Episode 29: A Look Ahead—Tax Policy & Tariffs Both Here & Abroad
Welcome back to “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies—in an easy-to-understand format. Whether you’re looking to learn more about tax bills, global tax implications, or planning insights for your business, you’re in the right place.
Listen every other week for more from our guests, which include everyone from university scholars to industry professionals to the firm’s experienced leaders.
On this anniversary episode, we’ll look forward on tax policy and tariffs with a special perspective from the United Kingdom. We welcome International Tax Partner Catherine Hall with Forvis Mazars Group, along with Lance Jacobs and Michael Cornett with our Washington National Tax Office, to share their insights.
If you have any questions or need any assistance, please reach out to a professional at Forvis Mazars.
Transcript
IRIS LAWS
On this episode, we're taking a look forward, both from the U.S. and abroad. We're going to be going through tax policy and tariffs with a special perspective from the UK. From your one stop from tax updates and analysis, I'm Iris.
DEVIN TENNEY
And I'm Devin.
IRIS AND DEVIN
And this is “Tackling Tax.”
IRIS LAWS
Welcome to this very special edition of “Tackling Tax.” We're here with our one-year anniversary of the podcast and we are so excited to welcome our very special guests to focus on what's next in the world of tax policy and trade, both domestically and abroad. So, without further ado, let me introduce you to our very esteemed panel.
We have Lance Jacobs, who comes to us; he's our state and local tax specialist with our Washington National Tax Office. He is the one member of our team actually in D.C., despite the name of our team. So, thanks for being here.
LANCE JACOBS
Thank you for having me.
IRIS LAWS
And then we have Catherine Hall, who is our very special guest today. She is coming to us all the way from the UK and she is with Forvis Mazars Group. She is a tax partner and specializes in cross-border tax advice including international tax, corporate tax, all of the above, you name it. And then of course we have Mike.
He's back. For the followers of the podcast, you know him and love him well. He is our trade and international tax specialist here at WNTO, so it's good to see you in person Mike.
MICHAEL CORNETT
Good to see you as well, Iris. Thanks for having me here.
IRIS LAWS
Great. Well, this time last year, I think all we were talking about was the One Big Beautiful Bill Act, right? I mean, regardless of where you were, if you were talking about tax, that was what was going on. I don't know necessarily that I have heard of a similar piece of tax legislation, something that we think will be sort of broadly sweeping and affecting most companies in the U.S. now, but is that true? Is there something on the horizon?
MICHAEL CORNETT
Yeah. No, this year is definitely a much quieter year than last year, where OB3 was kind of the talk of the town throughout the whole year. This year, very much more quiet, very little on the horizon in terms of that size.
DEVIN TENNEY
So, no big tax bills on the horizon, but what about reconciliation bills? I've been hearing some rumblings about, like, a reconciliation 3.0?
MICHAEL CORNETT
Yeah, there's been some talk about reconciliation. I mean, there was reconciliation 2.0, which just got signed into law, but that had nothing to do with tax, that dealt with funding of the government. 3.0 has been mentioned by the president. The House has talked about 3.0. But, given that this is an election year, time is short. The House goes out on recess, you know, pretty much the whole month of August as well as October. The chances of a reconciliation bill are probably slim this year, but there is still hope, I guess.
IRIS LAWS
And I guess, you know, thinking about the rules, it is possible to have a third reconciliation bill this year?
MICHAEL CORNETT
Yeah, it is possible. The question is one of timing. I mean, they could try to do something here by the end of July, which would be a very short time frame. They could do it after the mid-term elections. Again, very short time frame of about six weeks...
IRIS LAWS
Right.
MICHAEL CORNETT
...before the Congress went out. So, while it's possible, unless they really start moving quickly to at least lay out the framework, it's going to be very difficult.
IRIS LAWS
And I mean, I guess the other option would then be a standalone bill, correct?
MICHAEL CORNETT
Yeah. Standalone is probably one of the better options out there. There's been a couple bills I think people have talked about. The biggest one they just had a hearing on last week, which was dealing with taxation of digital assets. I think that's probably got maybe the most legs, the potential to have bipartisan support on a standalone basis.
IRIS LAWS
What are some of the other topics they're throwing out there?
MICHAEL CORNETT
Some of the other topics. You know, there's been affordability. You know, that's been a buzzword here in D.C. A lot on the housing side about trying to encourage investment in houses, how people sell their houses and have less tax to pay on the gains. That had some steam, but it does seem to slow down a little bit on that side.
So, I think that's really, those are probably the two primary ones that could maybe make it through on a bipartisan basis.
DEVIN TENNEY
Now, you had mentioned the elections maybe serving as a roadblock for a reconciliation bill. Are there any other roadblocks that might pop up in way of these standalone bills or just in general?
MICHAEL CORNETT
Well, you know, part of it is, unfortunately, the tense nature between the two parties. Even though they might do something bipartisan, it’d still have to get over the hurdles of getting everyone together. You know, there's been a lot of talk about, you know, technical corrections maybe being something here because there were some things put out recently in a blue book by the Joint Committee on Tax.
But again, the Democrats are not going to be in a mood to help the Republicans fix technical corrections and you can't do it in reconciliation, so it has to find another vehicle. And about the only other vehicle where you might get tax attached would be a funding bill, because they are going to have to fund the government again for next year, which means probably another continuing resolution.
IRIS LAWS
So, even though technical corrections to us tax practitioners seem to be, you're just, you know, tweaking the tax law that was already passed, it's seen as more of a divisive thing?
MICHAEL CORNETT
Yeah. Because it does two things. One, it means that Democrats probably would have to help the Republicans pass it. Two, you can't do tax corrections, technical corrections in reconciliation. And then people also don't want to really sort of rehash the whole OB3 and have it become an election issue.
DEVIN TENNEY
So, we may not be looking at any big bills, maybe some technical corrections. What about other guidance? Are you saying anything from Treasury, IRS in the pipeline?
MICHAEL CORNETT
Yeah. Well, Treasury and IRS in the pipeline are definitely working on OB3-related matters. A lot of the provisions were international tax in nature last year, and a lot of them went into effect this calendar year, 2026. There was a lot of guidance promised there. Also on the domestic side, qualified production property, which is that bonus depreciation for, you know, real estate, buildings, is definitely on the guidance list.
They put out a notice, but they're going to have to put more guidance out for people to really take advantage of that. Of course, something near and dear to Iris’ heart is clean energy. You know, there was a court case that just overturned some of the guidance they previously published. So, we'll have to see what the Treasury and IRS do, whether they will appeal that decision or whether they'll put out some additional guidance.
IRIS LAWS
But all of this is under the landscape of the midterms. Do you want to speak a little bit about what the current landscape is in Congress, and what's maybe up for who we think might change seats and that background?
MICHAEL CORNETT
Yeah, I provide a little color. I mean, right now, you know, the House is Republican-controlled, you know, very small majority. Historically, the president's party in power does lose control of the House in the midterm elections. So, that is expected to happen here, that the Democrats will take control of the House. The Senate is a little tougher. The Republicans, again, have a small majority—four seats.
There's a few seats maybe that are going to be crucial to look at; probably Ohio, North Carolina, we'll see whether Maine turns out to be that way or not. But you know, to flip four seats in the Senate to take control is going to be very difficult. If they only get three, the Republicans still have control of the Senate because the vice president is the tie-breaking vote.
So, likely it will be divided government. House, I think most people would say Democrat; Senate will probably stay Republican. And then of course the president is Republican.
IRIS LAWS
So, it could go either way. But we're not talking like some landslide blue wave or anything like that?
MICHAEL CORNETT
That's kind of the feeling, even though people talked about that earlier in the year, less likely now, partly because of the different redistricting efforts that took place in the Republican states as well as the Democrat states. There's just not as many seats open like there used to be that can flip. But again, the economy drives so much. We'll just have to see really where the economy goes come September or October because, you know, you might get a few surprises because people just want to vote because they're unhappy with the economy.
IRIS LAWS
Well, that's a lot for federal policy, where we're going both for Congress as well as the IRS. I'd like to shift to Catherine for a minute to talk a little bit about tax policy abroad, maybe what you're seeing in the EU and some trends that you might be identifying there.
CATHERINE HALL
Yeah, thanks, Iris. I think there's a general trend towards a couple of things actually. One, we've seen over the last few years, introduction of guidance around and requirements around invoicing and e-filing increasingly being relevant across lots of jurisdictions. And you might think, well, why does that matter, that's not a tax issue per se? I mean, it's under the guise of indirect taxes. So, it's a VAT-driven policy that is called VIDA, V-I-D-A.
And the requirement is for all EU-member states to require and have a process by which companies can e-invoice by 2030. We're seeing a pace of change that's slightly different depending on the country. Some have already moved forward, some are moving forward imminently, and even though we're not in the EU anymore, the UK is also introducing a similar provision just to continue alignment across the indirect taxes.
So again, it's a tax point but it really plays to the need to be ready for that change. And a lot of the conversations we're having with our clients is actually do your processes and systems—from an accounting perspective—and the data enable you to meet that?
So, I guess it's more of a forewarning to say if you haven't already thought about it or had a conversation, the earlier you do that, the better. Because everything is going to be posted through these portals. The second part to that probably really carries on that trend is actually what then the tax authorities are doing with all of that data?
IRIS LAWS
Sure.
CATHERINE HALL
So, we are seeing a shift towards slightly more data-driven tax inquiries, tax audits, an increase in potential controversy, and being much more focused about how tax authorities are using the data that's going through that e-filing, e-invoicing portal to be much more targeted in the questions. In the UK, for example, we've seen this sort of a sudden uptick relatively recently in inquiries again.
We saw a bit of a downturn, certainly, post-COVID; they were around specific issues. Now it's a broader opening of general inquiries into certain aspects of the taxpayer's business. But that increasingly is covering everything from direct taxes through to indirect taxes and employment taxes.
So, we're seeing multi-pronged questions being asked. So, I guess what that means is you need to be prepared as a business and make sure you have the data in place, because if the tax authorities are using your data, you need to make sure that you're looking at it to understand what patterns it's telling you if the tax authorities are going to be asking questions about it.
DEVIN TENNEY
Are there any perceived benefits for clients participating now in this e-invoicing program, or is it really just information gathering so that the government has more information? Or is there actually something that's going to be helping out taxpayers as well?
CATHERINE HALL
Well, it's all in the drive of kind of increased awareness, increased data for tax authorities and sharing of information. It does, however, give businesses an opportunity to get their house in order internally as part of the general drive for looking at standardization of data, improvement of processes, looking at technology or AI solutions for how you do your tax compliance and reporting. Being forced, if you like, to look at this as part of that component output, gives you an opportunity to have that conversation.
But the intention around the e-invoicing in particular is it's the only way that you're going to be able to both invoice your customer base and receive customers’ invoices into you. So, it is going to be a requirement. And we are seeing quite a few businesses who are kind of hoping it will go away, but that absolutely is not the case.
MICHAEL CORNETT
Yeah. And I think just one thing I would add, you know, even though this may be a European project, it will impact U.S. multinationals because if you're selling overseas, your subs, if you're doing it through a sub, are going to have to comply with this. If the U.S. company itself happens to be the one taking on that responsibility, they're going to have to do this as well. So, it's not just—you can't ignore it if you're a U.S. company who's doing, you know, business over in Europe, in the UK.
CATHERINE HALL
Yeah, absolutely. And there are lots of solutions, you know, through depending on what ERP system you’re using, certain governments have set up portals that you can register for. It just requires a little bit of planning. You can't simply assume that you're going to be able to switch on day one. And so, that's kind of the point exactly. It’s relevant to everyone if you're operating in or with anyone in the EU and the UK.
DEVIN TENNEY
Mike, to that point, do you foresee that the U.S. might adopt a similar program here in the U.S.?
MICHAEL CORNETT
Well, I mean, that might be a better question for Lance a little bit because it's, you know, sales tax is kind of the rough equivalent of the VAT. And I think you can speak better to the sales tax, what you're seeing.
LANCE JACOBS
So, it's hard to get all the states to act uniformly. Sales tax is generally balkanized by state. And there are certain national uniformity initiatives that have been adopted by some, but not all of the states; by many, but not all of the states. So, it's hard to imagine that something like that could really grab hold. If you think about sales tax, you might have a particular product or service that you're selling that could be taxed many different ways by many different states and that lack of uniformity; it's hard to imagine the states agreeing as a whole to something like that.
MICHAEL CORNETT
Yeah, and I think kind of just finishing up from a federal perspective, you know, we don't have a federal sales tax or federal VAT. Now, there are those who are advocating, and have advocated over the years, that maybe that is what the U.S. should do is going to a consumption-style tax. So, we'll see if that continues to play out.
Every year, there seems to be one or two more people who jump on that bandwagon. And so, we'll see if that starts to happen. Because, you know, part of what has to happen in the U.S., you know, we do have a widening gap between our deficit and our revenues. And the only way you go start to get more revenue is you probably have to put in some form of a consumption tax eventually.
IRIS LAWS
Hot take. We'll see what happens with that. So, super interesting conversation, something that I have not heard talked about a lot here in the U.S. And what an opportunity for AI, to your point, right? What other sort of, are there any other big pieces of legislation or other sort of moves abroad that you're taking particular attention to?
CATHERINE HALL
You know, we're expecting, kind of imminently, the launch of what's called the tax omnibus by the EU. They issued some consultation process earlier this year with the intention being to simplify existing taxes and closer align some of the other areas of anti-avoidance around things like CFCs, anti-hybrid legislation that exists, ATAD II, to align more closely with Pillar Two.
So, it's taking kind of the complexity that has grown in international tax and trying to simplify it. That said, simplifying all of those taxes across all of those member states is in itself not a simple task. And so, we're waiting, you know, a lot of people are waiting with bated breath to see what's actually in the omnibus when it's released.
Now, what you can say is it's going to take a really long period of negotiation. When we saw how long it took. Remember we were looking at pillar one and pillar two, this has got to be ratified by every single member state.
So, there's going to be an intense period of discussion. But that, for me, is again an indication of the direction of travel is, okay, we have all of these pieces that are applying across a pan-European basis. How do we get to the point where we can simplify? Because the reality, of course, is whilst there are those directives and there are those initiatives, often each jurisdiction will apply them locally in a slightly different way. So, this is an intention to bring it to the point of more standardization.
But so, yeah, watch this space to see what that looks like when it comes out. Because I'm sure there were many, many consultations. The ones I've seen have been quite vocal about the challenges that that will bring in itself.
IRIS LAWS
All right. I think that's a wonderful discussion of what's happening across the pond. Bring it back home for us though, Lance. In SALT world, state and local tax world, what do we have going on?
LANCE JACOBS
Okay, so as you guys know I love my musical references. So, I'm going to talk about California. And there's some great songs about California. So, I'm going to break California into two sections if you will. The first section I'll call the “California Knows How to Party” section...
IRIS LAWS
There we go.
LANCE JACOBS
...which there was a recent case that was decided. It came down as a preliminary decision in late February, and a trial court judge in L.A. County finalized it in April. Because there was a statutory under the judicial system in California, it is a temporary decision. And then the FTB, the Franchise Tax Board, was allowed to lodge some protests, which the judge ignored, and they finalized the decision in April.
The FTB had either a 30 or 60—they had a 30-day period, excuse me—with which they could decide whether they wanted to appeal that decision. And they chose not to because they didn't want to make it a bigger case that could have potentially broader applicability. So, let's talk about what that case is. As a matter of background,
California is a single sales factor state with market sourcing. And states tend to do that because it's a way of imposing more taxes on companies that are based outside of the state and less taxes on businesses that are based inside the state. So, Smithfield, which is an end-to-end pork producer, they have hogs that they grow all across the country and they slaughter them and then they end up on your plate, essentially.
They challenged the applicability of this single factor apportionment to them on a couple of grounds. The first was that they technically qualified as an agricultural business, which entitled them to three-factor apportionment, since most of their property and most of their payroll wasn't in California, that would lower their taxes, and they won on that ground.
But the judge also said even if even if they had lost on that ground, they would have won on the theory that requiring them to use single factor as opposed to three factor distorted their taxes, and it made their taxes about six times higher than, if my memory serves, six times higher than what it should have been if they were allowed to use three factor. And they kind of focused in part on the fact that hogs need corn to be fed, and corn doesn't grow in California.
So, Smithfield did not really have the geographic flexibility with which to grow corn and raise and slaughter hogs in California. And that was a big portion, or a big part, of why they said that, you know, single factor was distortive. So, I think there is kind of a war on single factor in this country, especially by out-of-state interests.
Everyone loves single factor if they're in-state and hates it if they're out of state. There's a little bit of a war on single factor in this country. So, I think businesses should be looking for opportunities. It's not a one-size-fits-all. It's not something that's for everybody. But under the right set of circumstances, there could be opportunities for businesses to seek what we call “alternative apportionment” in order to be able to use that three factor where it might advantage them.
Obviously, you wouldn't want to try to take that position in the state where it wouldn't advantage you. But there may be an advantage to arguing for alternative apportionment. So, I suspect we'll see a raft of cases over the next, especially because California did not appeal this case so, it didn't have broader precedential value. But people are going to try to take that to the next level, if you will, and they will be seeking alternative apportionment for their businesses.
LANCE JACOBS
So, that's the good in California. That's the “Knows How to Party” part. And then…
IRIS LAWS
So, before you move on, I have a few questions. So, how many states have single factor apportionment? Like, are we talking, you know, a high number that would be subject to this potentially, or...?
LANCE JACOBS
That's a great question; I want to say in the mid-30s have it.
IRIS LAWS
So, a lot?
LANCE JACOBS
Yeah, I don't know the exact number. But I think the number of—and I confuse sometimes single factor and market sourcing a little bit—but I think it's in the mid-, I think it's in the mid-30s for both.
IRIS LAWS
Okay. And then I guess just thinking about our listeners and they're trying to say “hey would my business apply,” right? What kinds of businesses do you think might have this kind of argument? Obviously, you mentioned agriculture, but the primary factor you're talking about is geographic inflexibility, right? So, what does that mean for industries.
LANCE JACOBS
So, we don't know; it's to be litigated. But to me, it means that if your business is tied to a certain geographic location and can't be located in California or wherever it might be, you have that same argument that it's distortive to go to single factor because you can't kind of flip it on its ear and get the benefit.
So, anything where you have a certain degree of geographic inflexibility, you know, I'm thinking where you're a manufacturer and you have to be close to, you know, the business that you're selling your finished products to that's going further down the production line. So, if you're an OEM that's selling to automobile manufacturers, I don't think if the manufacturing is occurring in, let's say, Illinois, although I'm not sure there's a ton of auto manufacturing in Illinois.
You can't locate your manufacturing necessarily in Washington state, because the costs of shipping, what might be a big piece of equipment is too prohibitive. So, I think you're kind of bound to be around the Illinois geographic area. So, that's an example. I think that's probably an example of geographic inflexibility. To me, another one might be if you're serving federal or state and local governments and requires, you know, you're physically serving the government at a particular location, you're providing, you know, base security to the, or augmenting base security at an Army base. Well, if that's in Kansas, it can't be in California, right?
IRIS LAWS
Right.
LANCE JACOBS
You can't do that remotely. So, to me, those are kind of the things that I'm looking at right now. But I think this is, over the next however many years, and it'll probably be 10 to 20 years, there will be cases that are going to be litigated on this and we'll see that there's going to be further refinement and maybe a reversion back to three factor.
IRIS LAWS
So, that's the “Party.” That's the...
LANCE JACOBS
Yeah.
IRIS LAWS
...the top half here.
LANCE JACOBS
Okay. So, the bottom half I would say is, The Mamas and The Papas, I think, sang in “California Dreaming” all the leaves are brown and the sky is gray. I read today that I think the California billionaires’ tax had got enough signatures that it's going to make it on the ballot in November. So, that's going to be super interesting.
That is a net worth-based tax. It's allegedly going to be one time only. We'll see. As the legislation is drafted and has been proposed to the AG in California, it is one time only. It's potentially got a little bit of a sliding scale; if your net worth is more than a billion but less than $1.2, there's a little bit of sliding scale and increases by, I think .1% for every $20 million that your net worth is above $1 billion, and then it caps out at $1.2 billion.
There are complicated rules about trust assets and passing things to family members and attribution; all sorts of complexity. And, you know, I think you can pay that tax over five years if you have liquidity issues. But, you know, it's going to be interesting to see if that passes. It's going to be interesting to see how they implement it. And then the regulations will be very important as well.
DEVIN TENNEY
Billionaire, big B, what kind of billionaires who are we actually talking about? Are we talking about billionaires that are, you know, have a tax home, live, residents in California that are doing business in California? How far is that reach?
LANCE JACOBS
That's a great question and I should have clarified. Thank you for asking it, Devin. It applies to billionaires who were living in the state on January 1, 2026. So, that, if you were living in the state at that point, and I think there are a bunch of well-known California billionaires who were aware of this coming and got out of Dodge, so to speak, so they were not considered residents on that date.
So, that's the big date. And then the valuation date for your net worth is, I think, December 31 under the legislation. And there's all sorts of complicated rules on valuing closely held businesses and all sorts of; obviously publicly held securities are pretty easy to value because you have it, but there's all sorts of complicated rules on valuing closely held businesses and other types of assets as well.
The other thing I would say is this is kind of a trend that we're seeing in the country where there's more of a “tax the rich” and it's nationwide. New York City just passed—well, New York State, as part of its budgetary process—just passed a five-year tax on what they're referring to as a “pied a terre tax,” which is people who have second homes in the city.
It's incredibly complex. It's being implemented in two phases, largely because condos and co-ops in New York are massively undervalued. So, the first phase—they're undervalued for tax purposes, I should say. So, the first phase, as it respects condos and co-ops, is they're going to tax those. If the value of those, the assessed tax value of those, is greater than $1 million its potentially subject to the tax.
Single family homes or townhomes and the like, that's a $5 million threshold. So, that's ‘til 2028, I think. After that, it's going to be $5 million for everybody, but they're going to try to use market valuation for condos and co-ops. I question whether they're going to be able to get a system in place in two years to be able to market value, you know, condos and co-ops in that short time frame.
DEVIN TENNEY
Do they have an estimate on how much revenue they can actually raise from this tax and have they earmarked how they're going to spend it?
LANCE JACOBS
I don't know those numbers off the top of my head, but, you know, other states that have kind of; Washington state just passed its very first personal income tax. They're calling it a millionaire's tax that, I think, starts in 2028. Rhode Island has, I think, some legislation considered on a millionaire's tax as well. There's rumblings in Massachusetts.
So, I think there are a whole bunch of other states as well that are considering, you know, this kind of surcharge on high net worth or high earning individuals.
IRIS LAWS
Well, that's a lot going on in the states. We've heard from fed, we've heard from abroad and we've heard from the state. So, let's talk about the one topic that brings us all together: tariffs. Our favorite topic here on the podcast.
MICHAEL CORNETT
Do we have to?
IRIS LAWS
I know.
DEVIN TENNEY
We have to have our “Tackling Tariffs” segment, I'm sorry.
IRIS LAWS
Yeah. You know we are focusing today on sort of what's next. Right. We've rehashed the refund process on this show and talked about how we've gotten to where we are. I do want to focus a little bit on those, looking ahead and thinking about what's going to apply to me, you know, next month, a few years down the road. What tariffs do you think will be here or will there be any?
MICHAEL CORNETT
You know, I think there’ll probably a couple things. I mean one, the tariffs under Section 122, which are currently in force, you know, they do go away on July 24. The appeals court put a stay on the Court of International Trade saying they were unlawful. So, chances are they're going to be found to be lawful. The president has not asked for an extension from Congress.
So, the theory is it's probably not going to happen at this point. So, you're going to have to find a replacement because come July 24, 10% tariffs are gone.
DEVIN TENNEY
And just remind us, what's that 10% tariff on?
MICHAEL CORNETT
I would say everything, but there are exemptions for it. I mean it really depends on the good. But it was kind of a replacement for the IEEPA tariffs.
DEVIN TENNEY
So, it's a fairly broad tariff.
MICHAEL CORNETT
Fairly broad category. And now they've just announced that they completed one investigation under what they call Section 301 tariffs. That was based upon forced labor. You know, who was maybe not doing enough to prevent forced labor in their product streams. There they’ve proposed two rates; one, a 10% rate for a small number of countries, which does include the UK, and the other rate, which is 12.5% on the broader base.
So, that's only 60 countries there. So, that is now going through what they call the hearing process, or will go through the hearing process here soon in July. If those go into effect, it'll probably be closer to probably really the end of July/early August before they'll go into effect under the 301. So, those are the ones that have probably most immediate impact.
There are some other 301 investigations going on like excess capacity where people are dumping, you know, products supposedly in the United States. So, we'll see where those go. You still, of course, have section 232 tariffs in place for steel, aluminum, copper. But there are exemptions building for those as well because, you know, they're trying to not impact the economy as much. You know, when you're charging the tariff on a good that you just can't make in the United States, it doesn't seem to make a lot of sense.
IRIS LAWS
So, you know, obviously, it's been in the news a ton here in the U.S. about what the administration is doing and implementing. What I'm less aware of, and sort of interested in, is the perception of this abroad and sort of how y'all are taking it and what your reaction is to all of the changing landscape here?
CATHERINE HALL
I think it is fair to say it's been in the press quite a lot outside the U.S. as well, and certainly at the point where they, the tariffs, originally were changing quite regularly, I think that intensified lots of conversations and trade deals that were trying to be held. You know, it's helpful to have the stability. It's become, I suppose, less of a headline, there's plenty of other things that are taking over right now.
But it definitely has triggered trade discussions, very intense trade discussions between the UK and the U.S., but also, from a UK perspective, the UK and other nations as well. Just looking at alternatives and I would say that's true of everywhere, you know, looking really at what the alternatives are. I mean, it absolutely has not stemmed the desire or the need to invest into and expand into the U.S. market. It's still an enormous market.
You know, we've done things like our C-suite barometer and our C-suite Pulse Survey, that intention to expand into the U.S. is still very high on the list of C-suite priorities. I guess it just means that some businesses who are more directly impacted by it, particularly faster growing businesses where that impact on cash flow is much more acutely felt.
It's just looking at alternatives. So, we've had conversations with clients who’ve said, well, okay, we may not come in and set up and establish ourselves right now. We may look at alternative ways of importing and selling through platforms, for example, and see how that goes before we make the investment decision. So, I would definitely say it's having an impact on how businesses are looking to expand, but it actually has not taken away the need and desire to come into the market.
IRIS LAWS
So, remind me, we had talks about a treaty, right, with the UK and then did it ever get in place? I don't remember.
MICHAEL CORNETT
Well, I mean, there was definitely a trade agreement reached. And basically, it has kind of gone into effect and it was at 10%. So, you know, really the 122 hasn’t upset that, it's kind of replaced, I guess, the treaty in terms of the rate. I mean, there's still quotas on automobiles and things of that nature that are in effect from that agreement.
And again, the UK is on this 301 at 10%. So, nothing's probably going to upset the agreement. They would just like to probably renegotiate some parts that relate to steel and I think automobiles. So, I think those will continue to happen during the year. But the rates pretty well set, I think, for the UK at 10%.
IRIS LAWS
So, speaking of treaties, I think one thing we're all going to be reading about later in the year is the USMCA renegotiation. Can you remind us what's going on there?
MICHAEL CORNETT
Well, they've had discussions mainly. It's been between Mexico and the U.S. They really have not had as many discussions with Canada at the moment. You know, they need to come to some resolution hopefully here by July. If they don't, you know, the agreement, you know, can continue in force for a little while longer, but any country can pull out of it at any time over the next 10 years.
So, it'll be interesting to watch. I mean, like I said, some progress is made. I don't think they'll reach an agreement obviously by July, which is the date they're supposed to, in which case, unless somebody pulls out, it'll stay in force really for another year, unless somebody pulls out. I mean, it can stay in force, I think up to 16 years, I think.
IRIS LAWS
Okay.
MICHAEL CORNETT
But, you know, there's questions whether it'll happen. And Canada is the one that's really feeling, I think, the squeeze right now, whereas Mexico has been much more cooperative with the U.S. on these matters.
IRIS LAWS
So, we'll have to see where this all lands.
MICHAEL CORNETT
Yeah. And I think just the last topic I’ll just quickly touch on is, you know, of course importers of record arguing the refunds. And we've talked about that plenty of times. It's the question is what are those importers of record now doing with those refunds? Are they going to pass them back to their customers? And so, there's a lot of news about that.
A lot of, I think, lawsuits starting to happen, whether there's any legal theory they can stand on to get it. You know, people are looking at their contracts. You know, I think the hardest thing is if you're one of those importers of record and you're planning to pay it back, unless you separately stated the refund on an invoice to your customer, you're going to have to come up with a solution of how you're going to do this.
IRIS LAWS
Well, that's one thing that our listeners need to pay attention to. I'd love, you always come down to things and you have like top three recommendations, top five recommendations. So, if you're telling me that tariffs are here to stay, whether it be 301, 122, what have you, what are your three, maybe two-to-three recommendations for how folks should plan on mitigating those tariffs moving forward?
MICHAEL CORNETT
Well, I think, you know, from a mitigation standpoint, I mean, I think, you know, you're going to want to confirm your country of origin of your product. I mean, a lot of, China is a high tariff country. A lot of, you know, maybe games were played about whether China was a country of origin. So, I think you want to make sure. I'm looking at, can I, if I'm in a higher country, can I move it to a lower country and get my product there?
Tariff classification codes are probably very prevalent, because there are a lot of exemptions. And so, it's going to take time to work your way through all these exemptions. And then while it's still available here in the U.S., if you have the right fact pattern, first sale is certainly an option. I mean, there has been discussions. A bill has been proposed to do away with the first sale concept, but again, nothing's probably going to happen on that front. I mean, Congress hasn't done anything with tariffs really for almost a hundred years now. So, I don't think they’re going to do anything to first sale.
So, you definitely want to spend time trying to look for ways to mitigate those tariffs. And those are probably the three major areas. I mean, unbundling the services—I'll give you four. I'll give you a fourth one. It’s, you know, just making sure your contracts are just for the good and not goods and services, because a lot of times you pay contracts and they have services embedded them, or you have inappropriate costs included in them like packaging costs.
IRIS LAWS
Warranties.
MICHAEL CORNETT
Warranties, delivery fees, which maybe shouldn't be in there. So, really looking at your valuation, I guess, is what you should say when you're talking about unbundling, you do have the right cost elements in that cost that you're going to report to customs. Because the president did issue an executive order last week, week and a half ago saying they're going to tighten up on importation. They're going to make domestic importers of record, you know, maintain better records. They're going to try to cut out foreign importers of record is what I would call it, by making it much more difficult for foreign importers of record to be the one who's on record in dealing with the CBP.
Not that they can't be, but it's going to be more requirements. But I think that's a topic for another time.
IRIS LAWS
I have to say, it sounds like we need to talk to our brokers that are listening a little bit there. Well, thank you all so much for joining. This was a fascinating discussion and we hope to have you guys back soon.
MICHAEL CORNETT
Thank you.
LANCE JACOBS
Thank you.
IRIS LAWS
And that's our show. Thanks for joining. Be sure to like and subscribe for the next episode. Until next time.
ANNOUNCER
The information set forth in this podcast contains the analysis and conclusions of the panelists based upon his, her, or their research and analysis of industry information and legal authorities. Such analysis and conclusions should not be deemed opinions or conclusions by Forvis Mazars or the panelists as to any individual situation, as situations are fact specific.
The listener should perform their own analysis and form their own conclusions regarding any specific situation. Further, the panelists conclusions may be revised without notice, with or without changes in industry information and legal authorities.