On 8 December 2022, the OECD released the latest public consultation document on Pillar 1: Amount B. The deadline to respond to the consultation is 25 January 2023.
Amount B forms part of the OECD / G20 Inclusive Framework's Pillar 1 proposal and is focused on simplifying and streamlining the remuneration of baseline marketing and distribution activities in-market. The aim is that this would enhance tax certainty around marketing and distribution returns, whilst reducing disputes between taxpayers and tax authorities in this area. Amount B potentially has relevance to MNCs far beyond Amount A, both due to the lack of a specific size threshold for Amount B to apply, and since the possibility of including the Amount B rules in the OECD Transfer Pricing Guidelines is being contemplated. Please see here a link to our tax policy alert outlining further details of the consultation document, and some of the key points below.
Scope
The consultation document gives a general overview of the type of distribution activities it is targeting; specifically, it envisions Amount B as applying to certain ‘baseline’ distribution arrangements, identified as “common type[s] of distribution arrangements involving an associated enterprise that distributes on a wholesale basis to third parties goods supplied by an associated enterprise". Discussion is ongoing as to whether this will include sales agents and commissionaires which are currently tentatively included within the definition.
Pricing methodology
The pricing methodology is currently based on the Transactional Net Margin Method (TNMM). The BvD Orbis database has been leveraged, using search criteria to produce a dataset of businesses that undertake wholesale distribution as their majority business activity. The document notes that the pricing methodology is being developed through an “iterative process” and and will be underpinned by a comparables search deploying common benchmarking search criteria, selection and analysis of independent comparables.
Documentation
The document outlines the proposed approach to documentation requirements for Amount B, building on the existing transfer pricing documentation requirements in the OECD Transfer Pricing Guidelines. It is proposed that taxpayers with controlled transactions in scope of Amount B include additional items of information in their local file to support this position.
Tax certainty
The document states that the general expectation is that Amount B will mitigate disputes involving in-scope baseline marketing and distribution. For tools that would resolve any disputes surrounding Amount B, it specifically recognises the long-standing mechanisms of APAs and MAPs as valuable to resolve any possible future disputes or any double taxation arising from the application of Amount B.
