BEPS 2.0 - Pillar One - Amount B - is it really a simplified approach to Transfer Pricing?

Insights • BEPS 2.0 - Pillar One - Amount B - is it really a simplified approach to Transfer Pricing?

BEPS 2.0 - Pillar One - Amount B - is it really a simplified approach to Transfer Pricing?

On 19 February 2024, the Organisation for Economic Cooperation and Development (OECD) published the final report on Pillar One – Amount B, that in theory is designed to simplify and streamline the application of the arm’s length principle to baseline marketing and distribution activities.

Let’s have a preliminary overview of what Amount B of pillar One entails.

Who is under the scope of amount B?

Amount B is not subject to any revenue threshold (unlike Pillar One – Amount A and Pillar Two), therefore the changes of an applying to a wider scope of taxpayers is high.

The Amount B approach is optional for countries (can be applied for fiscal years starting on or after 1 January 2025) and will be treated as providing an arm's-length outcome only for the countries that choose to apply the approach. Therefore, amount B non-binding on the counter-party country.

What transactions are under the scope of amount B?

The Amount B approach applies for related party transactions that meet all the scoping criteria.

The qualifying transactions and scoping criteria of the approach are summarised below.

Qualifying Transaction	Buy-sell marketing and distribution transactions where goods are purchased from associated enterprises for wholesale distribution (i.e. distribution to any type of customer except end consumers) to unrelated parties.
	OR
	Sales agency and commissionaire transactions that contribute to wholesale distribution of goods to unrelated parties carried out by associated enterprises.
Scoping Criteria	1. Must exhibit economically relevant characteristics such that it can be reliably priced using a one-sided transfer pricing method where the distributor, sales agent or commissionaire is the tested party.
	AND
	2. On a preceding 3-year weighted average basis, the ratio of ‘annual operating expenses’ to ‘annual net revenues’ of the tested party must be within a range of between 3% and an upper bound of 20%-30%.
	AND
	3. DO NOT involve distribution of non-tangible goods or services (including digital goods and services) or the trading, marketing or distribution of commodities.
	AND
	4. DO NOT carry out non-distribution activities (e.g. manufacturing, research & development), unless the qualifying transaction can be adequately evaluated and priced separately from these activities.

Key Highlights and Initial Observations

Although the application appears to be expansive and accessible to all taxpayers, the criteria for related party transactions are specific, requiring a thorough evaluation of eligibility within the taxpayer's intended country of use.

At this early stage, our initial impression is that consistency across countries is crucial for this approach to effectively streamline transfer pricing. Given that it is an optional method to address transfer pricing, it remains to be seen how receptive countries will be to incorporating it into their local legislation.

Stay updated.

Stay tuned for part two of this article series, where we'll delve into the details of the amount B methodology. Looking for expert transfer pricing? Contact us today to discuss your needs.