Treasury’s Amount B Notice Offers Partial Taxpayer Certainty

The Treasury Department’s notice this week on adopting the OECD’s Amount B guidance creates an interesting opportunity for taxpayers to consider in 2025, with a potential to gain certainty around transfer pricing of distribution activities. But the changing political environment also will give taxpayers reason to pause and consider all alternatives.

Notice 2025-04 states the Treasury’s intent to propose regulations to adopt the Organization for Economic Cooperation and Development’s Amount B guidance for pricing controlled transactions involving baseline marketing and distribution activities—referred to in the notice as the simplified and streamlined approach, or SSA.

The Treasury plans to propose the SSA as a taxpayer election, though the regulations may propose that it be mandatory. The Treasury also intends to incorporate the Amount B guidance into the regulations, subject to further rules set forth in the notice.

The notice states that taxpayers may elect to apply the SSA to qualified transactions occurring after Jan. 1, but before proposed SSA regulations are issued.

After a long discussion process and mixed global reception to the Amount B guidance released earlier this year, the notice signals that this Treasury Department is serious about implementing Amount B. It follows the OECD guidance closely and largely focuses on implementation issues such as how to elect the SSA, implications of electing it, documentation requirements, and eligibility and qualifications.

The SSA is applied on a transaction-specific level, rather than globally. Each transaction would therefore require a separate election and documentation. A transaction-based election would increase taxpayer flexibility in return for increased compliance efforts.

But despite addressing some implementation issues, the notice leaves many issues unresolved:

• How to segment balance sheets for entities with multiple types of transactions
• Differences in the definition of “operating expense” to apply the SSA cap/collar
• Little guidance on addressing potential competent authority issues, especially with jurisdictions that have not adopted Amount B
• How to address counterparty loss issues

The SSA would extend the use of safe harbors in transfer pricing beyond the current application for intercompany financing arrangements and use of cost for certain services transactions. Although the SSA aims to reduce controversy, it may simply refocus controversy issues from questions about comparables and ranges to those on eligibility, scoping, and cost accounting.

While the notice proposes an elective safe harbor, it leaves open whether the proposed regulations should make the SSA mandatory. Doing so would raise legal questions on the Treasury’s regulatory authority under Loper Bright and concerns over the arm’s-length nature of the SSA and Amount B’s application, given the current Section 482 regulations that mandate use of arm’s-length principles “in all cases” and the lack of explicit congressional authorization for IRS safe harbors.

Additional questions remain over SSA application to advance pricing agreements and mutual agreement procedures. For example, will the IRS restrict APAs for in-scope transactions or apply Amount B as a mandatory profit range? Will the IRS only apply the SSA to MAP cases? In this vein, the notice advises taxpayers to be cautious about applying the SSA standard to controlled transactions with jurisdictions that haven’t shown willingness to accept Amount B.

With a new administration taking office next month, it’s uncertain whether the new regulations will come. The Treasury officials who have been working on Amount B for the past four years likely will be replaced. The previous Trump administration withdrew participation from the OECD’s two-pillar initiative, and the incoming Treasury position is unknown.

Much like the existing safe harbors for interest and routine service transactions, recognition of taxpayer-elective Amount B profit targets by the IRS and some US treaty partners would provide a level of certainty for routine service transactions that have historically been subject to tax controversy.

Electing Amount B likely would reduce current compliance costs to document and defend the results of controlled distribution transactions. Nevertheless, given the change in administrations taking place, taxpayers need to consider all reasonable alternatives before electing Amount B next year.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Paul Flignor is a principal economist in DLA Piper’s Chicago office.

Michael F. Patton is senior counsel in DLA Piper’s Los Angeles office and helped negotiate the first bilateral APA.

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