The Simplified and Streamlined Approach: A New Method for Transfer Pricing

At a glance

• The main takeaway: The IRS released the Simplified and Streamlined Approach (SSA) for pricing controlled transactions that can potentially reduce the costs and administrative burden of transfer pricing compliance. 
• The impact on your business: Multinational enterprises that meet certain jurisdictional qualifications may benefit substantially from applying the SSA method to their controlled transactions.
• Next steps: Consider scheduling a consultation with one of Aprio’s Transfer Pricing advisors to learn how electing to use the SSA can be a less intensive approach for calculating returns on intercompany transactions.

The full story

The IRS and Department of the Treasury issued Notice 2025-04 on December 18, 2024, to apply a new method under section 482 for pricing certain controlled transactions involving baseline marketing and distribution activities. The new simplified and streamlined approach (SSA) offers a simpler application of transfer pricing rules for certain activities to reduce the administrative burden and costs and increase confidence associated with cross-border tax compliance. 

Notice 2025-04 follows the coattails of similar regulations published in February by the Organization for Economic Cooperation and Development (OECD) in the “Pillar One – Amount B: Inclusive Framework on BEPS” report. Amount B offers a streamlined approach for calculating the returns on baseline marketing and distribution activities for intercompany transactions involving tangible goods. In certain circumstances, distributors who purchase or sell tangible goods with related non-U.S. suppliers for resale can determine their transfer pricing using this approach rather than a full transfer pricing benchmarking analysis.

The SSA shares similarities with the Treasury’s comparable profits method, the services cost method, and the OECD’s transactional net margin method. Unlike these methods, which use more extensive benchmarking analyses to calculate returns, the SSA is based on comparables and especially scrutinizes discrepancies between comparables and tested parties. Given this approach’s streamlined design, the SSA will be less reliable than other methods, but the benefits of a more streamlined process are expected to outweigh the potential issues. 

The fine print

Taxpayers considering applying the SSA to qualifying intercompany transactions should be aware of the key aspects listed below to ensure compliance with the new method:

• The SSA calculates a return on sales percentage for distributors by referring to a pricing matrix derived from a global dataset of comparables, which considers various industries and levels of intensity for net operating assets and operating expenses.
• Operating expenses are cross-checked with a mechanism unique to the SSA by establishing upper and lower bounds for earnings before interest and taxes (EBIT)-to-operating expenses ratios. This ensures the SSA is applied appropriately regarding implied returns on operating expenses.
• Distributors in jurisdictions with fewer than five comparables in the global dataset may be required to submit an additional return under the data availability mechanism.

How to apply the SSA

For tax years beginning on or after January 1, 2025, companies can apply the SSA in its entirety to qualifying transactions for their U.S. tax reporting purposes. Taxpayers can elect the SSA by filing a statement, “Election to apply the SSA,” with their original return for the tax year and indicating which transactions the SSA applies to. This statement should include descriptions for each transaction, the entities involved with each transaction, and the respective place of incorporation or tax jurisdiction for each entity. Taxpayers should also maintain documentation that demonstrates how the transactions qualify and were accurately calculated under the SSA in the return, as the IRS can request this information within 30 days of filing.

In practice

The SSA is a practical method for transfer pricing rules that will significantly reduce the cost and administrative burden of tax compliance for multinational enterprises. Nevertheless, organizations should carefully consider the SSA’s rules and ensure their transactions are within the scope of application to avoid misuse and tax penalties.

If you’re uncertain whether your company’s transactions quality for the SSA or want to learn more, meet with Aprio’s knowledgeable Transfer Pricing team. Our experience and proven transfer pricing processes deliver results with confidence.

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