The Internal Revenue Service (IRS) is considering a significant change to transfer pricing regulations that could streamline compliance for multinational enterprises. Following the OECD’s Pillar One Amount B framework, the proposed Simplified and Streamlined Approach (SSA) aims to reduce the complexity of pricing transactions between related entities operating across borders.
New Method Promises Reduced Compliance Burden
Transfer pricing compliance has long been a resource-intensive challenge for businesses with international operations. The proposed SSA method would establish standardized guidelines specifically for companies engaged in baseline marketing and distribution activities, potentially offering substantial time and cost savings while increasing tax certainty.
The American Institute of CPAs (AICPA) recently submitted a comprehensive response to the IRS’s proposed regulations, voicing support for certain elements while recommending key modifications to enhance effectiveness.
AICPA Backs Optional Implementation Approach
In its formal comments, the AICPA endorsed making the SSA optional (Option 1) rather than mandatory (Option 2), allowing taxpayers to determine when the method benefits their specific circumstances. Notably, the organization recommended eliminating the requirement that taxpayers prioritize the internal comparable uncontrolled price method as a prerequisite for SSA eligibility.
The AICPA’s recommendations also emphasized:
- Cross-Border Flexibility: U.S. businesses should be permitted to utilize the SSA regardless of whether foreign jurisdictions have implemented similar provisions
- Broad Transaction Coverage: The method should apply comprehensively to all qualifying transactions, with limitations imposed only when they genuinely simplify tax administration
- Clear Eligibility Parameters: The proposed 30% ceiling for operating-expense-to-sale ratio represents a practical threshold that would provide clear guidance for businesses
These suggestions aim to maximize the SSA’s accessibility and usefulness while minimizing potential implementation hurdles.
Strategic Implications for Multinational Businesses
For companies with cross-border related-party transactions, the SSA could significantly reduce documentation requirements and audit exposure. The standardized approach may offer particular value to mid-sized enterprises that currently dedicate substantial resources to transfer pricing compliance.
“The proposed SSA method represents one of the most significant potential changes to transfer pricing regulations in recent years,” notes Virtue CPAs’ International Tax Director. “While simplification is the goal, businesses will need to carefully evaluate whether this approach aligns with their operational structure and financial objectives.”
Expert Guidance Through Regulatory Evolution
At Virtue CPAs, our international tax specialists continuously monitor regulatory developments to provide clients with forward-thinking compliance and planning strategies. As the IRS considers these proposed regulations, our team is preparing to help businesses navigate implementation challenges and identify opportunities for optimization.
For a personalized assessment of how the proposed SSA method might impact your transfer pricing strategy, contact Virtue CPAs‘ international tax team or visit our website for additional resources on transfer pricing compliance.