From Tariffs to Tax Strategy: Building Resilience in 2026

As 2025 draws to a close, reciprocal tariffs have reshaped the global trade landscape, forcing companies to rethink their supply chains and tax strategies. What began as blanket levies has evolved into complex bilateral adjustments, disrupting the flow of goods and raising costs across industries.

Common responses have included diversification of sourcing and production, cost containment, and a renewed focus on resilience. Many organisations have spread operations across multiple regions to reduce reliance on any single market, while others have leaned more heavily on United States (“US”) sourcing to mitigate tariff exposure. Cost-cutting initiatives have also become a default response to offset the erosion of profit margins.

These operational shifts reveal a deeper truth: diversification is not merely a supply chain exercise. It is also a tax and compliance challenge that requires proactive and strategic management.

Pain Points Companies Face

Organisations generally face three key challenges:

1. Insufficient knowledge of the tax framework in a new location, resulting in the group incurring higher tax costs than necessary.  
2. Integrating new establishments in a way that complements the existing operational structure.
3. Ensuring that changes do not create additional burdens in terms of cost and manpower.

The solution lies in a holistic tax and operational analysis that embeds fiscal strategy into business planning.

Transfer Pricing as a Key Consideration

Transfer pricing is often one of the most critical issues when setting up new entities or restructuring existing ones. Companies must consider:

• How should transactions be priced?
• Should existing models be replicated or redesigned?
• Which structures best align commercial objectives and tax considerations?

Each decision can give rise to additional tax challenges, including permanent establishment (“PE”) risks and withholding tax exposures. The following examples illustrate how a seemingly straightforward pricing question can quickly expand into broader tax and operational considerations.

Manufacturing Expansion

A Chinese manufacturing group plans to establish a factory in the Philippines. Management initially focused only on royalty pricing for technology and know-how. However, due to the absence of a tax treaty between Hong Kong and the Philippines, the group could face additional tax exposure, particularly withholding tax in the Philippines.

As a result, the group explored incorporating a Singapore intermediate holding company to access the benefits of the Singapore-Philippines tax treaty.

In planning the expansion, the group must determine how the new Singapore entity fits into the supply chain, the role it plays beyond tax benefits, and how those functions are documented in the transfer pricing policy. Without these considerations, merely accessing treaty benefits could be seen as treaty abuse by the tax authorities. 

In this context, transfer pricing here is not merely a compliance exercise. It serves as a means to demonstrate the commercial rationale and to integrate tax planning with business strategy.

Trading Operations

A Singapore‑headquartered group that sells its own manufactured products is considering establishing a new subsidiary in Thailand. One of management’s initial concerns is how to structure product pricing; specifically, the transfer price at which the Singapore entity should sell to the Thai subsidiary for onward sales to local customers. An alternative approach under consideration is whether the Thai entity could instead be remunerated on a service‑fee basis, calculated as a percentage of sales, rather than operating under a traditional buy‑sell model.

Beyond pricing, other issues may arise. Depending on the functions performed by the Thai subsidiary on behalf of the Singapore parent, its activities could create a permanent establishment (PE) for the Singapore parent company in Thailand. While most jurisdictions broadly align with OECD-based principles, interpretations may differ, meaning identical fact patterns can lead to different tax outcomes across jurisdictions.

Accordingly, the group must look beyond the mechanics of an inter‑company pricing. The more critical consideration is understanding the broader tax implications and strategically planning around the value to be created by the newly established entity. Commercial objectives, operational requirements, and regulatory constraints must be assessed holistically before determining the most suitable business model. Ultimately, transfer pricing cannot be viewed in isolation; it is inseparable from operational design and tax analysis, and requires an integrated approach to ensure compliance, efficiency, and sustainability.

Sourcing Arrangements

A Korean multinational enterprise sourcing raw materials from a subsidiary in Indonesia initially focused only on applying cost-plus margin for the local service provider. The real challenge, however, was whether procurement activities and inventory handling could create a taxable presence (i.e. PE) for the Korea enterprise in Indonesia.

Structuring the subsidiary as a limited risk service provider without inventory may reduce PE exposure. However, if the Korean parent company retains ownership of goods stored in Indonesia, even on a transitional basis, a PE could still be created for the Korean parent company in Indonesia.

As illustrated above, the group needs to fully understand its operational flows, ownership of goods, and the role played by the Indonesian subsidiary. In some cases, the underlying business model itself may need to be reviewed to safeguard against potential unnecessary tax exposure. The issue is not simply one of setting an appropriate markup for the activities performed.

Transfer pricing choices are never isolated. They interact with international tax rules, PE considerations and treaty access.  What begins as a pricing question quickly becomes a matter of substance, structure and compliance risk. A holistic review is therefore essential, aligning tax frameworks with supply chain strategies rather than treating them as separate considerations.

Beyond Transfer Pricing and Corporate Tax

Customs and indirect taxes are increasingly shaping business models:

Consignment arrangements using bonded warehouses can defer customs duties until goods are released for local consumption. While this improves cash flow, it also introduces additional compliance obligations and administrative costs.

VAT regimes in many jurisdictions often disallow refunds on unused or obsolete imported materials, resulting in stranded costs for businesses.

These challenges highlight the importance of designing tax-efficient models that address indirect tax exposures alongside corporate tax planning.

The Importance of a Holistic Review

Diversification is no longer optional, but it brings a new layer of tax and compliance complexity. Businesses that integrate tax resilience into their operational strategies will be better positioned to navigate uncertainty and capture new opportunities.

• Resilience in 2026 depends on adopting a holistic approach that considers:
• Building cash tax profiles that balance incentives with economic substance.
• Optimising loss utilisation and managing withholding tax exposures.
• Ensuring compliance frameworks support operations rather than creating additional burdens.