On 19th February 2024, the Organization for Economic Cooperation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released the report on Amount B of Pillar One. Amount B is based on the application of transfer pricing rules to determine a fixed return for the in-scope, in-country baseline marketing and distribution activities – including buy-sell, sales agent and commissionaire activities, which are common activities for Multinational Enterprises (“MNEs”) in jurisdictions where they do business. The MNEs are not required to meet monetary thresholds in order to fall within the scope of Amount B.

This framework is expected to reduce transfer pricing disputes, compliance costs, and enhance tax certainty for both tax administrations and taxpayers. It is particularly beneficial for low-capacity jurisdictions that face limited resources and data availability.

A simplified and streamlined approach:

The simplified and streamlined approach as per the report has been incorporated into the OECD Transfer Pricing Guidelines for MNEs and Tax Administrations 2022 as an Annex to Chapter IV – and conforming changes to the Commentary on Article 25 of the OECD Model Tax Convention relating to elimination of double taxation. Jurisdictions can elect to apply the approach but are not obliged to do so. For jurisdictions that choose not to apply the simplified and streamlined approach, the remainder of the OECD TPG will be guiding and the approach would not be decisive in dispute resolution procedures, even if the other involved jurisdiction applies the approach.

The approach provides a pricing framework whereby a three-step process determines a return on sales for in-scope distributors (based on (i) industry grouping, (ii) factor intensity classification, and (iii) the pricing matrix that corresponds to the intersection of (i) and (ii). The report describes the activities of a distributor that is within scope of Amount B (including certain non-distribution activities (e.g. manufacturing)), and of those excluded from the scope of Amount B (e.g. distribution of commodities or digital goods). It also introduces two implementation options for jurisdictions adopting the approach for fiscal years starting on or after 1 January 2025: where a jurisdiction may (i) allow, or (ii) require the tested party in the jurisdiction to apply the simplified and streamlined approach.

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