Wolfgang Schoen (Max Planck), Tariffs and the International Tax Order (Jan, 12, 2026), Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2026-01, available on SSRN.

Tariffs – or customs duties – have become a prominent feature of the international tax world in 2025. While their use had been restricted under WTO rules, particularly the GATT, for nearly 80 years, and while free trade had been praised by economic thinking for nearly a century, the current U.S. administration has resorted to a wide range of tariffs for many purposes. Tariffs have been introduced by the U.S. Government to fight trade imbalances, to protect domestic businesses, to stifle investment, but also to pursue non-economic foreign policy goals. Last but not least, federal revenue from tariffs is meant to fill the gap in the U.S. federal budget which has been substantially widened by the “One Big Beautiful Bill Act” of July 2025.

This article attempts to explore the role of tariffs in the international tax order. It explains how tariffs and (other) taxes embarked upon different trajectories during the 20th century, and it weighs the pros and cons of tariffs against the background of trade economics, political economy and international practice. The main thrust of this article is to define the role of tariffs in two different settings: indirect taxation (in particular VAT and specific consumption taxes) and direct taxation (individual and corporate income taxation). From the perspective of consumption taxes, tariffs stand out as a discriminatory tax on imported goods that fundamentally challenge the very concept of non-discrimination and its ramifications. From the perspective of income taxes, tariffs can be conceptualized as placeholders for withholding taxes on profits from cross-border sales of goods. This leads to major questions regarding the tax base, the tax rate, and the ways double taxation can be avoided, including the possibility to grant foreign tax credits for customs duties or to exempt foreign income if the underlying transaction is subject to a tariff in the destination country. The final part of the article is devoted to policy options for the destination country and the country of residence.