In December 2024, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued Notice 2025-04, announcing their intention to adopt the Simplified and Streamlined Approach (SSA) for certain controlled transactions involving the routine distribution and marketing of goods. This approach constitutes the U.S. implementation of Amount B, which the OECD incorporated into its Transfer Pricing Guidelines through the report published on February 19, 2024.
Unlike the piecemeal adoption of Amount B in Latin America—where each jurisdiction decides independently whether or not to incorporate this approach into its domestic legislation—the United States moved quickly to establish a regime that allows taxpayers to opt into the SSA for tax years beginning on or after January 1, 2025, under the rules set forth in the Notice while final regulations are being issued.
How the Election Works in Practice
Notice 2025-04 allows taxpayers to elect to apply the SSA on a transaction-by-transaction basis and for each tax year, that is, it is not a mandatory adoption for all of the group’s distribution transactions, but rather an option that must be evaluated individually for each transaction that qualifies as a “baseline distribution activity,” in accordance with the criteria established by the OECD.
The election must be made for each tax year and filed along with the corresponding tax return, identifying the entities involved and the transactions to which the simplified approach applies.
A particularly relevant technical aspect is that, when the election is validly made, the SSA is treated as the best method under Treas. Reg. § 1.482-1(c) and as a specified method for the purposes of the documentation required by Treas. Reg. § 1.6662-6(d)(2). Consequently, the taxpayer does not need to re-demonstrate that the SSA is the most appropriate method for valuing the transaction, although the taxpayer must prove that the transaction meets the requirements to fall within the scope of the SSA and that the methodology was applied correctly.
However, Notice 2025-04 itself establishes an important exception: when a relevant party (distributor, related supplier, or any of the tax authorities) demonstrates that the CUP (Comparable Uncontrolled Price) method based on internal comparables maintains a higher level of reliability, then that method may take precedence over the SSA.
The Question the IRS Itself Has Left Open
One of the most significant aspects of the Notice is that the Department of the Treasury and the IRS solicited comments on an issue with direct implications for multinational groups operating in Latin America: whether a U.S. taxpayer’s eligibility for the SSA should depend on whether the jurisdiction where the related distributor is located has also implemented Amount B or the SSA in an equivalent manner.
Furthermore, U.S. authorities raised the possibility that, in future regulations, the IRS itself might unilaterally apply the SSA during an audit, even if the taxpayer had not exercised the corresponding election.
Although the formal comment period has ended, these issues remain relevant until the final regulations are published, as they directly affect the international coordination of the new approach.
For multinational groups with a presence in Latin America, therefore, significant uncertainty remains: the possibility that one side of the transaction will apply the SSA while the other jurisdiction continues to apply traditional Transfer Pricing rules, resulting in differences in the determination of the arm’s-length price.
The Limit on Discretion: What the Commissioner May Still Review
The election of the SSA does not prevent the IRS from reviewing the technical application of the regime.
Notice 2025-04 expressly clarifies that the Commissioner retains the authority to verify, among other aspects:
- Whether the transaction actually falls within the scope of the SSA.
- Whether the election was made in accordance with the established requirements.
- Whether the resulting profit was correctly calculated using the prescribed methodology.
Consequently, although the SSA eliminates the need to re-justify the selection of the most appropriate method when the election is valid, it does not eliminate the obligation to adequately document the transaction’s eligibility or the correct application of the methodology.
What This Means for a Group with a Parent Company in the United States and a Distributor in Latin America
For multinational groups whose parent company is located in the United States and that operate through routine distributors in Latin America, the decision to exercise the SSA election should not be analyzed solely from the U.S. perspective.
It is essential to jointly evaluate the status of Amount B adoption in the jurisdiction where the related distributor operates. If that jurisdiction does not recognize the simplified approach or applies different criteria, asymmetries may arise in the determination of the transfer price, increasing the risk of unilateral adjustments and, eventually, double taxation.
In such scenarios, the solution may require international coordination mechanisms, such as correlative adjustments, Mutual Agreement Procedures (MAP), Advance Pricing Agreements (APA), or other instruments provided for in double taxation treaties, with no guarantee that the dispute will be fully resolved.
In other words, the United States’ adoption of the SSA represents a significant step toward administrative simplification; however, its practical effectiveness for multinational groups will depend largely on the degree of convergence achieved by other jurisdictions.
The IRS’s implementation of the SSA constitutes one of the most significant developments in Transfer Pricing stemming from the OECD’s Amount B project. However, for multinational groups with operations in Latin America, the decision to opt into this regime requires a comprehensive analysis that considers not only the benefits of simplification in the United States but also how the counterparty’s jurisdiction treats Amount B.
An isolated assessment can lead to differences in valuation between tax authorities and increase the risk of uncoordinated adjustments—precisely the type of disputes that the Amount B project seeks to reduce.
At TPC Group, we advise multinational groups with parent companies in the United States and operations in Latin America on assessing the advisability of applying the Simplified and Streamlined Approach (SSA), taking into account the status of adoption of Amount B in each jurisdiction and the potential risks of asymmetries that could lead to Transfer Pricing adjustments or double taxation situations.
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