US Amount B Notice Is Transfer Pricing Safe Harbor With Caveats

The Treasury Department and the IRS’s Notice 2025-04 is a groundbreaking development for both US multinationals with in-scope marketing and distribution subsidiaries and foreign companies with inbound US marketing and distribution subsidiaries.

Notice 2025-04 is the first Treasury and IRS guidance expressly allowing US taxpayers to rely on OECD guidance rather than the Section 482 regulations. This is a shift from prior guidance, such as AM 2007-07, that generally relegated use of the Organization for Economic Cooperation and Development’s transfer pricing guidelines to the bilateral advance pricing agreement and mutual agreement procedure processes.

It is also the first new transfer pricing safe harbor since the services cost method nearly 20 years ago.

The notice, issued Dec. 18, discusses application of the simplified and streamlined approach under Section 482 of the tax code. It announces the agencies’ intent to issue proposed regulations implementing the SSA. And pending the proposed regulations, it allows US taxpayers to apply the OECD’s Pillar One Amount B report to baseline marketing and distribution activities starting Jan. 1.

In issuing this safe harbor, the Treasury and the IRS acknowledged that the SSA’s reduced administrative burdens and compliance costs should outweigh any loss in reliability from applying the SSA rather than the “best method.”

Further, the notice grants US taxpayers flexibility to apply the SSA on an elective basis, though it indicates that the Treasury and the IRS are considering whether to also allow the IRS to apply the approach to non-electing taxpayers.

Implementing the SSA

Companies must follow certain steps to apply the SSA to controlled transactions. First, they must determine whether the controlled transaction falls within the category of qualifying transactions.

If so, they must determine whether the transaction is an in-scope transaction. If the distributor is in the US or the distributor country hasn’t adopted the SSA, for purposes of determining whether a qualifying transaction is in scope under Section 482, the upper bound of operating expenses-to-revenue criterion would be 30%. If the distributor is foreign and its jurisdiction has implemented the SSA, the upper bound is set according to the distributor country’s law, but not lower than 20% or higher than 30%.

If the transaction is in scope, then the taxpayer must elect to apply the SSA. Finally, the taxpayer must maintain related transfer pricing documentation.

To determine the appropriate return to the distributor after making the election, the taxpayer must follow guidance in Section 5 of the Amount B report—which involves the pricing matrix, the cross-check mechanism for operating expenses, and the data availability mechanism for qualifying jurisdictions.

Potential for Dispute

Section 4 of the notice allows taxpayers to treat the SSA as a safe harbor application of the arm’s-length standard. If a taxpayer elects to invoke this safe harbor approach, the IRS will consider the SSA to be the best method under the Section 482 regulations, subject to certain rules and exceptions.

This doesn’t mean that a taxpayer’s transfer pricing is immune from an audit. The notice provides that the IRS can still challenge whether there is an in-scope transaction, whether the taxpayer’s election is valid, and whether the taxpayer’s income allocations are properly calculated under the SSA.

The notice also provides two exceptions to the safe harbor. First, if the IRS demonstrates that the comparable-uncontrolled-price method (using internal comparables) can be applied more reliably than the SSA, the IRS isn’t required to treat the SSA as the best method.

Second, the notice states that if “a taxpayer determines a transfer price by reference to the SSA other than as described in [the Notice],” then the Section 482 regulations (and not the notice) determine whether that price is arm’s length. This exception is unclear and could be clarified in the forthcoming proposed regulations.

The notice extends existing penalty protections to the SSA. Existing regulations provide a penalty defense to taxpayers that used a transfer pricing method specified in the Section 482 regulations. The notice states that the IRS will consider the SSA to be a specified method for this purpose if an election is valid and if the taxpayer acted reasonably in choosing the SSA, applying it, and determining the transaction was in scope.

Taxpayers must also comply with detailed transfer pricing documentation requirements set forth in the notice. But they should be aware that if the IRS rejects a taxpayer’s method, the taxpayer’s documentation is often deemed unreasonable, and penalties are asserted.

Competent Authority Considerations

The notice states that the SSA aims to alleviate unnecessary cross-border disputes and increase tax certainty—while cautioning taxpayers on potential difficulties in the competent authority context.

The IRS intends to respect proper application of the SSA by US taxpayers, but it can’t support this position in the mutual agreement procedure context if the other competent authority hasn’t implemented or otherwise agreed to apply the SSA. This view is consistent with commentary in Section 8 of the Amount B report.

As such, taxpayers should consider jurisdictional differences regarding the SSA and the potential for dispute before electing and applying it.

Practical Considerations

The notice is a milestone for the Treasury and the IRS, as it is the first time the US has directly incorporated guidance from the OECD into its own rules. Taxpayers should appreciate the flexibility provided by the notice but understand that those who elect the SSA remain at risk of audit, assessment, and penalties.

Taxpayers should further be aware that while the SSA eliminates the need for comparables benchmarking of in-scope transactions, it requires a multi-step analysis that can be complex in other ways. It’s not yet clear whether the SSA is actually a safe harbor for US taxpayers, which should still consider advance pricing agreements for any material transactions.

Taxpayers should strongly consider submitting comments by March 7. The Treasury and the IRS requested comments on certain topics, but input should also be provided on any ambiguities, unanswered questions, or issues created by the notice.

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

Jenny A. Austin is partner in Mayer Brown’s tax controversy practice and international tax and transfer pricing team.

Jason M. Osborn is partner at Mayer Brown and co-leader of the international tax and transfer pricing team.

Sonal Majmudar is partner in Mayer Brown’s tax practice.

Jeremy Himmelstein, Tyler Johnson, and Zachary Weit contributed to this article.

Write for Us: Author Guidelines