Still tariffied: Refunds, reshoring and risk

And welcome to cross-border tax talks, where we discuss the latest trends in international taxation, from trade and tariffs to the OECD's latest developments. I'm Doug McConey, PwC's International Tax Services Global Leader. PWC's Pillar 2 engine, powered by Beacon, is a game changer for Pillar 2 compliance, provision, and modeling calculations.

Built on a graph system utilizing over 20 years of international tax technology. This cloud-based centralized rules engine is developed by a team of Pillar 2 tax experts from around the globe. PWC's Pillar 2 engine is currently available as a service and is also available to license. On this week's episode of Cross Border Tax Talks, we're at PWC's Global Transfer Pricing, Trade, and Indirect Taxes Conference 2026 in Chicago, Illinois, where I'm excited to welcome Chris Desman back to the podcast.

Chris is a reformed transfer pricing partner and leader of PWC US's global trade services practice. Chris, welcome back to the podcast. I can't help it. It's good. All right. Well, before we get into tariffs, and there's plenty to discuss, I wanted to publicly congratulate your local Chicago Cubs for making the Major League Baseball playoffs.

But I did want to point out to listeners that the Chicago Cubs and the St. Louis Cardinals, who did not make the postseason, both won the same amount of playoff games. This year. This year. Yeah. How would you assess the Cubs 2026 campaign?

Well, we did not win a single game in October, nor a playoff game in September. We didn't even get to see October, which was very unfortunate. We did finish, I think, about 12 games ahead of the Cardinals. Oh, we were not very good this year. Quite honestly, Doug, though, it was a fun and good season.

It's good to see what the ball club is doing. You know, welcome to Chicago. Welcome to the home of Wrigley Field, too. I know it's enemy country for you.

I lived here though for a number of years. I've seen a lot of ball games.

But you always had that twitch. You know, anytime you got north and, you know, kind of by Clark and Addison. Wearing my Cardinals' cap, absolutely. Yeah, you you did. But you know what though? I'm glad you keep that spirit up. But uh great season. PCA, MVP-like seasons, great to see that. Deserves it.

The odds of him getting that, you know, from the start of the season where we're at is good. Uh they just need to get more experience, and that's why you know you got teams with more experience finally moving on. Who would have thought the Brewers were going to be in the World Series and sweeping the Dodgers?

They look good, man. They are really good.

If we got past the Padres, we would have gotten totally swept by the Brewers. They're really good. Uh they are good.

Yeah, it was a fun season for the Cardinals. It was kind of an announced rebuilding year, so I think we ended up with 76 or 77 wins. Um there was uh some exciting moments, particularly when our rookie uh batter hit three home runs in Wrigley Field for the first player in Major League Baseball history.

Um I was at that game. Were you?

I was and you know what historical The Chicago Faithful cheered. It was stupid because it was so cool.

I agree. And like on his fourth and bat, they gave him a standing ovation. But that's kind of how baseball should be. And all right, that's a perfect leaping off point uh to trade in tariffs. I'd rather talk baseball. Me too. But uh Jeff Jacoby won't let us uh turn this into a sports podcast as much as I've tried.

Next step. So all right. It's been about six months, Chris, since we last tackled tariffs on the podcast. And what a six months it's been. When we last spoke, the Supreme Court had just upended the administration's tariff strategy. Companies were trying to figure out whether they could recover billions in duties, and everyone was asking whether we were entering a fundamentally different era of global trade.

Well, the legal landscape has continued to evolve. The administration has found new ways to pursue its trade agenda, and multinational companies are still trying to figure out what all this means for their businesses. So let's start, Chris, with the Supreme Court ruling on AIPA and refunds. How is that going and has everyone been paid?

Well, it everybody has not been paid, but if I were to take a bet about how much was going to get paid by now, I probably would have lost. 168 billion was that pool. Was the pool, yep. And to date, 73% of that has been processed to get paid. So we're talking about $134 billion has gone through CAPE, which is the Consolidated Administration of Processing of Entry system that they set up, which goes through the portal that they set up from an ACE perspective.

And when they did that, you know, the amount that is still left over, you're like, well, what's left? Why is it taking so long? So now they have phase three coming out. October 6th is when that's gonna be paid out, and that's gonna be a lot of liquidation adjustments. It's about 11 to 12 billion dollars there.

Then you have the companies that sought uh legal uh help in the class action suits, and and those are different tranches that are coming out now, and how is that gonna be handled? But then there's get this there's 1.3 billion that has yet to be paid because of people making errors in their bank accounts.

Oh, just like number wrong a bank, and so 1.3 billion is sitting out there waiting to get paid. But the interesting part about this is that for uh the companies that are are going through that process, you're like, oh my gosh, you can't wait to get your money, they are earning an interest rate of six percent on that.

So it's not an interesting it's it's it is it is with interest.

And so you know we are I need a checking account with that uh interest rate.

Well, I get that six percent too. So when you say, okay, now the money is hitting companies, and we're at the TP conference, we talk about tax. So what does this money mean when you actually receive it? And so, like, what are the major factors that the head of tax needs to think through? Because now the refunds come in, they might have a couple million, they might have a couple hundred million.

We have some companies that we know, some taxpayers that are getting over a billion dollars in refunds. So big question is what fiscal year are we gonna book it in? You know, what is going to be then the legal entity that's actually going to take that refund? Um, do we pass any of that back on to any of the customers?

Because what if that was actually set up to be passed to the customers? Are they going to pass it back and is that gonna reduce things? And if any of those adjustments are made by a fiscal year by entity, what does it do to transfer pricing? So there's a lot of tax implications that are happening right now that has a tax.

I hope they're asking those questions. I hope they're not saying, great, we got a refund, and ignoring that. Because it's one of those areas where it's like, is that communication happening between the customs team and the tax team?

And so what are the answers to some of those questions in in in brief? And as far as how is that, how should it be dealt with?

How should that be dealt with? There's you have options, quite honestly. You have the year of the payment, so it's happening whatever, you know, when you actually got the payment, but it represents entries that happened in historical periods. So you have optionality when it comes to that. We say, well, do I want to then do an analysis to figure out when actually was the tariff paid for that specific import, and then address it for those particular years and doing it that way.

And then you can say, which is the legal entity that actually should be borne the cost? Well, get this. So when an import happens, the entity that is the importer record is going to get the refund. No other entity. But is that the right entity? And that's where the company has to think through. Well, where should that profit go to from the overall supply chain?

And it actually may not even be the US company, maybe outside the US based upon the transfer pricing policy. Don't know, but it's something that needs to be analyzed. And then if that adjustment happens, that's an influx of additional profit to the U.S. company. What does it do to the transfer price?

It's probably gonna throw it off from a one-year or a three-year perspective. So to evaluate what does that mean for current year and historical periods are things that you need to analyze. And I would say make sure you analyze that impact and have a story. You need to have a story because guess what?

This is gonna get audited. Not just the refunds, but the transfer pricing and customs together.

For sure. And then I can think of even like from a direct tax perspective, if it wasn't actually the legal entity that paid the tariffs and it's somebody else, and then they received the refund, there are value shift type issues, is the deemed distribution, so lots of different things to consider as they're structuring those uh those payments.

One thing you shouldn't do is do nothing. Yeah. I think that's going to be a common theme. It's a general common theme on the podcast. Okay. All right. So I I want to shift a little bit to the rest of the world responding to U.S. tariff policy, but maybe can you just provide a quick framework of where are we post-IPA tariffs?

Because I think there was some maybe misconceptions with some of the non-U.S. folks is just like, oh, well, Trump's tariffs are no longer valid. Well, you know, we don't need to go into the alphabet soup of all the other uh acts by Congress that that give the executive branch authority to be able to administer tariffs, but we have not seen the Trump administration forego what has has something that has always been, or Donald Trump has been very consistent with from a policy perspective.

So what is the current state of the U.S. tariffs? And then I want to talk about the how's the rest of the world responding. Trevor Burrus, Jr.

The tariffs are still here and they're not going away. In fact, uh there's a report that we talked about on the last time we met about how for the next 10 years we're gonna have about $6.1 trillion of tariffs. So it is actually just the mechanism from an AIPA perspective is what's been taken away. Okay.

So there are so many other mechanisms. We have the 232s, the 301s, the process of having an investigation. So going through those pieces are now the guidance that the administration has and how they want to administer tariffs going forward. Trevor Burrus, Jr.

And is it safe to say, or am I overs oversimplifying that the AIPA tariffs really gave him uh the the administration authority to be able to kind of do tariffs without having to do some form of diligence kind of on a whip? Absolutely. Right.

And now they have to go through the process. Aaron Powell That's a good way to put it because it was kind of using like you know emergency powers and just saying, well, I'm just gonna make a tariff today on this, and I'm gonna say, oh, it's you know, this sort of hardship from the U.S. perspective, and it's an emergency power that has now been taken away, and now we have to go through more formal processes.

Trevor Burrus, Jr.

But they're still but they're still here and they're not going away. They're not going away. I think we've pointed out on many of the podcasts that you know some of the initial Trump tariffs that were imposed during his first administration, we didn't see the Democrats come in when they controlled both chambers of Congress and President Biden repeal those tariffs.

Because frankly, once you get an income stream, it's hard to get rid of that income stream, particularly given our particular fiscal situation. And so a lot of discussion about what's going to happen with the midterms, what will happen in the next presidential election, but um something that obviously I think taxpayers should understand is that the tariffs are are likely here to stay for at least the first seven.

Yeah, fair enough on the kind of stuff. Uh, you know, that that's the and that's what that and when you talk to any of the folks that deal with, regardless of which administration will take over uh for the next presidency, the thought is to your point, it's a revenue stream and it's counted for. It's really, really hard to take that away.

Are there going to be modifications to it? Absolutely. And and it's just going to be the policies that that administration is going to want to move forward with.

All right, so let's shift to the rest of the world. And I'd like to understand how are they responding and are we seeing a fundamental restructuring of global trade relationships, particularly with China, EU, Mexico, Canada? What are you seeing outside the U.S.?

So from a China perspective, we just had a summit not too long ago in September here in the US, and there has been an agreement to stop escalating pretty much. And there are some agreements to reduce some of the friction by about, I would say, 30 billion each way on each side. But it is by no means a, well, we're gonna be moving towards a situation where China will no longer be the highest tariff country.

They will continue to be that. In fact, they're at about 24% right now. That's a huge number on imported goods. And that's when you talk about the tariffs, these are the tariffs that China doesn't pay. It's the importers in the United States pays for any good that has the country of origin of China. Right.

So from a China perspective, there's a kind of a truce that's going on up and through, I think it's gonna be at the beginning of January. And then we're gonna say 2027. Yeah. Um when we talked about the EU, they they chose a deal over reconciliation or retaliation, and and they've also built in an exit strategy.

So they really want the steel and aluminum tariffs to go down. And they said it needs to go down by 15% by the end of 2026. And if it doesn't go down, then the EU can suspend the concessions, and then they're gonna go through what the retaliatory measures are going to be. But the EU, in my opinion, is getting a lot stronger in a collaborative approach and how they're gonna address the U.S.

In fact, you've even heard about the EU reaching out to Canada and saying maybe we have Canada join the EU in some manner, because if you want to move to Canada, Canada's the one that's gotten the nastiest, in my opinion. That spout was pretty bad. Um, those talks broke down. USN USMCA, um, that relationship, it was not renewed.

And we also have the new tariffs under the 338, so another area, 338 under the tariff act of 1930, that has never been used before, but it was used in the situation because they weren't going to use AIPA.

Right.

They're using things in order to then uh escalate things with Canada. And right now, uh dealing with matters between Canada and the US from a tax transfer pricing and operational perspective is very difficult because we don't have certainty on this. Yeah. Because it keeps on changing and there's always another retaliation that's happening.

So a lot of supply chains when dealing with Canada and the U.S., they're kind of freezing a little bit because they don't want to get too ahead of themselves because if they're too dependent, that means that they might not know what's coming related to additional cost via tariffs in one direction or the other.

So I'm gonna want to double-click on the supply chain. Before we go there, what about Mexico, another huge trading partner?

So Mexico, Mexico, um again, that's another situation with USMCA. The U.S. walked away from the table, but Mexico is approaching this a little bit differently. And they are um going and looking at each of the major issues and complaints. And there was 54 to begin with, and now they're down to 14. When they deal with getting down to zero, that's where we'll probably have a trade deal.

My hope is we do have a trade deal, but right now the U.S. wants to make sure, especially when it comes to autos, that over 50% is U.S. Right now, about 84% of the vehicles that enter the U.S. are under USMCA and there's no tariffs. And they want to make sure that there's more of a balance for U.S. origin on the products when you get into the bills and material, the bombs, and going through and saying we want to have the U.S.

having more of uh a teeth to the actual product that's being imported, it's not solely manufactured in Mexico.

So one of the questions that that that I've gotten in the past is, well, the AIPA tariffs are unconstitutional. What about all these other tariffs? I mean, is there existing litigation? Obviously, we don't need to go through the myriad of different tariffs, but I mean, is it possible that these could all be reversed to in the future, or is the likelihood of that a lot less?

I don't think so. I think it's really the emergency powers that people thought that was a little bit aggressive are the ones that were challenged. The ones that have gone through formal investigations, those are those are not even really being changed.

And those have been enacted by Congress, and frankly, if they need to be changed, they need to be changed by Congress. And not surprisingly, even if the Democrats take over both chambers, President Trump is not going to sign something that reduces his power from a tariff perspective. So just to kind of manage expectations of listeners that even if the Dems take over, they're not going to be able to repeal all that historical authority related to the tariffs.

Agreed. Yeah, if you're if you're a if you're a tax director, if you're a transfer pricing practitioner, if you're uh uh head of customs and trade for a company, uh plan on having the tariffs being around for the next, not only this administration, but the next and then maybe the following administration as well.

All right. So let's move it back to supply chains. You already hinted at this. So have multinational companies moved beyond reacting to tariff announcements and started fundamentally redesigning their global supply chains? And what are you seeing in practice? How are they how are taxpayers practically trying to address and ease some of the burden with respect to these tariffs?

What companies are doing is examining their supply chains and doing selective de-risking. So they're going through and saying which are the products that are impacted the most and how do we de-risk that? And then there's a different mechanism, not only from a tariff mitigation perspective, but in a policy perspective.

And they're not, you know, doing wholesale reshoring, they're doing selective reshoring. So there's various agreements that were announced over this past year since we last talked. Um let's take the pharma industry, for example. There was 26 drug makers that have signed what's called a most favored nation deal with the White House so that they are not going to be tariffed on any goods today and going forward for select products going through January 1st of 2029, I believe.

Okay. And these are big deals, but in in exchange for that, they have pledged to onshore manufacturing to a certain degree of their um products. And so there is selective wholesale reshoring for that. And it's for specific products that they want to mitigate the tariffs for. We also have technology companies that are then pledging to onshore certain types of manufacturing operations and giving the quantity of dollars to be invested in the United States for that manufacturing in exchange for tariff relief.

So these sort of what we call White House deals are being made, but they're company by company. This is not like an industry-wide. And so that's what companies are really looking at that. And they're looking at you know which components are the most exposed to in their supply chain, and really then thinking through you know what that impact is.

And if you think about that, now going back to why we're sitting in this room in Chicago, home of the Chicago Cubs, is that I know I had to get that.

And the White Sox, but keep going.

You know what? And that would a great team. We didn't even talk about that. We we should. Focus, yeah, focus, focus. So if that happens, all these companies are making changes to their supply chains. What does that mean? What's the tax planning on that? Yeah. What was the tax planning pre and post? Functions, risk, and tangibles.

The key things we look at from a tax and transfer pricing perspective, these are gonna need to be rethought of not only from what it is from supply chain, but from a tax transfer pricing and customs impact. So, customs impact, we're gonna be reducing that for those products. But what does that mean for those other areas?

And that's the piece that is the next, like getting ahead of that's gonna be a big piece for these tax directors.

Yeah, and then the other thing that I'll add with respect to some of the disruption from a supply chain, the tariffs perspective, and some of these companies talking about onshore manufacturing. Obviously, there were a number of provisions that came out as part of the one big beautiful bill of act, OB3, that provide very good direct tax incentives as well.

So it's the confluence of how do you know taxpayers try to avoid the tariffs and then also take advantage of some of the incentives to try to increase manufacturing, and so certainly seeing some activity there. Um, all right, so kind of changing topics, you're you're a reform transfer pricing partner, as I introduced you.

Um I have to ask, how are tariffs changing the relationship between transfer pricing, customs valuation, and international tax planning and structuring? And and then I also want to talk about where first sale fits into that.

That's a lot there. As I became part of the customs practice and the customs team and getting into customs impact, there is such a huge overlap with transfer pricing. And and seeing that firsthand has been very impactful in things that seem natural to me, knowing both sides. I was very surprised on how not only practitioners mostly even when it comes to you know a firm like PwC, but especially when we talk about companies, on how there's a huge division between the customs group and the tax and transfer pricing teams.

And being a transfer pricing economist, we always get into these different analyses where we talk about year-end adjustments, transfer pricing adjustments. Oh, are we adjusting things for the three-year, the one-year quarter? Okay, let's make that adjustment, do it at the end of the year and how it's booked.

But those now are very material from a customs perspective. And you know, give you a quick example. So let's say uh a US importer, you know, is importing and declares $10 million of value for goods, and there's a 5% duty. Well, that's $500K. Okay, that's how much the duty's been paid. Let's say there's a $1 million upward adjustment that's made.

Well, that's about $50K of duty.

Upward adjustment being as part of like a transfer price.

Not an audit, you're just saying, oh, I'm gonna adjust it. The limited risk distributor in the U.S. is not earning enough. We need to bump it up by only a million dollars to get them in the range, and they call it a day. Well, guess what that means? That's about $50,000 of duties that should be paid.

But the transfer pricing adjustment is not for one transaction. It typically covers an entire fiscal year, sure. Quarter, and so it's spread among many different transactions. So is it being reported? And if that doesn't get reported, guess what that that's a risk. Yeah. It's a risk that you have because that's actually duties that should have been paid on those goods that you've adjusted up that you haven't adjusted.

So, Doug, we put together um a PWC insight, August, mid-August, August 26th, around that, that talked about this exact matter. So we should put it in the show notes right now.

We can, yeah.

And it deals with how do you deal with transfer pricing adjustments from a customs perspective and vice versa. Because what customs has, like we deal with transfer pricing adjustments in TP, we just do the adjustment and call it a day. In customs, you can also do adjustments after the fact. Okay. It's called reconciliation.

Okay. And but you have to be signed up for the program. And if you're signed up for the program, what you're required to do a reconciliation, going through and making sure the prices are appropriate. And then the customs teams also do this. So think about this. Think about a customs team's forget my example earlier.

Customs makes an adjustment at a company. And they change the price of the actual transactions that lead up to a year, and they do an upward or downward adjustment. But they don't tell tax. They don't tell transfer pricing. Same matters. So the point is as a reform transfer pricing economist that is now in customs, these two groups need to be hand in hand, not only in the adjustments, but also the planning pieces, because there's too much money on the table.

And I'll tell you what, you're going to get audited.

Yeah, that and I mean we're seeing this with pillar two as well. Just the need for these cross-functional teams that maybe historically haven't worked a lot together. And pillar two, it's really about the data and working with the financial accounting folks, and it's just a lot more teaming in a finance that needs to occur both for customs and duties.

Pillar two, just I think that's just a common thread that we're seeing across the landscape. All right, so um you you already mentioned pharma, but I want to move back to pharma, and it's been ground zero for tariffs. Um we heard some news this summer about upcoming tariffs. What should pharma companies in that sector specifically be focused on right now?

That was a big news alert that came at the end of July, July 21st, uh, talking really the focus was on generic pharmaceuticals. So generic pharmaceuticals only make a small portion of the value of the market, but those are the ones that have the razor thin margins. So this is another insight we produced.

We've got to put this in the show notes. But we did some analysis on this. About $223 billion of imports happen a year from pharma overall. We have about $196 billion that deals with the patented products, and then about $27 billion is the generic on patent products. That small sliver of the $27 billion, that's the target of this.

And so what the administration is coming out with is saying that um going August 1st, 2028, so not next year but the year after, there is gonna be a hundred percent tariff on generics. And one year later, August 1, 2029, it'll become 200%. So that 27 is gonna double to be 57 and then 54.

You think there's a presidential election in between those two years? There is. And so we'll see how that changes things.

But it but you as a CFO, I've got a plan with that being known that that might be my cash outlay. Yeah.

Yeah, you can't count on whoever, whatever, whatever the election.

These are big numbers. So you're doubling the with the cost on the import, doubling the price, and that is such a huge number. And again, generics are razor thin. There's no way that the generic market can with withstand this. So companies are now really struggling to say, are they gonna try to onshore the manufacturing of that or parts of it, the most expensive components?

Can they split it up somehow? But that is what's been forecasted and really targeting the generic portion. So it is very interesting to see how that's going, but that is gonna be an impactful piece here. Dotted.

All right, want to move to kind of enforcement. And so are we entering an era where customs enforcement and compliance becomes as important taxpayers, multinational companies as traditional international tax compliance and controversy, and what are some of the biggest risks the taxpayers should be focused on from a customs and duties perspective?

It's bigger than customs and duties, but that's where the enforcement has been big. And on our last podcast, I mentioned some stats about enforcement of how the amount of, let's say, audits that are happening, the number hasn't dramatically increased. It's increased by about 11%. But the magnitude of actual audit recovery by these audits have gone from about 68 million to 34 billion.

68 million to 34 billion in one year. Wow. Okay. That is a huge number. And why? Obviously, we have all the additional tariffs that have happened, but there are things that companies have done to try to find ways to get around them. And why? The pressure that companies have received from the C-suite, from shareholders, from the board saying we have to mitigate the costs here, find ways to mitigate it.

Well, you go through the tried and true mitigation strategies, but there's also things, areas that are a little bit more fungible. I'll give you three of them, that have caused the key components of audits. The first one is origin classification. That's how companies are tariffed. Origin of the goods.

We talked earlier about China. Country of origin China, that's one lever. Then it's the classification, the classification of what kind of good it is that determines how much the tariff is. Those two together, if you change one of them, you change the tariff rate. So do companies say, well, we'll pass it through another country and then say that's the actual country of origin, or they get a little bit vague on the classification.

These are some of the reasons why these audits have spiked on that. The second one's valuation. And valuation is something that we find near and dear as tax people too when you deal with the transfer pricing, but you also deal with these non-tangible areas, royalties, management fees, and these become assists.

What do you mean these become assists? What does that mean? Well, from a customs perspective, the regulations say that if the royalties relate to the actual goods, that should be part of the dutiable value. Companies have made, let's say, strategies to maybe strip that out, thinking that that's how you get out of paying the tariff from a lower declared value.

But really that needs to be thought through and evaluated and make sure that it's not. Documented a reason why when you present it on audit that you know it it's outside of that. And then the customs and TP alignment. That's a big one. Because oftentimes they don't equal each other. And to your point, documentation, why?

Why you're why don't they equal each other? And so I feel as though that it's not just the question should be not just customs, but it's also transfer pricing and tax audits that are going to come from like the first sale structures that are now being implemented that benefit both areas. And now diving into an IRS audit and a customs audit for the same transactions.

Is there because we kind of skipped over first sale earlier, is there a focus uh on first sale from a uh uh controversy and compliance perspective?

First sale's been around for a long time. It's a statute. Customs will love to get that off the books, but it's not. Um so it's there, but basically the audits that happen, they're looking to find a problem with a first sale. First sale, just to kind of go back one step, that means that you're taking the value of the goods one step earlier in the supply chain flow before it enters the U.S.

And that transactional value is what's being used to determine the actual tariff rate from a value perspective. And there's usually an intermediary, a middleman per se. And when you go through that analysis, you declare first sale, you declare that to customs, and then they have to go back one step. But there's a whole set of rules that go into first sale, and it's rules that are not only customs, but you need to work with your tax and transfer pricing folks to make sure you have all of the things done correctly.

Because the audits are being done to dismiss one piece of it, and if they're successful in that, they can actually take away your privileges for first sale and also go back in time if you have done that same error per se at the start of your first sale program. So there's a lot at risk for it. But it is probably dug one of the most impactful in tariff mitigation strategies that are being employed out there.

All right, so we're spending a lot of time here at the conference and every other conference I've been to talking about AI. So uh Chris, tell us about how is AI being used in the trade landscape and what are some of the pros and cons and things people should be aware of.

AI has been a wonderful, scary thing for us in business and particularly customs and trade. Part of the, I would say, challenges you have in customs and trade is the volume of data and the be and being able to prove things out. Most companies, most authorities will use sampling and look at sampling. Through the use of AI, you don't necessarily need to sample anymore.

You have the right data source. You can develop the right agents to go through and do the right checks. So you then have the ability to own your data in a different way. You can find anomalies with your own data, you can find errors of your own data. And if you point it to the right data sets, the right source data, your US customs ACE data, your ERP data, your forwarder, your broker data, bring all that stuff together and see what you're able to do to find where they where things might be missed to get ahead of future audits.

This is great. And you also get to spot opportunities because you also then do the what-ifs. And you know, if the customs folks are looking to say, you know, what are the ways we can potentially mitigate the uh the customs impact, and they go talk with the tax people and the transfer pricing folks, they can have the data at their fingertips if they do this right to help do the what-if analyses.

So those are the pros. The cons, people will trust the results. And that's the part that scares me. And I'm sure you deal with AI quite a bit. Oh, yeah. You run things together, you run a prompt, you get an answer, and then sometimes your spidey senses say, I don't think that answer is right, and you prompt it a different way, and it goes, Oh yeah, you're right.

And you're like, What do you mean I'm right? You can't do that. You can't just say that I'm right when you just told me a different answer. The same thing happens with your own data sets. So it is important, you had a process before to prove things out from a checks and balances perspective. Do not rely fully on AI until you have a backup and make a backup of the backup.

Find ways to make sure you're not using hallucinations. Yeah. But especially when it comes to reporting, because if you're reporting your data to customs and to other areas and you're using AI to do it, that's wonderful. But make sure you're using the right sources and you have another backup way to prove that the overall pie is the same and the slice of the pie is right, and your right results are accurate.

So it is going to be a very big part of the future of customs and trade, not only for taxpayers, but also CBP.

Yeah, I mean that's just good advice generally with AI, but interesting. The hadn't focused as much on the stat sampling and just now that you can just there's no need to sample. I mean, you get access to all the data just creeping through that.

It's great. Absolutely. It is it's a wonderful, scary thing.

Yeah. And and presumably also taxing authorities and governments will be able to get access or arguably could get access to that data and use similar technology, right?

Trevor Burrus, Jr. They absolutely should be able to. It's just a matter of when, because we are talking about the government, and the government operates in different ways when it comes to speed and AI.

Aaron Powell That's very politically correctly said. So so last question for you here, Chris. If you are advising the global head of tax at a large multinational today, what three things would you tell them to prioritize really over the next 90 days, really as we start approaching the end of 2026 here?

The first one I would say is buddy up with your customs folks and get their customs data and bump it against your tax data. Why not? There's nothing that can, you know, it's only to your advantage if you do that. Because if you do not have a very close relationship with your customs team and the customs data, what's being reported, because again, the customs data is different from the ERP data that the you know the tax team's gonna pull and the transfer pricing team is gonna pull, and so it's reported to customs.

It should be the same transactions though. So making sure the values and the amounts and the countries and the legal entities are aligning. That's number one. Number two, well, we're gonna make a transfer pricing adjustment. Be sure to have the customs folks in the room with that. Have them in the room to talk about the pros and cons as you look at the gross versus net impact and also the impact from your arm's length perspective, because it may and probably will change some of the thoughts there, but at least have a coordinated approach.

Then the third one is really going forward. So we talked earlier about some uncertainty with Canada and other countries of what we don't necessarily may know what happens in the tariff environment. Get ahead of the what if planning on that. Do the scenario analysis to say what happens if things go south with USMCA for Canada and Mexico.

What are the options that we can think of from a tax, transfer pricing, and customs perspective? Is there anything we can get ahead of that or not? And if you do those three things, you're really putting your best foot forward.

All right. Well, I'm sure this won't be the last podcast. A lot of developments. Um, look forward to having you on the spring. You know, the other thing that we didn't mention is the collective bargaining agreement for Major League Baseball and whether we could potentially see a uh a strike this year.

So neither our Cardinal, my Cardinals, or your Cubs might be might be playing if there's a strike, which would be unfortunate. But we can be terrible. That would be terrible. So for any of those people listening that have anything to do with that, which are none, like we need to figure out how to keep Major League Baseball and for the fans.

All right. Well, Chris, always a pleasure. Thanks for coming on, always very exciting. Um I I I I don't. They don't let us do predictions around here. So um so we're gonna we're gonna leave it at that. Um so thanks for tuning in to this week's episode of Cross Border Tax Talks. Thank you, Chris Desman, leader of PWC's U.S.

Global Trade Services Practice. I'm Doug McConey, PWC's International Tax Services Global Leader. Stay tuned for another exciting edition of the Cross Border Tax Talks Podcast.

This podcast is brought to you by PWC, All Rights Reserved. PWC refers to the U.S. member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PWC network. Each member firm is a separate legal entity. Please see www.pwc.com slash structure for further details. This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

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