The IRS released Notice 2025-4 on December 18, 2024, announcing its intention to implement Amount B of Pillar One, thereby potentially simplifying how multinational companies calculate margins for certain “baseline” distribution activities. This “Simplified and Streamlined Approach” (SSA) is based on new international guidelines on Amount B and reignites interest in it and its potential worldwide evolution.
Key takeaways:
- Optional: Companies are not required to use Amount B, but can elect to reference Amount B.
- Effective date: Applies to tax years starting January 1, 2025.
- Flexibility: Some aspects might be adjusted over time through simpler guidance, not just formal regulations. It is, after all, an evolving matter around the world.
- Amount B only applies to distribution activities and NOT any type of sales support or marketing activities.
The IRS is seeking feedback on:
- Whether the SSA should always be optional, or if the IRS should be able to apply it in certain cases.
- How flexible the election to use the SSA should be (e.g., can it be applied to some transactions but not others, or for multiple years at once).
- Using 30% as the upper boundary of the operating expense-to-net revenue ratio for scoping purposes.
What this means for taxpayers
Skepticism and concerns remain regarding the calculation of amount B, whether it will be globally adopted (don’t count on it), and its optional nature, all of which may create significant controversy and administrative challenges for taxpayers. Taxpayers should carefully evaluate their placement within the pricing matrix and compare it with benchmarking results, noting we caution in adopting Amount B as a transfer pricing policy, particularly when benchmarking results differ from the pricing matrix.
Further developments are expected from both United States and foreign perspectives.
Please reach out to us for additional information at paul.valdivieso@basefirma.com and eduardo.emmerich@basefirma.com
Source: https://www.irs.gov/pub/irs-drop/n-25-04.pdf