Notice 2025-04 issued by the IRS marks a significant step forward in the implementation of Amount B of the OECD’s inclusive framework. This approach seeks to simplify and optimize Transfer Pricing, especially in marketing and distribution activities, providing clarity and reducing tax disputes.
The Role of Amount B and the Simplified SSA Approach
The B Amount is designed to standardize Transfer Pricing in marketing and distribution related activities. Based on the Simplified Streamlined and Streamlined Approach (SSA), this method allows for an automated allocation consistent with arm’s length principles.
According to the IRS, the SSA facilitates tax compliance by eliminating the need to apply complex traditional methods and establishing a “safe harbor” for certain transactions. In addition, Amount B complements Amount A, which seeks to reallocate profits of multinational enterprises (MNEs) to market jurisdictions, even where there is no physical presence.
Conditions for Applying the SSA
For a transaction to be eligible under the SSA, certain requirements must be met:
- Transactions must involve marketing and distribution activities, such as controlled buying and selling or sales agency, directed to unrelated parties.
- The taxpayer must confirm that the relationship between operating expenses and income meets the established criteria.
- A formal declaration to opt for SSA must be filed at the time of the tax return.
OECD Automation Tool
To facilitate the implementation of SSA, the OECD has developed an Excel tool that automates calculations related to Transfer Pricing. However, the use of this tool has limitations, as it does not address all of the qualitative criteria necessary for full compliance with IRS rules. Taxpayers should supplement it with detailed documentation supporting the reasonableness of the methods applied.
Benefits and Risks of the SSA
The SSA promises significant advantages for compliant businesses, such as reduced tax disputes and simplified tax compliance. In addition, the IRS will not impose penalties if taxpayers are shown to have properly followed the process and maintained the required documentation.
However, the IRS cautions that improper application of the SSA may result in penalties. Therefore, it is crucial that companies carefully evaluate whether this method is the most tax beneficial and aligns with their overall tax strategies.
Considerations for Taxpayers
The SSA represents a valuable tool, but its success will depend on its global adoption and how jurisdictions collaborate to ensure outcomes consistent with the arm’s length principle. Taxpayers should:
- Evaluate tax rates in other jurisdictions before opting for SSA.
- Maintain detailed documentation to support the choice of method.
- Monitor regulatory updates to ensure continued compliance.
Conclusion
IRS Notice 2025-04 and the implementation of Amount B reflect a joint effort by the United States and the OECD to simplify and harmonize international taxation in an increasingly complex tax environment. While SSA offers a promising path toward reducing tax disputes, companies must adopt a proactive and cautious strategy to maximize their benefits and minimize risks. Proper preparation will be key to successfully navigating this new regulatory framework.
Call to action
At TPC Group, we help you understand and comply with the new Transfer Pricing regulations.
Source: Caplin & Drysdale
