On February 19, 2024, the OECD/G20 Inclusive Framework on BEPS released the report on Amount B of Pillar One. This report introduces a simplified approach to applying the arm’s length principle to baseline marketing and distribution activities, catering particularly to low-capacity countries’ needs. Content from the report has been incorporated into the OECD Transfer Pricing Guidelines.
Low-capacity countries report that a significant portion (30-70%) of their transfer pricing disputes relate to baseline marketing and distribution activities. The changes agreed upon in this report offer jurisdictions the option to apply straightforward bright-line rules to these activities, aiming to secure revenue, conserve tax administration resources, and provide certainty to multinational enterprises.
Amount B provides a simplified pricing framework, determining a return on sales for eligible distributors. This framework is expected to reduce disputes, compliance costs, and enhance tax certainty, especially benefiting low-capacity jurisdictions facing resource and data limitations.
The report introduces two implementation options for jurisdictions opting into the simplified approach from January 2025. It outlines the circumstances under which a distributor falls within the scope of Amount B and activities that may exclude a distributor from this approach, such as distributing commodities or digital goods.
The report aligns with the Two-Pillar Solution Outcome Statement from July 2023, with further work on the interdependence of Amount B and Amount A under Pillar One to be conducted before the signing and entry into force of the Multilateral Convention.
Incorporating Amount B guidance into the OECD Transfer Pricing Guidelines is accompanied by conforming changes to the Commentary on Article 25 of the OECD Model Tax Convention. These changes ensure optionality in dispute resolution mechanisms for non-adopting jurisdictions, directing states and taxpayers to consider specific directions within the report on Amount B where relevant to mutual agreement and MAP arbitration procedures. These conforming changes are pending approval by the OECD Council.
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