Notice 2025-4 would allow the U.S. application of Amount B—an OECD-initiative to simplify transfer pricing for baseline marketing and distribution activities.
The U.S. Department of the Treasury and IRS (collectively, “Treasury”) on December 18, 2024, published a Notice that would allow the U.S. application of Amount B—an OECD-initiative to simplify transfer pricing for baseline marketing and distribution activities.
The notice permits in-scope U.S. taxpayers to apply the Amount B framework (referred to as the simplified and streamlined approach (SSA)) for tax years beginning on or after January 1, 2025, as an elective safe harbor and announces Treasury’s intention to issue regulations allowing its application.
Amount B is an OECD-led initiative to simplify and streamline the application of the arm’s length principle (ALP) to baseline marketing and distribution activities.
A final report on an optional Amount B (i.e., an optional framework that jurisdictions could choose but were not obligated to implement) was published by the OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) in February 2024, with the contents of that report incorporated into the OECD Transfer Pricing Guidelines as an Annex to Chapter IV (Administrative approaches to avoiding and resolving transfer pricing disputes). This report sets out the key parameters of optional Amount B, including the scoping rules and pricing methodology. Read a KPMG summary. In June 2024, the Inclusive Framework published additional guidance on key definitions related to Amount B. Read a KPMG summary.
The Amount B approach in the Notice issued by Treasury does not diverge substantively from the final report and additional guidance published by the OECD (collectively, the “OECD Report”).
The Notice makes (1) a number of design decisions that were left open by the original report and (2) some clarifications for ambiguities in OECD reports:
The Notice also requests comments on the following specific issues below. The deadline for comments is March 7, 2025:
The Notice states that Treasury intends to issue proposed regulations on the application of the SSA and requests feedback on certain aspects of the SSA. The Notice also states that, subject to the rules set out in the Notice, taxpayers may rely on the SSA for tax years beginning on or after January 1, 2025, and before proposed regulations are published in the Federal Register. Taxpayers that are considering applying the SSA should closely follow developments under the incoming administration.
It is unclear whether the new administration will continue to support this policy and what actions they may take from issuing temporary regulations to revoking this Notice.
This simplification of marketing and distribution activities will primarily be relevant for multinationals with baseline marketing and distribution activities, i.e., limited risk distributors (LRDs) in the U.S. The Notice provides an elective safe harbor for taxpayers, who by complying with the SSA will be able to limit their risk of transfer pricing dispute in the U.S. in respect of these activities from tax years starting January 1, 2025. It may also provide a framework that taxpayers could seek greater certainty through the bilateral advance pricing agreement (BAPA) process.
Amount B was a key component of the OECD’s broader Pillar One initiative, which was intended to deliver broader changes to how taxing rights were allocated between jurisdictions. These negotiations remain ongoing with the potential mandatory implementation of Amount B by all jurisdictions both a key feature and core sticking point in those negotiations.
Treasury has been a major advocate for Amount B, believing it has the potential to significantly reduce the disputes that U.S. multinationals face in other jurisdictions over the pricing of baseline marketing and distribution activities. It has also argued that Amount B will enable the IRS to focus their resources on more complex transfer pricing issues.
The approach in the Notice of allowing taxpayers to apply the SSA on an elective basis—even if other jurisdictions do not agree to implement the SSA/Amount B—is consistent with the argument that the SSA will save the IRS resources and reduce transfer pricing disputes. Of course, that view could change under the incoming administration, so feedback provided by stakeholders on this Notice has the potential to be very impactful.
The SSA represents both a risk to manage and an opportunity to benefit.
On the risk side, while the SSA scoping and pricing methodology may appear at first glance to be straightforward, there are a series of potential traps for the unwary, such as data gathering, segmentation, and narrow permitted ranges. Those issues are summarized in more detail in a KPMG report. Businesses that are potentially in scope of the SSA may need to review whether they have the information required to apply the framework and what the framework looks like in comparison to their current transfer pricing policies.
The SSA also represents an opportunity for businesses to get greater certainty on the transfer pricing of their U.S. marketing and distribution activities, at pricing levels that in many instances will be comparable to their current policies (and in some instances may be lower). It may even reduce some of the compliance burden associated with preparing and updating benchmarking analyses, although it will come with other compliance requirements.
For both these reasons, reviewing the SSA scoping rules—to assess its potential relevance and where it is relevant carrying out an initial impact assessment—are the key steps that businesses may need to consider.
The future of Pillar One, Amount A, a mandatory Amount B, and the removal of digital services taxes (DSTs) remains highly uncertain. The next administration will undoubtedly play a major role in where Pillar One goes next. However, other jurisdictions, including Australia, India, and many developing countries, have criticized the direction of Pillar One, so it is far from true that the future of Pillar One is simply a U.S. decision.
The U.S. is the first jurisdiction to adopt optional Amount B (the SSA) for all in-scope inbound marketing and distribution activities. Its implementation of Amount B is a strong signal that it believes this framework has benefits for both taxpayers and tax authorities and so could presage the implementation of optional Amount B in other jurisdictions.
For more information contact a KPMG tax professional:
Alistair Pepper | alistairpepper@kpmg.com
Michael Plowgian | mplowgian@kpmg.com
Jessie Coleman | jessiecoleman@kpmg.com
1 Capitalized terms not defined herein are defined in the Treasury Notice, OECD Report, or both.