Implementation Amount B
The implementation of Amount B became a reality based on the Final Report released by the Organisation for Economic Cooperation and Development (OECD) on February 19, 2024. The report provides guidelines intended to simplify and streamline the application of the arm's length principle with regard to baseline marketing and distribution activities. Now as an Annex to Chapter IV of the OECD Transfer Pricing Guidelines, the Final Report offers detailed guidance for effective implementation.
In-scope transactions
Jurisdictions can choose to apply the Amount B approach for in-scope transactions of taxpayers in their jurisdictions for fiscal years starting on or after January 1, 2025. Countries that choose to apply the simplified and streamlined approach may opt to apply Amount B by either (1) permitting taxpayers resident within their jurisdiction to elect to apply the Amount B approach; or (2) require the Amount B approach to be used in a prescriptive manner in the jurisdiction.
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FAQ
What is Amount A of Pillar One?
Amount A of Pillar One is part of the OECD/G20 Inclusive Framework on BEPS, aimed at reallocating a portion of residual profits of large multinational enterprises (MNEs) to market jurisdictions where they have significant consumer-facing activities. It applies to MNEs with global turnover above a certain threshold and profitability above a specified level. Amount A introduces a new nexus rule based on significant and sustained engagement with the market, regardless of physical presence, and uses a formulaic approach to allocate profits. The goal is to ensure a fairer distribution of taxing rights and reduce profit shifting and tax avoidance.
What is Amount B of Pillar One?
Amount B of Pillar One is part of the OECD/G20 Inclusive Framework on BEPS, focusing on simplifying and standardizing the remuneration of related-party distributors performing baseline marketing and distribution activities. It provides a fixed return for these activities, consistent with the arm's length principle, to reduce disputes and administrative burdens. Amount B applies to in-scope multinational enterprises (MNEs) with related-party distributors.
What is the OECD guideline on Amount B?
The OECD guideline on Amount B of Pillar One aims to standardize and simplify the remuneration of related-party distributors performing baseline marketing and distribution activities. It establishes a fixed return for these activities, aligned with the arm's length principle, to reduce disputes and administrative burdens. Amount B applies to multinational enterprises (MNEs) with related-party distributors. The fixed return is determined through a pricing matrix, considering industry differences, and is based on financial ratios such as operating assets to sales and operating expenses to sales. Regional differences and differences in functional intensity are addressed through Operating Expense cross-checks and a Data Availability Mechanism determined using credit ratings of the countries where the distribution activities are conducted. This approach aims at enhancing tax certainty and reducing compliance costs for both MNEs and tax authorities.
