2025 Tax Planning: Four Boxes You Need to Check

By Brian Vincent

Agility and planning are king in the world of taxes. As the tax regulatory landscape continues to evolve in the U.S. and the world, it is critical that tax teams are thinking ahead and checking the boxes for a successful tax year in 2025.

Transfer pricing enforcement: The IRS brings the hammer 

On Oct. 20, 2023, the IRS announced it would increase its compliance efforts to ensure that U.S.-owned multinational enterprises (MNEs) that distribute goods in the U.S. "pay their fair share of taxes on the profits they earn from their U.S. activities."

What does this mean for your business? Ultimately, you and your team should be prepared for the IRS to become more aggressive on stamp transactions and assert transfer pricing penalties, especially in the absence of thorough and comprehensive transfer pricing documentation studies.

In addition, the IRS is taking swift action to close gaps following decades of budget cuts. Large foreign-owned and U.S.-owned corporations should be prepared for a more aggressive battle with the IRS and work with industry experts who understand the ins and outs of audit-ready compliance deliverables. Furthermore, the IRS has announced that some foreign-owned companies are reporting losses or exceedingly low margins, which can be driven by transfer pricing. Foreign-owned distributors should be prepared for audits and implement internal procedures to monitor intercompany pricing.

Global minimum tax (yes, we are still talking about it) 

While you're likely tired of discussing the global minimum tax, it's a critical component of your tax preparations. The Global Anti-Base Erosion Model Rules under the Organisation for Economic Co-operation and Development's Pillar Two seeks to introduce a minimum effective corporate tax rate of at least 15%.

As countries prepare to implement these concepts in their local tax regulations, tax professionals must navigate the complexities of compliance, including the intricacies of determining effective tax rates and understanding how the minimum tax interacts with local tax laws. The adoption of the global minimum tax could reshape corporate tax planning strategies, requiring tax advisors to rethink approaches to cross-border transactions, transfer pricing and risk assessment, all while staying attuned to evolving legislative developments and the implications for their clients' international operations.

Using technology to inform accurate data, planning opportunities and compliance are a few strategies that can set your company up for success. Continually assessing and monitoring these complex and evolving concepts will be critical as companies move into 2025.

The IRS GLAM on financial transactions 

On Dec. 29, 2023, the IRS issued General Legal Advice Memorandum (GLAM) AM 2023-008 titled "Effect of Group Membership on Financial Transactions under Section 482 and Treas. Reg §1.482-2(a)."

The GLAM provides nonbinding legal guidance with respect to the effects of group membership on related party financial transactions under Section 482. The GLAM provides guidance which aligns with the IRS' position in various controversies in this area and highlights the importance of obtaining outside technical advice in this area.

Transfer pricing and sustainability go hand in hand 

When it comes to sustainability and transfer pricing, there is not a one-size-fits-all approach. Partnering with a trusted and experienced transfer pricing team that can advise you on models that reflect sustainable practices, such as eco-friendly production processes or ethically sourced materials, is a valuable way to build a company's sustainability hub, or microbusiness, within its current organization.

Furthermore, regulatory developments around transfer pricing are increasingly emphasizing transparency and accountability. This shift encourages companies to disclose more information about their environmental impact and to consider how their pricing strategies affect local communities and ecosystems. As a result, businesses that proactively integrate sustainability into their transfer pricing practices may enhance their reputation, mitigate risks, and create long-term value while appealing to a growing base of environmentally conscious consumers and investors.

As your tax team prepares for compliance in 2025, considering and planning for the multifaceted challenges and opportunities presented by transfer pricing, IRS enforcement, GLAM and sustainability is essential. Establishing strategies that meet regulatory requirements as well as your organization's needs will serve your team well as it navigates the international tax landscape.