Tariff Refunds in M&A: Who Owns the Value?

A practical framework for evaluating refund rights, transaction economics, and post-closing considerations

Why Tariff Refunds Require M&A Consideration

Tariff refunds are now a live issue in M&A. Following the Learning Resources, Inc. v. Trump decision and subsequent direction to issue refunds, companies can actively pursue recovery through U.S. Customs and Border Protection.

As a result, tariff refunds represent potential cash recoveries tied to pre-close operations, often without explicit treatment in transaction agreements. For buyers and sellers, the issue is no longer limited to eligibility. It is increasingly a question of how refund value should be allocated within the economics of a completed or pending transaction.

Where Transaction Agreements May Fall Short

Many transactions closed during a period when tariffs were assumed to be valid and non-recoverable. In those deals:

• Purchase agreements frequently did not address refund rights
• Inventory and working capital may reflect tariff-inclusive costs
• Quality of Earnings analyses often treated tariffs as ongoing expenses
• Post-close covenants may not contemplate claim pursuit or cooperation

This creates ambiguity, as both parties may have incorporated tariff impacts into pricing, resulting in competing views on who is entitled to any recovery.

A Framework for Allocating Tariff Refund Value

In an M&A context, tariff refunds are best evaluated as a contingent asset, requiring both legal and economic analysis. The following framework can help guide that evaluation.

1. Legal Entitlement

Refund claims are generally tied to the importer of record and must be pursued through CBP’s administrative processes. However, legal control of the claim does not necessarily determine who should receive the economic benefit.

2. Economic Ownership

The central question is whether the value of the refund was already reflected in the transaction.

Key considerations include:

• Whether tariff costs reduced pre-close earnings
• Whether those costs were passed through to customers
• Whether the purchase price reflects tariffs as a permanent or temporary condition

Where tariff impacts were embedded in valuation, refunds may represent a reallocation of value, not incremental gain.

3. Transaction Treatment

The treatment of tariffs in deal modeling is often determinative.

Areas to assess include:

• Quality of Earnings (QoE): normalization vs. recurring expense treatment
• Inventory: inclusion of tariff costs in inventory valuation
• Working capital: whether tariff-related costs were embedded in targets
• Pricing: extent of cost recovery through commercial terms

These factors help determine whether tariff costs were effectively borne by the buyer, the seller, or shared between them.

4. Execution Responsibility

Pursuing refunds requires coordinated effort, including:

• Access to detailed import and entry documentation
• Coordination with customs brokers and advisors
• Timely filings and responses through CBP systems

Post-close, the buyer typically controls operations, but the seller may retain critical historical information. Absent clear agreement, this division can complicate or delay recovery.

5. Timing and Risk Allocation

Refund outcomes may vary in timing, amount, and administrative complexity.

Accordingly, parties should consider:

• Allocation of costs associated with pursuing claims
• Treatment of partial recoveries
• Responsibility for adverse determinations or delays

These dynamics reinforce that tariff refunds should be viewed as a contingent asset with execution and timing risk.

Key Considerations for Transaction Structuring and Review

For current and future transactions, parties may benefit from explicitly addressing tariff refund rights.

Relevant provisions may include:

• Ownership of refund claims and related proceeds
• Authority to control claim filings and strategy
• Cooperation obligations for documentation and support
• Allocation of professional fees and internal costs
• Treatment of interest on refunds
• Approval rights for claim resolution or settlement
• Interaction with indemnities and purchase price adjustments

For recently completed transactions, it may also be appropriate to revisit agreements to assess whether refund rights and responsibilities are sufficiently defined.

Conclusion: From Eligibility to Value Allocation

Tariff refunds are often approached as a question of eligibility. In an M&A context, the more important question is who owns the value.

The answer depends on how tariff costs were reflected in valuation, earnings, and working capital at the time of the transaction. Evaluating refunds through that lens can help align legal entitlement with transaction intent and avoid unintended shifts in deal value.

From Windes

Companies involved in recent or pending transactions should evaluate how potential tariff refunds are addressed within existing agreements and transaction models. This includes assessing importer of record status, the treatment of tariff costs in valuation and working capital, and the availability of documentation to support claims.

Coordination between tax and Windes Transaction Advisory Services functions can help clarify how these items are reflected in financial reporting and income tax treatment, as well as how they are considered in due diligence and purchase price negotiations.

Addressing these considerations proactively can help ensure alignment with transaction intent and reduce the risk of post-closing disputes.