Transfer Pricing guide: USA
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for the USA, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2025
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
The US is an OECD member jurisdiction. However, there are significant differences from the core inclusive framework group approach (and this is expected to accelerate in the coming years).
Relevant Transfer Pricing regulation
Internal Revenue Code (IRC) § 482
Is this regulation aligned with the OECD Guidelines
The US Regulations differ from OECD Guidelines with respect to information requirements contained in the Transfer Pricing Documentation Study in order for the taxpayer to be considered compliant. Additionally, there are significant differences from the core inclusive framework group approach (and this is expected to accelerate in the coming years). For domestic purposes, OECD Guidelines may provide support in certain instances when addressed by the IRS (e.g., APA and MAP) but would not be directly relevant to the application of any US transfer pricing methods. However, if taxpayers pursue competent authority relief from double taxation or a bilateral APA, the OECD Guidelines are relevant and may be used to demonstrate compliance with international principles.
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
No specific threshold.
Documentation Threshold for Preparation of Master File
US does not require the preparation of a Master File unless the US is the ultimate parent of a foreign subsidiary and the global revenue exceeds certain thresholds.
Documentation Threshold for Preparation of Country by Country Report
US does not require the preparation of a Country by Country Report unless the US is the ultimate parent of a foreign subsidiary and the global revenue exceeds certain $850 million.
Submission of Local File, Master File, and CbC Report Required? If so, when?
US does not require the preparation of a Master File or CbC Report unless the US is the ultimate parent of a foreign subsidiary and the global revenue exceeds certain thresholds. A local file, or Documentation Study as it is referred to on the US, is required annualy and to be completed contemporaneously with the taxpayer's tax filing. Form 8975 and Schedule A (Form 8975) are used by filers described under “Who Must File” to annually report certain information with respect to the filer’s US MNE group on a CbCR basis. US MNEs filing Form 8975 and Schedule A (Form 8975) should file a separate Schedule A (Form 8975) for each tax jurisdiction where the MNE group operates and list all of the constituent entities resident in the tax jurisdiction.
If No Submission Required, any Other Deadline?
Yes, If the taxpayer is selected for audit, the transfer pricing report is to be presented within thirty days. It should be noted that the thirty day period is a period to present documentation, not to prepare documentation. Transfer pricing documentation is expected to be completed contemporaneously with the taxpayer’s tax filing. The document remains with the taxpayers records, and is submitted to the IRS only at the time it is requested during an audit of that fiscal year.
Other Documentation Requirements
Penalty protection can only be achieved through contemporaneous transfer pricing documentation containing the ten principal documents as outlined in the US Regulations.
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
Yes, for penalty avoidance purposes, a taxpayer is considered to have satisfied the documentation requirement if it maintained certain documentation for each year. To the extent that there are changes from the previous year, they need to be reflected.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
Although there is no specific Transfer Pricing Return, the numbers are used on the international forms that are filed along with the tax return.Taxpayers are required to file Forms 5471, 5472 and 8865 regarding transactions with related parties. The transfer pricing that is used on these forms is expected to be arm’s length, or independent market rates as if they were negotiated between independent third parties, and not related parties.
Deadline for TP Return Filing
Tax return filing date (the deadline is the 15th day of the fourth month following the end of the corporation’s tax year. A six-month extension generally is available.)
Key information to be included in the TP Return
Details are provided in the following links:
Form 5471 - https://www.irs.gov/pub/irs-pdf/f5471.pdf
Form 5472 - https://www.irs.gov/pub/irs-pdf/f5472.pdf
Form 8865 - https://www.irs.gov/pub/irs-pdf/f8865.pdf
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
The IRS generally accepts regional comparable sets.
Single-Year vs Multi-Year Analysis
The IRS requires benchmarking analyses do be performed using three years of comparable data. While single-year testing and other tested periods are not outright prohibited by the US Regulations, the three-year tested period is expected by the IRS. Business cycles or macroeconomic impacts must be used to explain deviations from this three-year standard.
Public vs Private Comparables
The IRS accepts only public company data.
Interquartile Range or Full Range
Interquartile Range is required.
Transaction-Based or Aggregate Approach, or Both
Currently, there are no specific guidelines regarding preference of aggregate or transactional testing of intercompany transactions. While testing on an aggregate basis is accepted by the IRS, it is best to apply transaction-based approach for more specific guidance on tax return.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
The benchmarking analysis is expected to be updated annually along with the Transfer Pricing Documentation Study in order to obtain penalty protection. It should be noted that the thirty day period to present the Transfer Pricing study upon audit is a period to present documentation, not to prepare documentation. Transfer pricing documentation is expected to be completed contemporaneously with the taxpayer’s tax filing.
TP Penalties
In Case of Delayed Submission of Documentation
There is no penalty for failure to provide transfer pricing documentation as it is not strictly required; however, documentation may help avoid a penalty.
In case of Income Adjustments in Course of a Tax audit
Pursuant to IRC § 6662, taxpayers may be liable for either a 20% or 40% penalty for an underpayment of tax attributable to a substantial or gross valuation misstatement. Refer to IRC § 6662 and Treas. Reg. § 1.6662-6. However, penalties may be avoided by establishing reasonable cause and good faith through taxpayer-provided documentation demonstrating the taxpayer’s application of IRC § 482.
Other Considerations
APA & MAP Availability
Taxpayers may request unilateral, bilateral or multilateral APAs. The APA process is administered by the IRS Advance Pricing and Mutual Agreement Program. According to Rev. Proc. 2015-40, taxpayers may request MAP assistance often referred to as a ”competent authority request” or a “MAP request,” if taxation has or is likely to occur that is not in accordance with the provisions of a double tax treaty (DTT) to which the US is signatory.
Applicability of Safe Harbour Rules
There are no safe harbors per se. However, Treas. Reg. § 1.482-2 provides taxpayers the opportunity to use applicable federal interest rates (AFRs) for intercompany loans and advances.
Treas. Reg. § 1.482-2 provides “safe haven interest rate based on applicable Federal rate. Except as otherwise provided in this paragraph (a)(2), in the case of a loan or advance between members of a group of controlled entities, an arm’s-length rate of interest referred to in paragraph (a)(2)(i) of this section shall be for purposes of chapter 1 of the Internal Revenue Code:
(1) The rate of interest actually charged if that rate is:
(i) Not less than 100 percent of the applicable Federal rate (lower limit) and
(ii) Not greater than 130 percent of the applicable Federal rate (upper limit) or
(2) If either no interest is charged or if the rate of interest charged is less than the lower limit, then an arm’s-length rate of interest shall be equal to the lower limit, compounded semiannually, or
(3) If the rate of interest charged is greater than the upper limit, then an arm’s-length rate of interest shall be equal to the upper limit, compounded semiannually, unless the taxpayer establishes a more appropriate compound rate of interest under paragraph (a)(2)(i) of this section.
However, if the compound rate of interest actually charged is greater than the upper limit and less than the rate determined under paragraph (a)(2)(i) of this section, or if the compound rate actually charged is less than the lower limit and greater than the rate determined under paragraph (a)(2)(i) of this section, then the compound rate actually charged shall be deemed to be an arm’s-length rate under paragraph (a)(2)(i).
Additionally, the US Department of the Treasury and IRS recently announced their intent to issue proposed regulations and other guidance on applying the Simplified and Streamlined Approach (“SSA”) method of the OECD for pricing certain controlled transactions involving baseline marketing and distribution activities.
Taxpayers subject to US tax on in-scope transactions may elect to apply the SSA as an elective safe harbor for tax years beginning on or after January 1, 2025. The Treasury intends to implement the substance of the OECD’s February 2024 report on Pillar One Amount B, including supplemental statements released in June 2024, in its entirety.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
Cost sharing and other IP migration transactions are generally challenged.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
In general, transfer pricing scrutiny during a tax audit may be considered a common practice. Transfer pricing is extensively regulated in the US, and the IRS has recently taken a number of administrative steps to increase its ability to focus on international transactions, with a particular emphasis on transfer pricing. Due to this emphasis, documentation is requested frequently at the outset of any examination of taxpayers transacting with foreign related parties.
However, if the transfer pricing methodology for international transactions is challenged during the initial stages of any audit an adjustment is likely. Once the IRS commits significant resources to the audit, a Notice of Proposed Adjustment should be expected. However, experiences have shown that well-reasoned documentation may potentially reduce the possibility of further scrutiny.
Relevant Regulations and Rulings with Respect to Thin Capitalization or Debt Capacity in the Jurisdiction
Earnings stripping rules under IRC § 163(j) are intended to prevent the erosion of the US tax base of a thinly capitalized corporation by means of excessive deductions for certain interest. As part of the 2017 Tax Cuts and Jobs Act (“TCJA”), the US enacted a new limitation on interest deductions for businesses. With the 2017 TCJA amendment, businesses are permitted to deduct net interest payments for debt against their taxable income up to 30 percent of their earnings before interest and tax.
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Simplified and Streamlined Approach
Recently, the United States (“US”) Department of the Treasury and IRS (collectively, “Treasury”), published Notice 2025-04 (“Notice”) and announced their intent to issue proposed regulations and other guidance on applying the Simplified and Streamlined Approach (“SSA”) method of the Organization for Economic Co-operation and Development (“OECD”) for pricing certain controlled transactions involving baseline marketing and distribution activities.
Taxpayers subject to US tax on in-scope transactions may rely on the Notice and elect to apply the SSA as an elective safe harbor for tax years beginning on or after January 1, 2025. The Treasury intends to implement the substance of the OECD’s February 2024 report on Pillar One Amount B (“the Report”), including supplemental statements released in June 2024 (“the Statements”), in its entirety. Comments on the notice were due to be submitted by March 7, 2025.
Tariffs
The threat of new or increased tariffs between major world economies has also created a volatile situation for companies with multinational operations. Recent examples include the reintroduction of tariffs on all steel and aluminium imports into the US, new and increased levies between the US and China, tariffs on US imports from Mexico Canada (modified and/or delayed multiple times to date), and the threat of a forthcoming “reciprocal tariff” policy.
Taxpayers need to note here that customs authorities use somewhat different methods from income tax authorities to value intercompany cross-border transactions for tangible goods. This difference can produce negative outcomes for a business if not considered in the context of total tax liability.
While similarities exist between the methods used to value tangible goods, customs authorities and income tax authorities have different goals. Customs authorities are charged with ensuring that the value of imported goods accurately reflects all dutiable cost elements, while the goal of income tax authorities is to ensure that the value is not misstated and that it accurately reflects income realized in the tax authorities’ jurisdiction.
IRS Budget Cuts and Layoffs
The Trump administration has taken several steps to walk back the Inflation Reduction Act (IRA) of 2022, particularly targeting the funding allocated to the IRS. One of the first actions taken by the Republican-controlled House in 2023 was to rescind a portion of the $80 billion funding boost for the IRS that was included in the IRA. Most of the remaining funds set aside for increased audits and additional tax enforcement have been frozen. This has significantly impacted the IRS's ability to modernize and expand its operations. To date, approximately 6,700 IRS employees were laid off, with more cuts (as well as legal challenges to the reductions in force) expected.
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The US transfer pricing audit landscape is also constantly evolving with rapidly changing IRS policies and procedures. Under current guidance, the IRS conducts audit examinations at random and all companies are subject to audit for any open period. The ordinary statute of limitations period is three years.
However, this period can be extended to six years if there is a substantial understatement of income (more than 25% of the gross income reported) or indefinitely if fraud is involved. When a multinational enterprise (“MNE”) is selected for audit, the transfer pricing reports are to be requested under the first Information Document Request. The transfer pricing documentation is then to be presented within thirty days, and thus also why in practice it is important to maintain contemporaneous documentation. It should be noted that the thirty day period is a period to present documentation, not to prepare documentation.
Transfer pricing documentation is expected to be completed contemporaneously with the taxpayer’s tax filing. It is not actually submitted with the return, but the numbers are used on the international forms that are filed with the return. The document remains with the taxpayers records, and is submitted to the IRS only at the time it is requested during an audit of that fiscal year.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”) of 2022 allocating approximately $80 billion, in addition to its regular appropriations, to the IRS through September 30, 2031. Nearly 60% of this funding was allocated toward IRS enforcement. However, the IRS has paused their modernization, hiring, and operational overhaul under the new Trump administration given the abovementioned reductions in force and funding freezes.
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The US has a long history of resolving transfer pricing matters through an Advance Pricing Agreement (“APA”), whether unilateral or bilateral, or Mutual Agreement Procedure (“MAP”) cases.
The IRS does have a preference for bilateral APAs, as this generally provides for a stronger case file to have another treaty partner involved with the matter and to remove at least some possibility that the terms of the APA will be challenged by a foreign tax authority in the future.
The IRS publishes and regularly updates the Revenue Procedures applicable to APA and MAP cases. These Revenue Procedures set out the requirement to request such a ruling, the procedures by which the cases will be handled, and the amount of user fees to be paid for seeking the respective form of relief.
The typical APA has a term of five years and may under certain circumstances be “rolled back” to previous tax years where the statute of limitations remain open. The IRS is also typically open to a longer total APA term, seeking to have a few years of prospective application once the APA is fully negotiated and finalized.
The IRS’s Advance Pricing and Mutual Agreement (“APMA”) program has also faced several challenges in 2025. The Trump administration has significantly reduced the funding allocated to the IRS, including the APMA program. This has impacted the program's ability to effectively manage and negotiate advance pricing agreements (APAs) and mutual agreement procedures (MAPs) with other countries.
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US Regulations differ from OECD Guidelines with respect to information requirements contained in the Transfer Pricing Documentation Study in order for the taxpayer to be considered compliant. The US does not require the preparation of a Master File or CbC Report unless the US is the ultimate parent of a foreign subsidiary, and the global revenue exceeds certain thresholds.
#While the US is a signatory to the OECD Convention on Mutual Administrative Assistance in Tax Matters, it doesn't fully participate in the automatic exchange of information through the Multilateral Competent Authority Agreement (MCAA). A local file, or Documentation Study as it is referred to on the US, is required annually and to be completed contemporaneously with the taxpayer's tax filing.
The US has specific penalty provisions under IRC § 6662(e) for substantial or gross valuation misstatements related to transfer pricing. The OECD Guidelines do not prescribe specific penalties but encourage countries to adopt measures to ensure compliance. Penalties in the US are equal to 20% or 40% of the adjusted amount, depending on gravity of the adjustment.
Penalty protection can be achieved through contemporaneous transfer pricing documentation containing the ten principal documents outlined in the US Regulations. In addition, the US Regulations do not have a materiality threshold for transfer pricing documentation requirements.
The US’s “Best Method Rule” is similar in practice to the OECD’s “Most Appropriate Method” guidance. While naming conventions in the US regulations differ from OECD Guidelines (e.g., the Comparable Profits Method instead of the Transactional Net Margin Method), in practice, the methods are applied in similar ways. The US Regulations do not have a hierarchy of methods.
