Internal Revenue Service building, Washington DC | by Tim Evanson
The IRS has released Notice 2025-4, outlining plans for forthcoming proposed regulations on transfer pricing under section 482. These regulations will introduce a Simplified and Streamlined Approach (SSA) for pricing controlled transactions involving baseline marketing and distribution activities, aligning with the February 19, 2024 OECD report on Amount B of Pillar One.
KEY HIGHLIGHTS OF NOTICE 2025-4
-
Simplified and Streamlined Approach (SSA):
-
Designed for pricing certain controlled transactions.
-
Based on the OECD’s February 2024 report.
-
Taxpayer election applies transaction-by-transaction and year-by-year.
-
Alignment with OECD:
-
Proposed regulations are expected to closely follow the OECD report.
-
The Treasury and IRS will adopt the report’s substance entirely.
-
Certain SSA updates may be issued via sub-regulatory guidance (e.g., revenue procedures).
-
Effective Date:
-
Applies to tax years starting on or after January 1, 2025.
-
Taxpayers can rely on sections 3 and 4 of Notice 2025-4 for tax years beginning before the final regulations are published.
-
Taxpayer Reliance:
-
Taxpayers may use SSA guidelines as described in the OECD report, supplemented by later statements, if applied consistently with sections 3 and 4 of the notice.
REQUEST FOR COMMENTS BY MARCH 7, 2025
The Treasury and IRS seek comments on the following:
-
Taxpayer Election vs. IRS Application:
-
Should the SSA depend solely on taxpayer election, or should the IRS be allowed to apply it without a taxpayer’s election?
-
Should SSA eligibility for U.S. taxpayers depend on its adoption by counterparty jurisdictions to ensure symmetry?
-
Election Limitations:
-
Should elections apply more broadly to categories of transactions or multiple years, instead of being transaction-by-transaction and year-by-year?
-
Considerations for simplicity and effective tax administration.
-
Scoping Criterion:
-
Views on the appropriateness of setting the operating expense-to-net revenue ratio upper boundary at 30% (per section 3.2 of the OECD report).
