Trump’s Executive Orders Send US Amount B Adoption Into Limbo

The Trump administration has wasted no time in taking executive action. Although much tax-related coverage has focused on the OECD’s Pillar Two project, the new administration’s orders also may impact US taxpayers’ adoption of the simplified and streamlined approach safe harbor announced by the IRS last month.

Notice 2025-04 permits US taxpayers to use the SSA—also known as Amount B under the Organization for Economic Cooperation and Development’s Pillar One—as a safe harbor for pricing certain distribution transactions. The notice explicitly incorporates the OECD’s Amount B February 2024 report, says the IRS intends to publish proposed regulations on the SSA, and allows taxpayers to apply the method to in-scope distribution activities beginning in 2025.

The notice presents the SSA as an optional safe harbor, though future guidance could make it mandatory for in-scope taxpayers. However, two executive actions taken on Jan. 20 and the Congressional Review Act imperil the future of the approach in the US.

First, President Donald Trump issued a memorandum to the Secretary of the Treasury and US Trade Representative “clarifying that the [OECD’s] Global Tax Deal has no force or effect in the United States.” Second, he issued a memorandum requiring all rules issued by departments and agencies be reviewed by an official appointed after his inauguration.

The Congressional Review Act provides another source of authority to upend rules, potentially including Notice 2025-04. The law uses the term “rule” with a reference to its meaning in the Administrative Procedure Act, which defines rules broadly to include any “agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy.”

A transfer pricing safe harbor simplifying compliance for large multinationals wouldn’t be the typical target for a policy-based reversal—an optional Amount B has broad support in the business community and hasn’t drawn negative attention from Republicans on the Hill.

But Notice 2025-04 may nonetheless be caught in the crosshairs because it adopts part of the OECD’s Inclusive Framework, which the Trump administration has rejected. Multinationals that are considering opting into the SSA, including its simplified documentation requirements, must wait and see what the new administration will do with the notice.

In the meantime, taxpayers with US inbound or outbound distribution transactions should continue to apply their current transfer pricing methodology and consider the SSA. Before incoming Treasury and IRS officials make a pronouncement on the future of Notice 2025-04, taxpayers should assume they must continue to apply their current transfer pricing policy and documentation practices, without relying on the SSA. In many cases, this will be the comparable profits method—tested and documented in annual transfer pricing studies.

Even if the IRS withdraws Notice 2025-04 under the Trump administration, the SSA may still be relevant to US taxpayers. The approach has been incorporated into the OECD transfer pricing guidelines. Other jurisdictions may adopt the method, either on a mandatory or opt-in basis.

Although the OECD guidelines are further than ever from being considered US law, they are often the starting point for the negotiation of advance pricing agreements and mutual agreement procedures. The SSA likely will be in the background in such negotiations involving routine distribution transactions, regardless of whether the IRS formally adopts the approach.

Taxpayers should at least be aware of how the SSA could be applied to their transactions. The OECD has made this exercise relatively straightforward, at least for transfer pricing practitioners, publishing an Excel spreadsheet that allows taxpayers to input their financial data. The spreadsheet contains pre-set formulas that run the SSA’s scoping criteria and an actual calculation of the target return-on-sales under the method based on the taxpayer’s inputs.

Taxpayers may be able to use this model to understand whether they are quantitatively in scope for the SSA and, if so, the prescribed return-on-sales ratio for the tested party under the approach. But the spreadsheet may take some time to work through. For example, taxpayers must cross-reference to the OECD’s Amount B report to select their industry grouping from a drop-down list.

Taxpayers whose existing results and SSA results are consistent may cite the SSA as additional support of the reasonableness of its existing method, even if Notice 2025-04 is withdrawn. Those whose existing results fall outside of their SSA results are less fortunate. They should consider how to demonstrate the inapplicability of the method to their distribution transactions.

For example: Are the quantitative scoping criteria met? Does the distributor also conduct non-distribution activities, such as value-added services? Is there an internal comparable uncontrolled transaction that provides a more reliable comparable? Is the transaction with a counterparty in a jurisdiction, such as India, that has announced its opposition to the SSA?

If the IRS changes course on Amount B under the Trump administration due to its origins in OECD’s Pillar One, we can expect the IRS to withdraw Notice 2025-04. Otherwise, the SSA is likely to become a permanent fixture in the US. Regardless of what happens in the US, the method will be relevant to US taxpayers in cross-border transactions with treaty partners that have endorsed the SSA.

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

Lauren Ann Ross is special counsel at Covington & Burling, focusing on tax controversy matters and transfer pricing issues.

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