Financier Worldwide 2026 Transfer Pricing World Watch Report
Clark Armitage offers insights in 2026 Transfer Pricing World Watch Report for Financier Worldwide Magazine.
Q: How are multinational enterprises adapting their transfer pricing (TP) strategies in response to the OECD’s Pillar One and Pillar Two implementations, particularly Amount B and the global minimum tax? What major changes do you anticipate in global TP guidance through 2026?
Armitage: On 18 December 2024, the Internal Revenue Service (IRS) issued notice 2025-04, which provides that MNEs may rely on the guidance to apply the simplified and streamlined approach (SSA) for baseline marketing and distribution activities for taxable years beginning on or after 1 January 2025, and until proposed regulations are issued. However, the application of the SSA may depend on whether the counterparty country has adopted the SSA. Many jurisdictions are still evaluating whether to adopt the SSA, while others have indicated they do not intend to adopt it but will respect outcomes in covered jurisdictions that do. MNEs are evaluating, on a country by country basis, whether to apply the SSA. Additionally, the IRS and Treasury have declared that they may consider expanding the scope of the SSA to cover certain digital transactions. US MNEs are not subject to income inclusion rules and undertaxed profits rules under the side by side safe harbor. However, we expect that some MNEs may revisit pricing of intercompany transactions to ensure compliance with the arm’s length standard, in order to avoid qualifying domestic minimum top-up tax adjustments.
Q: How are TP models evolving to reflect the strategic reallocation of functions and risks in response to geopolitical shifts, reshoring trends and supply chain diversification?
Armitage: Trade wars are having significant impacts on MNEs’ global supply chains. Depending on the industry and the countries in which MNEs operate, supply chains are being rethought and reorganized. This work must be carried out collaboratively across multiple disciplines – such as customs, business and tax and TP experts – to achieve the optimal outcomes for MNEs. For example, some MNEs have shifted transformation of products from high-tariff to lower-tariff jurisdictions. Others have restructured supply chains to segregate products and reduce values subject to tariffs. These changes often have a direct impact on intercompany operations and pricing, as they may involve the reallocation of functions, assets and risks within the group. When an MNE has existing or pending APAs, it must assess whether the supply chain changes are material in relation to the agreed or proposed TP method (TPM). If so, the MNE may have a disclosure obligation to the governments and may wish, or be required to, alter the TPM. The enforceability of US tariffs is being reviewed by the US Supreme Court, which recently heard the oral arguments in the case V.O.S. Selections Inc. v. Trump. If the court overturns the tariffs, MNEs may again need to assess the tax efficiency of their supply chains. An interesting question will be which entity within the MNE is entitled to the economic value of any tariff refunds.
Q: What are the most significant risks or audit triggers currently facing companies in relation to intangible assets and digital business models?
Armitage: Companies with material cross-border transfers of digital business assets and other IP face significant US TP risk. The IRS recently published its GLAM 2025-001 memorandum, which states the IRS position that it may rely on actual profit experience to make “periodic adjustments” to the pricing of hard to value intangibles. The GLAM describes two scenarios in which the IRS may use ex-post profit information that differs from the expected profit information a taxpayer considered when making the IP transfer. This means that the related foreign taxpayer will not get the benefit of any post-transaction risk that it accepted. The GLAM also maintains the IRS position that taxpayers are not permitted to apply this authority to reduce a TP. Thus, it is heads the IRS wins, tails the taxpayer loses. The large US MNE Meta Platforms is now involved in a significant TP dispute involving cross-border IP transfers, Facebook, Inc. v. Comm’r. The IRS appears to be applying its purported periodic adjustment authority under the GLAM. If the IRS wins, we would expect more such adjustments and perhaps a complete stop to cross-border transfers of IP from the US Accordingly, taxpayers that have made similar IP transfers are advised to monitor profitability and consider any resulting TP risk. As with any TP adjustment, double tax may result, and the counterparty jurisdiction may not agree. Where a US double tax treaty exists, these situations may find their way to a mutual agreement procedure (MAP).
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