restructuring options to determine the most efficient structure. 

• Assess the business and tax considerations of the various structures.  

• Determine the restructuring option that will be pursued and develop an implementation workplan and execution timeline. 

Phase 3: Implementation 

• Manage and facilitate execution of the workplan, including legal, accounting, operations, human resources, payroll, tax, and other affected areas. 

• Conduct weekly meetings to assess progress, identify issues, and determine resolutions. 

• Work with accounting teams on system modifications to establish separate books and records for the new entities. 

• Perform transfer pricing studies and comparables research to identify arm’s-length price and prepare the transfer pricing report. 

• Prepare all business and tax registrations for the new entities. 

Phase 4: Maintenance 

• Perform a review to determine if procedures, policies, accounting, and other affected areas are operating as intended. 

As state tax authorities increase their scrutiny of complex tax structures, it’s critical for entities to maintain strong supporting documentation that defends any new structure’s business purpose. Organizations should maintain documentation that demonstrates transactions were conducted according to federal and state transfer pricing rules and at arm’s length. Separate balance sheets, income statements, board meeting minutes, and proper accounting of intercompany transactions are necessary for compliance.  

Pursuing a Restructuring Strategy 

While restructuring may seem daunting, it can significantly help strengthen your state tax posture and enhance state tax efficiency. 

For organizations considering restructuring to mitigate state income tax liabilities, adhering to compliance and legal standards is critical. Working with experienced advisors who have knowledge of state income tax, sales and use tax, transfer pricing, federal tax, and employment tax, can help companies navigate the complexities of state tax restructuring and develop strategies that align with their long-term objectives.  

Written by Mariano Sori-Marin and Shirley Wei. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Help Optimize Your State Tax Structure 

MGO’s state and local tax professionals work with organizations to identify and implement restructuring strategies that reduce state tax burdens and support long-term growth. We provide end-to-end support — from strategic assessment through implementation and documentation — tailored to your unique operational footprint. Whether you’re preparing for a major transaction, navigating multistate complexities, or seeking tax efficiencies, our team delivers practical solutions grounded in compliance and informed by decades of experience. Contact us to learn more.  

The post How Restructuring Can Help Support State Tax Efficiency  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Tariffs increase costs for businesses, often leading to higher consumer prices, lower profit margins, or supply chain adjustments.

• Importers pay tariffs at customs, but businesses and consumers ultimately bear the financial burden through higher costs.

• Companies can reduce tariff exposure by diversifying suppliers, improving transfer pricing, and using trade agreements.

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There’s a lot of talk about tariffs these days. Here’s a quick primer on how they work, how they can affect your business, and potential strategies to reduce their financial impact.

What Are Tariffs?

Tariffs are taxes imposed by governments on imported goods, often intended to protect domestic industries, generate revenue, or respond to trade disputes. While they serve as a tool of economic policy, tariffs create real financial consequences for businesses — affecting pricing, supply chains, and profitability. They can also influence trade relationships between countries, leading to retaliatory tariffs that further disrupt global commerce.

For companies engaged in international trade, it’s critical to understand tariffs to manage costs and stay competitive. The financial impact of tariffs depends on many factors — including the countries involved, the type of goods being imported, and whether trade agreements offer relief.

How Tariffs Affect Businesses

Tariffs can significantly impact costs and operations, particularly for businesses that rely on imported goods. Higher expenses often result in increased consumer prices, lower profit margins, or shifts in sourcing and supply chain restructuring to reduce exposure.

For example, if a U.S. company imports raw materials from Canada, a 25% tariff on those goods raises production costs. The company must then decide whether to pass these costs on to customers, absorb them, or seek alternative suppliers. Over time, tariff-related costs can reshape supply chains, pricing strategies, and profitability.

Who Pays for Tariffs?

Although tariffs are imposed by governments, businesses and consumers ultimately bear the financial burden. Importers pay the tariff at customs, but the costs often get passed down the supply chain, leading to higher retail prices. In highly competitive industries, businesses may struggle to raise prices without losing customers — making it necessary to find other ways to offset the added expense.

While shifting supply chains away from China has been a common response to rising tariffs, the reality is more complex. Many countries that could serve as alternative manufacturing hubs lack the infrastructure or scale to quickly support demand across industries. And because tariff environments are highly unpredictable — shaped by shifting political priorities and international negotiations — these countries are often hesitant to invest in new production capabilities.

There is widespread concern that tariffs on Chinese goods could be reduced just as quickly as they were imposed, prompting U.S. businesses to return to China for its established manufacturing base, cost efficiency, and consistent service. This uncertainty makes long-term sourcing decisions more difficult, reinforcing the need for flexible, responsive supply chain strategies.

Industry-Specific Tariff Impacts

While tariffs affect nearly all industries engaged in global trade, some sectors are more exposed than others.

Construction and Real Estate

The U.S. currently imposes a 14.54% tariff on Canadian softwood lumber (as of August 2024). When combined with anti-dumping and countervailing duties, the effective tariff rate on Canadian lumber approaches 40%. This tariff impacts the construction and real estate  industry by increasing construction costs, making housing and commercial development more expensive. Canada has challenged these duties, arguing they harm the Canadian timber sector, while the U.S. defends them as necessary to counter government subsidies.

In addition to lumber, other key construction materials such as steel and aluminum are also subject to tariffs. Steel prices have increased 15% to 25% since January, and aluminum is up 8% to 10%, driven in part by market anticipation of expanded tariff measures. Overall, the cost of building materials has risen by 34% since December 2020 — placing sustained financial pressure on developers and contractors. The current administration has signaled plans to double existing tariffs on Canadian lumber to 34.5%, a move that could further escalate building costs and intensify U.S.-Canada trade tensions.

Manufacturing and Distribution

Tariffs affect the manufacturing and distribution sector by increasing the cost of imported inputs, components, and equipment. From industrial machinery to essential raw materials like steel, aluminum, and chemicals, tariff rates — which can range from 2% to 25% depending on the product and country of origin — create added financial pressure across production lines. These costs impact both domestic manufacturers and U.S. distributors who depend on global suppliers to remain competitive.

In today’s shifting trade landscape, companies must remain nimble, adapting quickly to supply chain disruptions, pricing volatility, and shifting sourcing opportunities. While some have pursued reshoring or diversified their supplier base, the unpredictability of tariff policies continues to demand flexible, forward-looking planning.

Cannabis Industry

Although cannabis is not yet legalized at the federal level in the U.S., businesses involved in cultivation, packaging, and equipment sourcing still feel the effects of trade policies. Many cannabis companies rely on imported materials — such as LED lighting, vape hardware, and specialty fertilizers. Tariffs on Chinese-made products have significantly raised costs, affecting dispensary pricing and profit margins. Some companies have looked to move manufacturing or negotiate better sourcing agreements to offset these expenses.

Food and Wine

The food and beverage industry faces substantial challenges due to tariffs, particularly in the import of ingredients, packaged foods, and alcohol. Nearly 60% of fruits and nuts consumed in the U.S. are imported, along with significant portions of grains, sweeteners, and vegetables. Tariffs on these goods contribute to rising food prices — affecting restaurants, grocery retailers, and supply chains.

Wine imports have also been hit by tariffs, leading to higher costs for restaurants and retailers. Recent policy changes have raised import duties on European wines, driving up prices for both businesses and consumers. This has forced some companies to explore domestic alternatives, though sourcing shifts take time and may not fully offset cost increases.

How Businesses Can Mitigate Tariffs

Companies can take proactive steps to manage tariff exposure and reduce financial strain, including:

• Supply chain diversification: Sourcing materials from tariff-free regions or shifting production locations can help reduce costs and limit exposure to trade disputes.

• Transfer pricing strategies: Adjusting intercompany pricing structures for international transactions may offer tax efficiencies and improve cash flow management.

• Trade agreements and policy advocacy: Staying informed on trade regulations and using agreements can provide relief, while engaging with policymakers may help shape favorable outcomes.

Final Thoughts

Tariffs are a key factor in global trade — influencing pricing strategies, supply chains, and financial planning. For businesses engaged in international commerce, understanding and managing tariff exposure is no longer optional; it’s essential. One of the greatest challenges companies face is not just the cost of tariffs themselves, but the uncertainty surrounding them. Rates can shift quickly, timing of implementation is often unpredictable, and geopolitical tensions or trade negotiations can introduce rapid changes in policy. This lack of consistency makes it difficult for businesses to forecast costs, manage inventory, or make long-term investment decisions.

Developing strategies to manage these risks — whether through supply chain diversification, transfer pricing adjustments, or using trade agreements — can help reduce the financial impact and build operational resilience. By staying informed and preparing for multiple scenarios, businesses can better adapt to a volatile trade environment and avoid being caught off guard.

How MGO Can Help

We provide strategic tax and advisory services to help your business navigate the complexities of international trade. Our team offers insights that support smarter decision-making.

The post How Tariffs Impact Business Operations appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Choosing the right investment structure is essential for successful U.S.-Canada cross-border transactions.

• Financing strategies can help improve cash flow and support tax efficiency.

• Managing tax compliance with strategies like proper transfer pricing and exact foreign reporting can help reduce risk and increase profitability.

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Expanding your business between the United States and Canada is a strategic move that can unlock new markets and revenue streams. However, the complexities of cross-border transactions can be daunting. From tax structures to financing strategies and compliance obligations, every move requires careful planning.

We recently hosted a webinar with Canada-based CPA Solutions designed to help businesses confidently expand into the U.S. from Canada or into Canada from the U.S. Here are some key takeaways from that discussion.

Making the Right Investment Structure Choices

Choosing the right investment structure is fundamental to successful cross-border transactions. The three primary structures to consider when entering Canada from the U.S. are:

1. Corporation: The most common structure, where a U.S. corporation sets up a Canadian corporation or acquires an existing business. These entities operate as separate legal entities, meaning that each pays taxes in its own jurisdiction. This structure helps minimize tax intermingling. However, when repatriating earnings, dividends are generally subject to withholding tax. You can also move money through management fees and interest expenses, but it’s important to understand the tax implications of each approach.

2. Branch: An alternative to forming a corporation, a branch allows a U.S. company to operate in Canada without creating a separate legal entity. This possibility can be efficient for businesses wanting to expand operations without setting up a new corporate structure. Retained earnings that are reinvested in Canada typically aren’t taxed. However, repatriating funds without reinvestment triggers withholding tax. This approach can be beneficial if your goal is to keep earnings within Canada for growth while avoiding unnecessary tax burdens.

3. Unlimited liability company (ULC): A hybrid entity that is treated as a corporation for Canadian tax purposes but disregarded for U.S. tax purposes. ULCs can present significant tax benefits, but they come with increased complexity due to hybrid mismatch rules. For example, some transactions may be deductible in Canada but not treated as income in the U.S., or vice versa. Navigating these nuances requires a thorough understanding of both tax codes and how they interact under the Canada-U.S. treaty.

Choosing the right structure requires balancing your business model, growth ambitions, and tax planning strategies. Consulting with knowledgeable professionals who understand both sides of the border is important to avoid costly pitfalls.

Financing Strategies to Fuel Your Expansion

Funding your cross-border investment efficiently is crucial to keeping profitability. There are three main approaches to financing:

1. Equity financing: Investing in shares to create paid-up capital, which can be returned tax-free. This approach is especially beneficial when your goal is long-term growth, as future capital gains from selling shares may also be favorable. You can also pay dividends back to the U.S. without withholding tax, provided you meet treaty requirements. However, equity financing may limit your ability to extract surplus quickly.

2. Debt financing: Loans offer tax-free principal repayments and allow interest charges to move surplus across borders. To deduct interest in Canada, the debt-to-equity ratio must not exceed 1.5:1. If the ratio is higher, excess interest is treated as a dividend and subject to withholding tax. Maintaining the right balance is necessary to preserve tax efficiency while using debt’s cash flow benefits.

3. Debt-equity mix: Combining both equity and debt to balance growth potential with tax efficiency. This approach provides flexibility while keeping favorable tax treatment if ratios are carefully managed. A common strategy is to set up a 1.5:1 ratio, allowing interest deductions while keeping equity growth potential.

Tax Compliance Implications for Inbound Canada/Outbound U.S.

When conducting cross-border transactions between Canada and the U.S., it’s important to navigate tax compliance from both perspectives to avoid unexpected liabilities. Here are key considerations for inbound Canada/outbound U.S. transactions:

• Permanent establishment (PE) status: Determining whether your business activities in Canada create a permanent establishment is critical. If no PE exists, profits may not be taxed in Canada. However, proper documentation is important to support a non-PE status, as failing to file can result in penalties.

• Withholding tax obligations: Repatriating earnings from Canada to the U.S. — whether as dividends, interest, or royalties — may trigger withholding tax. The standard rate is 25%, but treaty benefits can reduce this to 5% or even 0% for certain payments, like interest. Always file the necessary forms to claim reduced rates.

• Transfer pricing considerations: Make sure that intercompany pricing aligns with arm’s-length principles to avoid disputes. This includes loans, royalties, and service fees between U.S. and Canadian entities. Documenting the rationale behind your pricing strategy is important to meet compliance requirements and avoid penalties.

• Foreign reporting requirements: Canadian tax law mandates the disclosure of foreign ownership and payments to non-residents. This includes management fees, royalties, and interest payments, as well as transactions exceeding $1 million (CAD) annually. Failing to report accurately can result in fines and audits.

• Employee movement compliance: If employees cross the border to conduct business activities, understand the regulations that apply to payroll taxes, social security, and reporting obligations. Both countries may impose requirements on income earned while working abroad.

Proactively managing these compliance aspects can help you minimize tax exposure and keep smooth cross-border operations. Working with experienced advisors familiar with both tax systems is important to avoid costly mistakes.

Transfer Pricing Considerations

Transfer pricing is a critical tool for managing cash flow between U.S. and Canadian entities. Besides dividend payments, transfer pricing allows for efficient cash repatriation while minimizing tax liabilities. Implementing well-planned transfer pricing strategies can provide immediate cash flow or support long-term financial planning.

Key transfer pricing considerations to improve your cross-border transactions include:

• Interest payments: Charging interest on intercompany loans can be an effective way to move surplus funds from a Canadian entity to its U.S. parent. However, it’s crucial to analyze the credit risk associated with the borrower and perform a credit rating analysis at the time of loan initiation. Interest payments may qualify for reduced withholding tax rates under treaty benefits.

• Royalty collections: If intellectual property (IP) is held by the parent company and utilized by a Canadian subsidiary, charging royalties can be an efficient way to transfer cash back to the U.S. Prepayments on future royalty obligations can accelerate cash flow, but it’s important to calculate the present value of these prepayments based on projected revenue.

• Management service fees: If the U.S. parent company provides services — such as administrative or management support — to its Canadian subsidiary, charging management service fees can be an effective strategy. The U.S. tax code outlines detailed rules for what costs can be included, so be thorough in finding which expenses help the foreign entity.

• Other cross-border charges: Beyond interest, royalties, and management fees, other intercompany charges, such as cost-sharing arrangements or distribution charges, can help manage cash flow across borders. Adjusting intercompany pricing to reflect market conditions while keeping arm’s-length standards allows for flexibility in moving funds.

It’s important to keep comprehensive transfer pricing documentation to support your approach — including economic analyses and risk assessments. Proper documentation helps mitigate audit risks and shows compliance with both U.S. and Canadian regulations.

Your Path to Successful Cross-Border Transactions

Unlocking cross-border transactions requires a strategic and informed approach. With careful planning and the right guidance, you can use international opportunities while minimizing risks and staying compliant.

How MGO Can Help

At MGO, we understand the challenges and opportunities inherent in cross-border expansion and are here to help you navigate the complexities with confidence. Our International Tax team offers the guidance you need to manage tax and transfer pricing effectively and prevent or resolve any issues.

Have questions about your cross-border expansion? Reach out to our team today.

The post Strategic Tips for Your U.S.-Canada Business Expansion appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The U.S. imposed 25% tariffs on all steel and aluminum imports, sparking immediate retaliation from Canada and the European Union. 

• Canada’s response includes over C$60B in tariffs on U.S. goods, while the EU prepares new duties on bourbon, boats, and agricultural products. 

• U.S. companies must assess whether new tariff costs can be passed to consumers and explore strategies to mitigate growing global trade risks. 

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In a further sign of the Trump Administration’s reliance on tariffs as a tool to further its domestic and foreign policy objectives, new tariffs of 25% on steel and aluminum imports into the U.S. went into effect on March 12. These tariffs had been previously announced (including coverage of steel and aluminum derivative products, not just raw materials) but negotiations for exemptions failed. The new tariffs apply to all imports from all countries. 

These new steel and aluminum tariffs were imposed under Section 232 of the Trade Expansion Act of 1962 and were, essentially, an extension of the previous “national security” tariffs that had been imposed during the first Trump Administration in 2018. Under this statute, the President can impose tariffs following an investigation by one of more federal agencies on whether imports of the subject merchandise are threatening U.S. national security interests.  

A Commerce Department investigation in 2017-18 found that such harm was present with respect to steel and aluminum raw materials and recommended imposing tariffs of 25% on imports of steel products and 10% on aluminum products. Such duties were then imposed but many large steel- and aluminum-producing countries (including Australia, Brazil, Japan Mexico, and South Korea) obtained exemptions. These exemptions are no longer available for the new tariffs but none of these countries announced any plans to retaliate against the U.S. for the new steel and aluminum tariffs. 

Canada responded to the latest round of tariffs on March 13 by imposing 25% tariffs on a list of U.S. goods totaling C$29.8 billion, including C$12.6 billion worth of steel products, C$3 billion worth of aluminum products, and other US goods worth C$14.2 billion. Merchandise categories include tools, computers and servers, display monitors, sports equipment, and cast-iron products. The new tariffs will apply to goods of U.S. origin as determined by the United States Mexico Canada Agreement (USMCA) marking rules (formerly NAFTA marking rules found at 19 C.F.R. § 102 et seq.). The new tariffs announced on March 13 are in addition to those previously announced by Canada on March 4 covering C$30B worth of other U.S.-originating goods (with no overlap between the two lists). 

Finally, Canada published a proposed list of C$125B in additional duties on other U.S.-originating products that is open for public comment until April 2. This list includes all items on the March 13 list, meaning there could be multiple tariff measures in place on a specific item as of April 2. 

On March 13, the EU also responded by announcing a two-part retaliation plan for the U.S. tariffs. The first part restores the EU’s “rebalancing” tariff packages (from 2018 and 2020) that will go into effect April 1, 2025. Tariffs as high as 50% will be applied on products ranging from boats to bourbon to motorbikes.  

The second part of the EU response will eventually impose additional countermeasures on approximately €18 billion worth of U.S. exports targeting agricultural and industrial products produced in the Midwest – represented primarily by Republicans in the U.S. Congress. The first step in this process is the launch of a two-week consultation with EU stakeholders. As stated by the EU, “[t]hese consultations will ensure that the right products are chosen for inclusion in the new countermeasures, ensuring an effective and proportionate response that keeps disruption to EU businesses and consumers to a minimum.” 

Finally, mainly in response to the EU retaliatory tariffs on U.S. bourbon, on March 13, President Trump announced that he would impose tariffs of 200% on all imports from the EU of wine, champagne, and all alcoholic beverages if the EU did not immediately remove the 50% tariffs on U.S. whiskey. According to data from Eurostat, about 20% of all exports of EU wine are destined for the U.S. market and the U.S. is the top market for exports of Champagne from that region of France. 

Insight 

As President Trump continues to inject uncertainty into the global trade landscape, the focus has now broadened to include imports from the EU, as well as Canada and Mexico, the two largest trading partners of the U.S. Whether the threat of U.S. retaliatory tariffs on imports of wine and spirits from the EU will play out over the coming days and weeks, but in his first term, President Trump placed additional tariffs on imports of EU-originating liquor and other alcohol. Reports indicate that recovery from that round of tariffs was long and challenging for the industry. 

The overriding question still facing U.S. companies (and nonresident companies, which include many Canadian entities that import into the U.S.) is whether the cost of any new tariffs that might ultimately be paid by the U.S. importer of record can be passed on to U.S. consumers in whole or in part. Canada, Mexico, and China account for more than 40% of all U.S. imports and include motor vehicles, pharmaceuticals, shoes, electronics, lumber, steel and aluminum, and a host of other products ultimately purchased by American retail consumers. In 2024, the U.S. was also the largest importer of EU goods (accounting for 20.6% of all EU exports) and the second largest exporter of goods to the EU (claiming 13.7% of all EU imports). 

Lurking in the background is the April 2 deadline on which new “reciprocal” tariffs are expected to be announced on all imports from many of the U.S.’ major trading partners, including the EU (for prior coverage, see the alert dated February 17, 2025). President Trump recently noted that not only will the U.S. factor in the foreign duty rate on imports of U.S. goods, but VAT will also be added into the mix to determine an appropriate new “reciprocal” tariff rate via which the current U.S. duty rate will be increased the match the foreign duty and VAT rate for goods imported from each of the targeted countries. 

President Trump has also noted that sector-specific tariffs will be imposed in the coming weeks on auto imports, semiconductors, pharmaceuticals, and certain other materials.  

In sum, many view these potential new tariffs as the escalation of a new global trade war in which all major trading nations will ultimately become enmeshed. Multinational companies trading in goods should consider mitigation strategies to lessen or eliminate the impact of these significant new tariffs for merchandise imported into the U.S. 

Written by Damon V. Pike, Mathew Mermigousis and James Pai. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Trade Strategy Support Amid Tariff Turbulence: How MGO Can Help 

With trade tensions escalating and new tariffs emerging rapidly across critical industries, your business needs to stay agile and informed to protect its bottom line. Our team of tax professionals can help you navigate this shifting regulatory landscape by assessing the impact of current and proposed tariffs on your operations, identifying strategic duty mitigation opportunities, and supporting you in revisiting your supply chain, sourcing, and customs compliance strategies.

Whether you’re a U.S. importer, a foreign entity shipping goods to the U.S., or a multinational navigating multiple tariff regimes, we bring the cross-border insight and practical solutions needed to reduce costs and preserve your global competitiveness. Contact us to learn how we can help you turn global disruption into a strategic advantage.  

The post Global Trade War Escalates as Tariffs Expanded, Inciting Retaliation by U.S. Trading Partners  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• New proposed dual consolidated loss regulations introduce changes to calculation methods and a disregarded payment loss rule, impacting how losses are treated for U.S. tax purposes.

• The Tax Court ruling in YA Global Investments LP v. Commissioner highlights the risk of foreign investment funds being deemed engaged in a U.S. trade or business through their U.S. managers.

• Pillar Two global minimum tax rules are being implemented by numerous jurisdictions, requiring multinational enterprises (MNEs) to address compliance burdens and potential top-up taxes.

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Proposed Dual Consolidated Loss (DCL) Regulations  

The Department of the Treasury and the IRS on August 6, 2024, released proposed regulations on the dual consolidated loss (DCL) rules and their interaction with the Pillar Two global taxing regime. The proposed regulations also make several changes to how DCLs are calculated and introduce a new disregarded payment loss rule.

DCL Rules

The DCL rules apply to ordinary losses of a dual resident corporation (DRC) or a separate unit. A separate unit for purposes of the DCL rules is a foreign branch or hybrid entity that is owned by a domestic corporation. S corporations are not subject to the DCL rules, and domestic corporations will be treated as indirectly owning a separate unit that is owned by a partnership or grantor trust.

Subject to certain exceptions, such as certifying no foreign use, under Section 1503(d), a DCL of a DRC or separate unit generally cannot be used to offset U.S. taxable income of a domestic affiliate (no “domestic use”). This means the DCL may be used only for U.S. federal income tax purposes against the income of the DRC or separate unit that incurred the DCL.

Proposed Regulations

The proposed regulations provide guidance in the following areas:  

• DCLs and the interaction with Pillar Two
• Calculation of DCLs, including the following:
  • Removal of U.S. inclusions, dividends (including under Section 1248), gain on the sale from stock, as well as deductions (including under Section 245A) attributable to such income 
  • Intercompany transactions, such that if a member of a consolidated group is a DRC or a U.S. member that owns a separate unit, the counterparty consolidated group member’s income or gain on the intercompany transaction will not be deferred  
  • Clarification that items that are not (and will not be) on the books and records of the separate unit are not included in the separate unit’s income or DCL calculation
• New disregarded payment loss rule

Disregarded Payment Loss Rules

A significant development in the proposed regulations is the introduction of a new set of disregarded payment loss (DPL) rules, which operate independently of the DCL rules. To address certain deduction/non-inclusion outcomes, the DPL rules would apply to some disregarded payments (interest, royalties, and structured payments) that are deductible in a foreign country but are not included in U.S. taxable income because the payments are disregarded.

The DPL rules would require a consenting domestic owner of a disregarded payment entity to include in U.S. taxable income the amount of any DPL, subject to certain calculation requirements, if a triggering event occurs within 60 months. The new DPL rules will likely have the significant effect of creating deemed income recognition in the U.S. without any corresponding deduction or basis increase.

Since no express statutory authority exists for the new DPL rules, under the proposed regulations, Treasury would implement the DPL rules in coordination with the entity classification election rules under Treas. Reg. §301.7701-3(c), which means that when a specified eligible entity either elects to be disregarded for U.S. tax purposes or defaults to a disregarded entity under the general rules of Treas. Reg. §301.7701-3(b), the domestic owner would be deemed to consent to the new DPL rules.

Effective Dates

The proposed regulations would generally apply to tax years ending on or after August 6, 2024.

The DPL consent rules would apply to the acquisition and formation of new entities, as well as entity classification elections filed, on or after August 6, 2024. For entities already in existence, the DPL consent rules would apply as of August 6, 2025, which would allow taxpayers time to restructure their existing operations before the DPL rules enter into effect.

The intercompany transaction regulations would apply to tax years for which the original U.S. income tax return is due without extensions after the date the final DCL regulations are published in the Federal Register. This means that if the final regulations are published by April 15, 2025, they would apply to calendar year 2024.

Once the proposed regulations are finalized, taxpayers can choose to apply them retroactively to open tax years, subject to consistency requirements.

Although still in proposed form, the DCL proposed regulations are lengthy and complex and many of the changes will apply retroactively to calendar year 2024 once the proposed regulations are finalized. Taxpayers will need to closely monitor disregarded payment losses arising from interest, royalties, or other structured payments to determine timely certification, as well as potential income recognition.

Additionally, taxpayers will need to consider adjustments to DCL calculations going forward to take into account the new rules regarding removing items that are not on the separate unit’s books and records and U.S. inclusions, among other items. The removal of these items could have a significant effect by unintentionally creating a DCL or increasing the amount of any existing DCL, among other possible upshots.

We can help you consider the impact these proposed regulations could have on your DRCs or separate units before the regulations are finalized, allowing time for restructuring operations if necessary.

Tax Court Ruling on Foreign Fund’s U.S. Business Raises Planning Issues

The Tax Court in a November 15, 2023, decision held that a non-U.S. investment fund partnership was engaged in a U.S. trade or business through the activities of its U.S. investment manager that acted as its agent. Consequently, the partnership was liable for withholding taxes for the portion of its effectively connected income allocable to its foreign partners (YA Global Investments LP V. Commissioner, 161 T.C. No. 11).

Based on the court’s rationale, investment funds with foreign partners should consider the following to reduce the risk of being subject to taxation because they’re deemed to be engaged in a U.S. trade or business:

• Existing investment management agreements between U.S.-based asset managers and offshore partners and investors should be evaluated and possibly restructured in light of the YA Global case. New investment management agreements should not allow the investment fund to give interim instructions to the investment manager.
• Neither the investment fund nor the investment manager should receive any type of fee from a portfolio company. The investment fund should derive only a return on the capital invested. If an investment fund would receive fees from portfolio companies, care and consideration should be given to the implications of this case.
• The taxpayer should maintain documentation demonstrating reliance on tax advice, the basis for such reliance, and the specific date in which a prior filing position is modified and the reason for such modification. MGO can assist clients to determine the existence of a U.S. trade or business in cases where there might be exposure under the enumerated principles of the YA Global case.
• Because the partnership in YA Global failed to file the required Forms 8804, Annual Return for Partnership Withholding Tax (Section 1446), it was left open to assessment despite the fact that the statute of limitations had run out for partnership Form 1065 and the partners. MGO can assist clients evaluate whether to file a Form 8804 when there are foreign partners and potentially effectively connected income and a U.S. trade or business, perhaps even on a “protective” basis.

Preparing for the Impact of Pillar Two Implementation

In December 2021, the Organization for Economic Co-operation and Development (OECD) released the framework for the Pillar Two global minimum tax. These rules — known as the global anti-base erosion (GloBE) model rules — are intended to verify multinational enterprises (MNEs) with global revenues above EUR 750 million ($800 million) pay a 15% minimum tax rate on income from each jurisdiction in which they operate.

This minimum tax is imposed either on the ultimate parent entity through the income inclusion rule (IIR) or on another operating entity in a jurisdiction that has adopted the rules through the undertaxed payments rule (UTPR). Additionally, many jurisdictions could impose a qualified domestic minimum top-up tax (QDMTT) on profits arising within their jurisdiction.

Common structures likely to be impacted by the IIR and UTPR:

• Tax havens, low-tax jurisdictions, and jurisdictions with territorial regimes 
• Notional interest deduction regimes 
• Intellectual property (IP) boxes and other incentives regimes 
• Low-taxed financing, IP, and global centralization arrangements 

Every global organization within the revenue scope needs to address Pillar Two, with a differing landscape depending on that organization’s profile and footprint. Even if an MNE is not subject to a top-up tax, it will still need to demonstrate that it falls below the threshold. Therefore, large MNEs should expect a significant increase in their compliance burden, as the rules require a calculation of low-taxed income based on the accounting income by constituent entity on a jurisdictional basis and reporting of the Pillar Two calculation to the tax authorities.  

Implementation Timeline  

The OECD does not legislate or implement laws. However, at least 25 jurisdictions have enacted laws adopting the OECD’s Pillar Two rules into domestic legislation, and more are expected to follow. Many of these laws are effective January 1, 2024; some jurisdictions — for example, some EU member states — back-dated the effective date to January 1, 2024. 

Significant markets that have yet to implement Pillar Two include Brazil, China, India, and the U.S.; however, the rules may still apply to MNEs headquartered or otherwise operating in these jurisdictions if they have operations in a jurisdiction that has implemented the rules.  

The OECD published additional administrative guidance on the application of the Pillar Two rules on June 17, 2024. The new guidance supplements the previously released commentary and the first three installments of administrative guidance.

Key issues addressed by new OECD guidance:

• The application of the recapture rule applicable to deferred tax liabilities (DTL), including how to aggregate DTL categories and methodologies for determining whether a DTL reversed within five years.
• Clarification on how to determine deferred tax assets and liabilities for GloBE purposes when the rules result in divergences between GloBE and accounting carrying value of assets and liabilities.
• The cross-border allocation of current and deferred taxes, allocation of profits and taxes in certain structures involving flow-through entities, and the treatment of securitization vehicles.

The new guidance provides additional detail on how the GloBE rules are intended to operate for MNEs. This administrative guidance will be incorporated into the commentary to the GloBE model rules.

Now that the GloBE rules are in effect in a significant number of jurisdictions, MNEs that may be within the scope of the rules should consider the following steps:

• Undertake an impact assessment to determine high-risk areas and identify the potential impact on effective tax rate (ETR) and cash tax.
• Keep ongoing communications with the board of directors and other stakeholders.
• Assess the impact on compliance and design a roadmap to implement a plan for Pillar Two compliance.

Our experienced team can help you assess the location of your people, functions, assets, and risks and adapt your strategies.

Section 987 Regulations Expected To Be Finalized Before Year-End

The Treasury Department and the IRS have announced their intention to finalize the 2023 proposed regulations under Internal Revenue Code Section 987 by the end of calendar year 2024. This will have significant implications for taxpayers that have a qualified business unit that uses a functional currency different from its owner (a “Section 987 QBU”).

Terminations After November 9, 2023

The 2023 proposed regulations provide that the effective date will be accelerated regarding any QBU that terminates after the date the proposed regulations were issued, November 9, 2023. The effective date will be immediately before such terminations. Generally, gains upon termination would be recognized immediately, while losses may be deferred or potentially lost depending on the facts. Any Section 987 termination after November 9, 2023, and before the proposed regulations are finalized should be reviewed to determine the consequences of any gain or loss.  

Transition to Final Regulations  

The 2023 proposed regulations provide a transition rule that will require all QBUs to be deemed terminated and the calculation of a pretransition Section 987 gain or loss as of 12/31/2024 for calendar year taxpayers. The methodology used to calculate the amount of pretransition Section 987 gain or loss is determined based on whether or not the taxpayer has historically applied an eligible pretransition method.  

The 2023 proposed regulations provide that eligible pretransition methods include:  

• The 1991 proposed regulations.  
• The 1991 proposed regulations applying an “earnings only” method, as long as that method has been consistently applied to all QBUs.  
• Any other reasonable method consistently applied that results in the same amount of Section 987 gain or loss as the 1991 proposed regulations.  

No Eligible Pretransition Method 

If a taxpayer has not applied an eligible pretransition method (including doing nothing) then the 2023 proposed regulations require the pretransition Section 987 gain or loss to be computed using a “simplified method.” This method is generally a simplified foreign exchange exposure pool (FEEP) computation that requires taxpayers to determine the net equity of each QBU for the initial year of each QBUs existence translated into the functional currency of the home office owner of such QBU.

Such net equity is compared to the Dec. 31, 2024, net equity value, also translated into the home office functional currency. The difference between these amounts is then adjusted for Section 987 gains and losses recognized over the life of the QBU to determine the amount of pretransition gain or loss. 

The source and character of the pretransition Section 987 gain or loss is based on the tax book value (asset method) of Treas. Reg. §1.861-9. Taxpayers may make an election to recognize the pretransition loss over 10 years. Alternatively, without the election, pretransition gains will be treated as unrecognized Section 987 gain or loss that will be recognized upon remittance, and pretransition losses will generally be treated as suspended losses and recognized to the extent that section 987 gains are recognized in the future. 

Eligible Pretransition Method  

If a taxpayer has been applying Section 987 using an eligible pretransition method, then that method should be followed to determine the amount of pretransition Section 987 gain or loss. The source and character of the pretransition Section 987 gain or loss is based on the tax book value (asset method) under Treas. Reg. §1.861-9. Taxpayers may make an election to recognize the pretransition loss over 10 years. Alternatively, without the election, pretransition gains and losses will be treated as described above. 

Once the proposed Section 987 regulations are finalized, the effective date is expected to be Dec. 31, 2024; however, some determinations may be made before the regulations are effective. For example, determining if an eligible method has been established will be important in calculating the amount of pretransition Section 987 gain or loss. If an eligible method has not been established, then taxpayers will need to complete the calculations as described above over the life of each QBU. Taxpayers need not wait until 2025 to complete these calculations and may get started on the calculations immediately. 

Once the regulations are effective, the FEEP approach requires taxpayers to acquire balance sheet information for each QBU. Obtaining this balance sheet information may involve leveraging multiple accounting systems and taxpayers may want to start reviewing how this information will be obtained sooner rather than later. 

How MGO Can Help  

MGO can help businesses navigate the complexities of the proposed DCL regulations, OECD Pillar Two rules, and Section 987 regulations by providing guidance on compliance, tax planning, and financial reporting requirements. Our team is well-versed in assessing the impact of these changes and can assist with DCL calculations, Pillar Two compliance, and Section 987 transition planning.

With a deep understanding of international tax frameworks and industry best practices, we support you in managing tax liabilities, mitigating risks, and maintaining compliance with evolving global tax regulations. Whether you need assistance with restructuring operations, addressing withholding tax concerns, or preparing for new documentation requirements, MGO is here to guide you every step of the way.

Contact our International Tax team today to learn how we can be your trusted partner in navigating international tax complexities and safeguarding your global operations.

The post Navigating New DCL Rules: International Tax Updates and Pillar Two Impacts  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

•  The IRS announced its intention to implement the OECD’s Amount B through a new Simplified and Streamlined Approach (SSA) for transfer pricing and it went into effect January 1, 2025, allowing U.S. taxpayers to elect it as a safe harbor.

• The SSA’s goal is to simplify transfer pricing compliance for intercompany transactions involving tangible goods, but whether or not it is effective will depend on if other countries accept its application too.

• The IRS and Treasury are considering whether to allow the SSA to be applied unilaterally by the IRS in audits, and they are seeking public comments on key implementation aspects by March 7, 2025.

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After years of debate and negotiation, the Organization for Economic Cooperation and Development’s (OECD’s) Pillar One, Amount B has taken a major step forward with the IRS’s release on December 18, 2024, of Notice 2025-04: “Application of the Simplified and Streamlined Approach under Section 482.”   

The notice announces the intention of the U.S. Department of the Treasury and the IRS to issue proposed regulations to implement the OECD’s Amount B for U.S. taxpayers by introducing a new transfer pricing method, the simplified and streamlined approach (SSA), to Reg. §1.482. 

The notice states that U.S. taxpayers can elect to apply the SSA as a safe harbor for tax years beginning on or after January 1, 2025. Prior to the release of proposed regulations, taxpayers can rely on the guidance in the notice in conjunction with the report the OECD published in February 2024, “Pillar One – Amount B: Inclusive Framework on BEPS” that was incorporated into the OECD Transfer Pricing Guidelines for Multinational Enterprises as an annex to Chapter IV. 

The notice also states that Treasury and the IRS expect that the proposed regulations will not deviate significantly from the OECD report. Therefore, the notice does not “restate or address every element of the Report.” It does, however, provide some U.S.-specific information regarding the SSA, including how taxpayers are to make the election to apply it, and its interaction with U.S. documentation requirements under Reg. §1.6662-6.  

Background

The OECD report on Amount B provided a simplified and streamlined approach for determining the returns to baseline marketing and distribution activities for intercompany transactions involving tangible goods. The approach allows, in certain circumstances, distributors who purchase tangible goods from related suppliers for resale to determine their transfer pricing using a simplified approach rather than a full transfer pricing benchmarking analysis. 

The U.S. has been a strong supporter of Amount B; the notice represents the adoption of the principles of the OECD report in U.S. transfer pricing guidance. 

Notice 2025-04

The notice indicates that the IRS is implementing the SSA effective January 1, 2025. The SSA will be available to both inbound U.S. distributors that purchase tangible goods from non-U.S. related parties and to U.S. manufacturers selling tangible goods to outbound non-U.S. related parties. At a minimum, implementation will be in accordance with Option 1 of the OECD report, which allows the SSA to be applied only if a taxpayer elects for it to apply. Treasury and the IRS are considering whether the proposed regulations should also allow the IRS to apply the SSA, even if the taxpayer does not elect to apply it (Option 2), presumably in an audit context. 

The notice contains instructions on how a taxpayer can make the election to apply the SSA. The election would be made by filing a statement with the taxpayer’s original tax return for the year indicating the transactions to which the taxpayer intends to apply the SSA, and providing other information specified in the notice. The SSA would apply on a transaction-by-transaction basis for the tax year for which the election is made. However, Treasury and the IRS are considering alternatives to the transaction-by-transaction and year-by-year election. 

The notice also provides guidance on the documentation required to enable the IRS to verify that the taxpayer has complied with the SSA. These documentation requirements supplant those specified in Reg. §1.6662-6, although there is some overlap.  

Some specific books and records that need to be maintained include:  

• An intercompany agreement between the supplier and related distributor that supports the application of the SSA;  

• Detailed financial data necessary to confirm the application of all steps of the SSA as delineated in the OECD report;  

• Non-financial information necessary for application of the SSA; and  

• Several statements affirming compliance with aspects of the SSA. 

Request for Comments

The notice requests comments on all SSA-related topics, and three specific issues: 

• Whether application of the SSA should be determined solely by the taxpayer’s election (Option 1); 

• Whether there should be SSA elections other than on a transaction-by-transaction basis or tax year-by-tax year basis; and 

• The selection of 30% as the cap in the operating expense cross check (cap-and-collar) calculation   

Comments must be submitted by March 7, 2025. 

Insights 

For some multinational enterprises with intercompany transactions involving the purchase/sale of tangible goods, the SSA could be a useful, simplifying alternative to transfer pricing benchmarking. The extent to which it is adopted by U.S. manufacturers and distributors will depend on a variety of factors, including how many countries – other than the U.S. — agree to accept it.  

Every multinational with either a distributor or manufacturer of tangible goods in the U.S. and intercompany transactions involving those tangible goods should evaluate whether the application of the SSA would be practical and beneficial. In some cases, application of the SSA may not be practical because the tax authority on the other side of the transaction will not accept it. In other cases, the SSA could provide a useful simplification of at least some transfer pricing compliance requirements, in particular in cases in which there have been challenges in developing traditional benchmarks.  

BDO transfer pricing specialists can assist in evaluating the transfer pricing landscape of manufacturers and distributors, including whether adoption of the SSA would be advantageous. 

How MGO Can Help 

Understanding how these transfer pricing changes is critical to the international tax landscape. MGO’s team of tax professionals can help you assess whether the SSA is the right fit for your business, as well as assist you with compliance and provide strategic insights that optimize your transfer pricing approach. As these global tax regulations evolve, our goal is to help you stay ahead with personalized guidance and seamless implementation. Reach out to MGO today to discuss how these new rules may impact your operation.  

Written by Laurie Dicker. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com 

The post IRS Releases Guidance on New Transfer Pricing Methodology appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Tax due diligence is essential, with 78% of participants emphasizing its role in identifying risks, uncovering tax-saving opportunities, and ensuring smooth add-on acquisition planning.

• Proper structuring in add-on acquisitions can maximize deductions, optimize legal entity structures, and improve financing efficiency, with 60% of respondents citing entity structure as their top concern.

• Transfer pricing remains a key challenge, as mismanagement can lead to costly tax adjustments, compliance risks, and integration difficulties for acquiring companies.

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This insight was developed following a recent BDO Tax Strategist Private Equity webcast about the intricacies of add-on acquisitions and cross-border transactions. We believe that these insights can deepen your understanding of these complex transactions and learn how to navigate associated tax implications effectively. 

The Importance of Tax Due Diligence 

78% of participants typically perform due diligence to manage the risk of unknown tax exposures in connection with their deals, according to BDO’s webcast responses.

Tax Considerations for Structuring and Add-on Acquisitions 

Debt structuring is crucial in add-on acquisitions because companies often borrow significantly to finance the deal. 

As a result, you should consider increasing potential deductions related to financing and other transaction expenses, which can lower the overall deal cost. 

In addition to structuring debt for tax efficiency, selecting an appropriate legal entity structure is also key. Without it, your company may find itself in inefficient structures that make intercompany transactions and profit improvements challenging. 

Tax Considerations for Add-On Acquisitions Include: 

• Legal entity structure  

• Tax basis step-up  

• Sponsor holding period  

• Management rollover 

• General debt and lending considerations  

• Cross-border collateralization of U.S. Debt 

• Foreign repatriation and withholding tax  

60% of participants cited legal entity structure optimization as the tax issue they are most concerned about regarding the structuring of add-on acquisitions. 

Transfer Pricing

When asked to identify the most significant challenge their organization faces related to transfer pricing, participants cited the following: 

Arm’s Length Standard 

A controlled transaction meets the arm’s length standard if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances. 

Transfer pricing plays a critical role in deals, as any overlooked issues become the responsibility of the buyer. If the target company has not responsibly managed its transfer pricing, the buyer’s risk of adjustments in open audit years may increase and highlight potential challenges in integrating the tax structures of the combined business. For example, taxpayers are restricted from amending or filing late U.S. tax returns that reduce U.S. taxable income because of transfer pricing. This can potentially lead the buyer to face costly adjustments or even double taxation. 

Types of Intercompany Transactions

Transfer Pricing in Practice 

Transfer Pricing in connection with acquisitions can create challenges and unique opportunities for tax planning. 

Responses from participants in BDO’s Tax Strategist Private Equity Webcast: Enhancing Value in Add- On Acquisitions: Domestic and International Insights 

How MGO Can Help 

MGO’s experienced tax professionals provide strategic guidance on add-on acquisitions, cross-border transactions, and transfer pricing compliance. From conducting thorough tax due diligence to optimizing legal entity structures and ensuring alignment with global tax regulations, we help private equity firms and businesses navigate complex tax implications. Our team works closely with our clients to uncover tax-saving opportunities, mitigate risks, and streamline integration, ensuring a tax-efficient transaction that maximizes value. Contact us to learn more. 

The post Add-On Acquisitions: Domestic and International Insights  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Expanding internationally brings tax complexities, but strategic planning helps businesses reduce liabilities, stay compliant, and improve operations.

• Working with an international tax professional provides industry-specific insights, cross-border structuring strategies, and opportunities for tax savings.

• Ongoing tax planning helps businesses adapt to regulatory changes, mitigate risks, and position for sustainable global growth.

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Expanding your business across borders is an exciting opportunity — but international growth also introduces complex tax challenges. In a recent episode of her podcast, Evelyn Ackah, founder and managing lawyer at Ackah Business Immigration Law, spoke with MGO International Tax Partner John Apuzzo about navigating global tax complexities. Drawing on John’s insights, this article explores the importance of international tax planning and how having knowledgeable international tax professional on your side can help your business.

Bringing a Global Perspective on International Tax

John Apuzzo’s journey into international tax began in Montreal, where he was born and raised by Italian parents. With citizenships in three countries, John’s multicultural background has uniquely positioned him to understand and navigate the complexities of international tax laws. His career took off when a professor at McGill University encouraged him to become a certified public accountant (CPA). John went on to obtain his CPA license in both Canada and the U.S., teaching and practicing tax law across multiple countries.

Why International Tax Planning Matters

Whether you’re a high-net-worth individual, a multinational corporation, or a growing mid-market business, strategic international tax planning is critical to:

• Reduce tax burdens through proper structuring and treaty benefits.

• Avoid costly penalties by ensuring compliance with cross-border regulations.

• Optimize global operations with efficient tax strategies tailored to your business.

How International Tax Professionals Support Your Business

Varying tax laws, evolving regulations, and compliance risks can quickly become overwhelming for businesses expanding internationally. However, with the right tax strategies in place, businesses can not only remain compliant but also unlock significant financial advantages.

Here are a handful of ways working with an experienced tax professional can help support your business:

1. Cross-Border Taxation Strategies

Expanding internationally means dealing with multiple tax jurisdictions, each with its own rules and compliance requirements. International tax professionals bring extensive experience in structuring global operations, mitigating risks, and improving tax strategies tailored to your business.

2. Improving Tax Efficiencies

Leveraging tax treaties, transfer pricing strategies, and available credits and incentives can significantly impact your bottom line. Tax professionals help find these opportunities, keeping your business competitive while supporting compliance with global tax laws.

3. Tailored Strategies for Your Industry

Every industry has unique tax considerations, and international tax professionals understand the nuances of different sectors. Whether you’re in technology, manufacturing, entertainment, or another industry, they can provide insights and strategies specific to your business needs.

4. Long-Term Compliance and Growth

International tax planning isn’t a one-time effort — it requires continuous monitoring and adjustments as tax laws evolve. With ongoing support, tax professionals help you stay ahead of regulatory changes and position your business for sustainable growth.

How MGO Can Help

Unlock the full potential of your business with strategic international tax planning. Whether you’re expanding globally or restructuring your existing operations, our professionals provide tailored cross-border solutions to help you stay compliant and increase savings. Don’t let the complexities of international tax hold you back — reach out to our International Tax team today to navigate challenges and position your business for success.

The post International Tax Benefits: How to Reduce Liabilities and Boost Business Growth appeared first on MGO CPA | Tax, Audit, and Consulting Services.