Should importers wait for their tariff refunds, or sell the claims to investors in exchange for early reimbursement? Tony Gulotta, principal and practice leader with the Ryan tax firm, lays out the considerations.
Tariffs imposed by President Trump under the International Emergency Economic Powers Act (IEEPA), have been ruled invalid by the U.S. Supreme Court, and importers are due huge refunds under an order by the Court of International Trade. The problem: They might not see any of the money for a long time – or all of it, ever. Now, though, private equity and investment firms are offering to buy out those claims at a discount.
A good number of companies with refunds due to them are at least asking whether it makes sense to transfer their claims, Gulotta says. “The main concern is timing. They may be willing to take the money now, rather than wait months or a year to get a refund.”
The amount of the discount they would have to accept has been rising. Before the Supreme Court decision, it was in the 10% to 15% range, Gulotta says. But after the Court ruling, it shot up to 23% and now stands at around 50% or even higher.
The high numbers are a result of the political risk that investors would be taking on, he says. There’s even a chance that some importers could get nothing, even though Customs and Border Protection says it’s working on putting a system in place for enabling the refunds at scale.
Money coming back to the importers actually would be considered taxable income, even though the original payments are now considered to be invalid. Gulotta says they would like be considered as “other income,” given that the assessed duties would have been reported as an expense in order to reduce total income, or related to depreciation of fixed assets.
Whatever importers decide, Gulotta says, it will have to be done on a case-by-case basis, depending on their current cash flow levels, sustainability and appetite for risk.