The Bottom Line
The IRS released Notice 2025-04 for taxpayers who may consider applying the OECD’s optional simplified and streamlined transfer pricing rules for certain baseline marketing and distribution transactions. The IRS intends to issue proposed regulations in alignment with the OECD report in the coming future.
Background Information and Important Dates
In February of 2024, the Organization for Economic Cooperation and Development (OECD) published the report Pillar One – Amount B: Inclusive Framework on BEPS as part of the Base Erosion and Profit Shifting (BEPS) initiative to address challenges arising from an increasingly digitized economy. Amount B is a part of Pillar One of the OECD’s global tax reform plans and provides a simplified and streamlined approach (SSA) when applying the arm’s length principle to certain marketing and distribution transactions. The guidance in the report provides for a definition of in-scope distributors, a 3-step process to determine a return on sales for in-scope distributors, as well as guidance on documentation, transitional issues, and other tax considerations.
Under the Notice, taxpayers may rely on the SSA (subject to certain rules regarding application outlined in the Notice) as a transfer pricing method for certain transactions for tax years beginning January 1, 2025, and before proposed regulations are released.