Transfer Pricing (TP) continues to be a pivotal aspect of U.S. tax law, adapting to both global and domestic economic dynamics. The 2025 USA Transfer Pricing Guide delves into the intricate facets of transfer pricing in the United States, providing insights into the legal framework, dispute resolution mechanisms, landmark cases, and recent developments. This guide aims to furnish a comprehensive understanding of TP principles, methodologies, compliance imperatives, and the influence of Base Erosion and Profit Shifting (BEPS) on U.S. policies. Additionally, it emphasizes the significance of education and training in TP, highlighting resources available through the I/I/T/F Academy of Tax Law.

General Overview of Transfer Pricing in the US

The U.S. TP regime is renowned for its comprehensiveness and rigor. It is primarily governed by Section 482 of the Internal Revenue Code, complemented by an extensive array of implementing regulations. While the Organisation for Economic Co-operation and Development (OECD) TP guidelines are not directly incorporated into U.S. regulations, the Internal Revenue Service (IRS) maintains that U.S. TP regulations align with the OECD guidelines.

Dispute Resolution and TP Controversies in the US

The IRS has adopted a more assertive stance in TP controversies, particularly concerning the application of the Economic Substance Doctrine. An IRS official recently confirmed that the IRS can apply this doctrine to transfer pricing cases, potentially leading to penalties under IRC Section 6662(b)(6) or a 40% penalty under Section 6662(i) if a transaction lacks economic substance. The Advance Pricing and Mutual Agreement program (APMA) within the IRS continues to play a crucial role in preemptively resolving potential disputes.​

Notable Transfer Pricing Case

United States v. Eaton Corp. (2024)

In this case, the IRS sought performance evaluations of certain employees of Eaton’s Irish affiliate during an audit of Eaton’s transfer pricing related to a royalty arrangement. Eaton declined to provide the evaluations, citing EU privacy laws. A federal district court ruled that the IRS’s summons power overrides EU privacy laws, reinforcing the IRS’s broad investigative authority in transfer pricing audits.

Other Important Transfer Pricing Cases in the US

• Coca-Cola Co. v. Commissioner (2020):

  This landmark case involved a dispute over the allocation of income between Coca-Cola and its foreign subsidiaries. The IRS argued that Coca-Cola’s transfer pricing did not comply with the arm’s length standard, leading to a significant underreporting of taxable income in the U.S. The Tax Court sided with the IRS, resulting in Coca-Cola owing a substantial amount in back taxes.

• Amazon.com Inc. v. Commissioner (2017):

  A pivotal case concerning cost-sharing arrangements and the transfer of intangible assets. The IRS challenged Amazon’s transfer pricing methodologies related to its European subsidiaries. The Tax Court ruled in favor of Amazon, setting a precedent for how intangible assets are valued in transfer pricing.

• Medtronic Inc. v. Commissioner (2018):

  This case centered on the royalties paid by a Medtronic subsidiary in Puerto Rico to its U.S. parent for the use of patented technology. The Tax Court initially sided with Medtronic, but the decision was later vacated and remanded by the Appeals Court, emphasizing the importance of comparable uncontrolled transactions in setting transfer prices.

• Altera Corporation v. Commissioner (2019):

  A significant case involving cost-sharing arrangements and stock-based compensation. The Ninth Circuit Court of Appeals reversed a previous Tax Court decision, upholding a Treasury regulation that requires the inclusion of stock-based compensation in the cost-sharing calculation. This decision has had broad implications for companies with similar arrangements.

• Facebook Inc. v. Internal Revenue Service (ongoing):

  This ongoing case involves the transfer of intangible assets by Facebook to its Irish subsidiary. The IRS alleges that Facebook undervalued these assets, leading to a significant understatement of taxable income. The outcome of this case is anticipated to have major implications for digital companies and the valuation of intangible assets in transfer pricing.

These cases highlight the complexity and evolving nature of transfer pricing in the U.S., underscoring the importance for companies to maintain robust compliance practices and documentation.

Latest TP Developments in the US

Implementation of the Simplified and Streamlined Approach (SSA)

In December 2024, the IRS released Notice 2025-04, announcing the adoption of a new transfer pricing methodology known as the Simplified and Streamlined Approach (SSA). This approach allows taxpayers to apply the Amount B rules under Pillar One of the OECD framework, providing a safe harbor application of the arm’s length standard for qualifying transactions. The SSA is elective and applies to taxable years beginning on or after January 1, 2025. ​

Clarification on Periodic Adjustment Rules

In January 2025, the IRS issued Advice Memorandum 2025-001, clarifying its stance on the interaction between periodic adjustment rules and general transfer pricing principles. The memorandum emphasizes that taxpayers cannot circumvent periodic adjustments by invoking general principles such as the arm’s length standard or the best method rule. This clarification underscores the IRS’s commitment to ensuring that transfer pricing outcomes are commensurate with the income attributable to intangible assets.

Arms Length Principle

The arm’s length principle is a cornerstone of TP regulations. It seeks to ensure that related parties agree on a price as if they were unrelated parties dealing at arm’s length.

Transfer Pricing Methods

US legislation provides for various TP methods, including Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM), and Profit Split[7].

Compliance

Compliance with US TP rules is crucial for multinational enterprises. The IRS provides comprehensive documentation best practices to aid in compliance[4].

Comparability Analysis

Comparability analysis is a key aspect of TP, used to determine arm’s length pricing in related-party transactions[11].

Intangibles

Intangibles play a significant role in TP, particularly in the context of multinational corporations. The IRS has comprehensive regulations addressing the treatment of intangibles in TP.

Permanent Establishments

Permanent establishments can have significant TP implications. The IRS considers cases arising under the permanent establishment articles of US tax treaties[5].

Compliance and The Importance of Documentation

Comprehensive documentation is crucial for TP compliance. The IRS provides best practices for TP documentation[4].

Base Erosion and Profit Shifting (BEPS) and the US

BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules. The US has been actively involved in the OECD’s work on BEPS.

TP Policy Development

The US has been at the forefront of TP policy development, with comprehensive regulations and a proactive approach to TP controversies[13].

Why should you engage with Prof Dr Daniel N Erasmus and his team?

The I/I/T/F Academy of Tax Law, led by Dr. Erasmus, plays a significant role in TP education. Its postgraduate programs in TP provide invaluable knowledge and skills, equipping professionals to navigate complex TP landscapes.

The USA Transfer Pricing Guide offers a quick overview of US TP. For further guidance, particularly in TP dispute resolution and effective policy management, Dr. Erasmus and the TRM team are invaluable resources. Their expertise is further showcased in Dr. Erasmus’s book, “Conducting a TP Trial”, available at https://tptrial.iitfconnect.com/. For expert assistance in managing TP policies and navigating disputes, contact Dr. Erasmus and the TRM team.

For further assistance with TP, don’t hesitate to get in touch with Dr Erasmus and the TRM team.

Engagement with the Academy of Tax Law

The Academy of Tax Law, under the leadership of Prof. Dr. Daniel N. Erasmus, offers postgraduate programs in TP that equip professionals with the knowledge and skills necessary to navigate the complexities of transfer pricing. Dr. Erasmus’s expertise is further showcased in his book, “Conducting a TP Trial,” available at https://tptrial.iitfconnect.com/.