On 19 February 2024 The OECD published the ‘Pillar One – Ammount B’ guidelines on the optional use of a simplified approach for entities with basic marketing and distribution activities (the so-called ‘B’ amount under Pillar I of the OECD Transfer pricing guidelines for multinationals and tax administrations).
In simplification, ‘Amount B’ is the right to apply a simplified approach when setting transfer prices for transactions concerning:
- the purchase-sale of marketing and distribution where the distributor purchases goods from one or more related companies for their wholesale distribution to unrelated parties; and
- sales agencies and commissions in which a sales agent or commission contributes to the wholesale distribution of goods by one or more related companies to unrelated parties.
Under the above types of transactions, in the case of market price fixing, the right to refer to the price matrix published in the report will be granted.
The price matrix shows that the profitability ratio of sales from the main marketing and distribution activities should be within the range from 1.5% to 5.5%, depending on the industry and the intensity of the factors of the entity.
In order to qualify for a simplified approach, the transaction under investigation must also meet additional criteria:
- the eligible transaction must show economic characteristics so that it can be reliably valued using a unilateral transfer pricing method where the distributor, sales agent or commission is investigated;
- the party concerned cannot bear annual operating costs lower than 3% or more than the upper limit of 20% to 30% the annual net revenue of the audited party.
- the audited entity cannot carry out non-distributive activities in addition to the eligible transaction, unless the eligible transaction can be properly assessed on a separate basis and can be reliably separately assessed.
The basis for the development of guidelines was that some OECD countries reported that 30–70% their transfer pricing disputes concern the main marketing and distribution activities. The main objective of introducing new rules in this area is to reduce transfer pricing disputes, reduce the expenditure that companies have to bear in compliance with tax rules and increase tax certainty.
The content of the guidelines has been integrated into the existing OECD Transfer Price Guidelines, as well as proposed changes to the Commentary to Article 25 OECD Model Tax Convention.
National tax administrations may choose to apply a simplified approach to transactions in tax years starting at the earliest 1 January 2025