AMOUNT B

Pillar One of the Two-Pillar Solution to the Tax Challenges arising

from Digitalisation

Webinar co-hosted by China Multilateral Tax Centre

7 March 2024
SESSION 1
OVERVIEW OF AMOUNT B
Presented by Noel MAHER, Debra EVANS (OECD)
AMOUNT B – Agenda

1. Introduction & • Objectives of Amount B

scoping • Scoping criteria
• Excluded transactions
considerations

• Global dataset
2. Pricing framework • Pricing matrix
• Adjustment features

3. Implementation & • Implementation

• Tax Certainty
tax certainty • Next steps
INTRODUCTION
AMOUNT B – Goals and intended benefits

• Distribution arrangements constitute an area of concern for Tax Admins and Taxpayers
alike and are a frequent focus of domestic transfer pricing controversy and are often the
subject of dispute and require settlement under the MAP.
• Many governments and businesses view improvements in this area as a key deliverable of
Pillar One.
• Amount B aims to standardise the remuneration of related party distributors that perform
baseline distribution activities in a manner that is aligned with the arm’s length principle;
• Amount B is being designed to:
– simplify the administration of transfer pricing rules for Tax Admins and reduce
compliance costs for Taxpayers;
– enhance tax certainty and reduce controversy between Tax admins and Taxpayers;
– assist low-capacity jurisdictions that often face difficulties given a lack of local market
comparables.
AMOUNT B – IF mandate

Inclusive Framework Mandate

“The application of the arm’s length principle to in-country
baseline marketing and distribution activities will be
simplified and streamlined, with a particular focus on the
needs of low-capacity countries.”

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Overview of Amount B

Amount B guidance was approved and published by the Inclusive

Framework (140+ members) on February 19th and incorporated into the
OECD Transfer Pricing Guidelines

A pricing matrix is established to price in-scope baseline distribution

transactions with adjustments in specific cases.

Available to jurisdictions as an optional framework from January 2025,

coupled with binding IF political commitment for low-capacity jurisdictions.
Overview of Amount B

Scope applies to wholesale

Priced using a pricing matrix Implementation
distributors
• Including buy/sell entities, • Takes account of industry, • Amount B is now incorporated
commissionaires, sales agents operating asset intensity into OECD TPG as an optional
(OAS) and operating expense approach
• Should not own unique and intensity (OES)
valuable intangibles nor assume • Adopting jurisdictions can
economically significant risks • Pricing is adjusted in cases of choose to apply Amount B as a
very low & high functionality rule or taxpayer safe harbour
• Segmentation and de minimis
retail sales permitted
• Includes a geographic • While non-binding on
adjustment mechanism to counter-party jurisdictions,
• Excludes distribution of services, address specific country risk specific measures & guidance
commodities & digital goods differences to provide tax certainty
• OPEX/sales quantitative filter
SCOPE
AMOUNT B – Scope overview

Applies to wholesale distributors including, buy/sell,

commissionaires and sales agents
• No unique and valuable intangibles
• No assumption of economically significant risks
KEY
FEATURES • No distribution of commodities or services
• No retail above de minimis (20%)
• No non-distribution activities unless segmentable
• No below-baseline activities, measured quantitatively as
OpEx/sales < 3%
AMOUNT B – Scope

Qualifying transactions
AMOUNT B – Qualifying Transaction (example 1)

Suppliers
Related
party
transactions 1:
1 Manufacturing
Contract arrangement -
Principal Contract manufacturer
manufacturer
sells finished products
to Principal.
2

Wholesale 2:
distributor Distribution
arrangement –
Principal sells finished
goods to Distributor –
who on-sells to
Unrelated customers.
parties
AMOUNT B – Qualifying Transaction (example 2)

Suppliers
Related
party
Contract transactions 1:
manufacturer 1 Manufacturing
Principal arrangement - Contract
manufacturer sells finished
products to Principal.
2
2:
Commissionaire
arrangement –
Commissionaire performs
Unrelated local sales activities but for
Commissionaire parties the account of the Principal
– doesn’t take title or
record sales locally.
AMOUNT B – Scope

Scoping Criteria
AMOUNT B – Scope

Scoping Criteria
AMOUNT B – Scope

Excluded transactions
– Distributors involved in the distribution of services excluded
– Distributors involved in the distribution of commodities
excluded
– Distributors involved in the distribution of digital goods
excluded
– Distributors involved in retail sales above de minimis threshold
excluded (>20% of total annual net sales)
– Distributors involved in non-distribution activities excluded
unless segmentable (e.g. manufacturing, R&D, procurement,
financing)
AMOUNT B – Scope

Interaction with other OECD TP methods

– The selection of a transfer pricing method always aims at finding the
most appropriate method for a particular case.

– Amount B (as a TNMM based approach) will be considered the

most appropriate method for all in-scope transactions.

– The guidance provides one exception that enables the taxpayer or

tax administration to assert that internal comparables (i.e. the
internal CUP method) can be used instead of the Amount B where
applicable.
AMOUNT B – Scope

1. Optional qualitative scoping criterion

• The Inclusive Framework is working on an
additional optional scoping criterion that
jurisdictions may choose to apply as an
additional step to identify distributors
OPEN ISSUES
performing non-baseline activities.
• The IF will conclude this work by 31 March
2024, with any additions to be incorporated
into the OECD TP Guidelines.
PRICING FRAMEWORK
AMOUNT B – Pricing overview

Simplified and streamlined approach to pricing

• Supersedes most other TP methods - only internal CUPs can
supersede Amount B pricing
• Application of common benchmarking search criteria and use of
KEY
FEATURES
global data to inform the determination of arm’s length ranges
• Designed as a pricing matrix which takes account of operating
assets, operating expenses and industry as relevant profit driving
factors
• Use of return on sales as the applicable net profit indicator
• Includes adjustments to address: (i) distortive returns on OPEX,
(ii) country risk in higher risk markets
• Subject to periodic updates
AMOUNT B – pricing a transaction in scope of
Amount B
• The Amount B pricing model is based on arm’s length returns observed in an
underlying global set of comparable independent companies drawn from publicly
available information.

• Same principle as comparing independent companies on a case by case basis in the

traditional transfer pricing approach to these transactions.

• Analysis done in advance to cover all companies in scope, in all adopting jurisdictions

• Reduces resources needed in each case

• More advanced certainty and less disputes

AMOUNT B – pricing a transaction in scope of
Amount B
• To price a transaction in the scope of Amount B we assign a range of acceptable
operating margins using -

The products sold by a company – assigned to a given Industry Grouping

Fixed assets held by a company – Operating Assets to Sales (OAS)

Expenses incurred by a company – Operating Expenses to Sales (OES)

AMOUNT B – Pricing framework

Use of industry groupings

AMOUNT B – Pricing framework

Industry Grouping 1 Industry Grouping 2 Industry Grouping 3

• perishable foods, grocery, • IT hardware and components, • medical machinery,

electrical components and
• household consumables, consumables,
• industrial machinery including
• construction materials and • animal feeds, agricultural supplies,
industrial and agricultural
supplies, alcohol and tobacco, pet foods, vehicles,
• plumbing supplies and metal. • clothing footwear and other apparel, • industrial tools,
• plastics and chemicals, lubricants, • industrial components
dyes, miscellaneous supplies.
• pharmaceuticals, cosmetics, health
and wellbeing products,
• home appliances, consumer
electronics, furniture, home and office
supplies, printed matter, paper and
packaging,
• jewellery, textiles hides and furs, new
and used domestic vehicles, vehicle
parts and supplies,
• mixed products and products and
components not listed in group 1 or 3.
AMOUNT B – Pricing framework
AMOUNT B – Pricing framework - example
• Commissionaire / sales agent meets Amount B scoping criteria;
• Distributes construction materials (Industry Group 1);
• Operating asset intensity: 10% OAS (<15% OAS);
• Operating expense intensity: 5% OES (<10% OES).

Amount B result:
1.5% return on sales
(+/- 0.5%)
AMOUNT B – Pricing framework

Adjustment Features
• Comparability adjustments should only be considered if they are expected to
increase the reliability of the results;
• It would have been desirable to produce a universal and globally consistent
Amount B pricing matrix based on the global dataset– without the need for
further adjustments;
• However, IF Mandate has been to appropriately balance simplification
and reliability, and ultimately to adhere to the arm’s length principle;
• We relied upon a data driven analysis grounded in economic theory and
econometrics, and that supported application of adjustments in certain cases.
AMOUNT B – Pricing framework
1. Operating Expense Cross-Check (cap-and-collar) – Section 5.2
A corroborative check is performed by assessing the return derived
from the matrix by reference to the operating expense level of the
tested party. In exceptional cases, the Amount B return derived from
the pricing matrix can be adjusted to mitigate the risk of over / under
remuneration using this secondary net profit indicator.
Adjustment
Features
2. Data availability mechanism (Country risk adjustment) – Section
5.3
For jurisdictions with no comparable data available (especially
relevant to LCJs), a specific framework attributes a country risk
premium to distributors operating in higher risk qualifying
jurisdictions. The country risk premium is added to the return
otherwise derived from the pricing matrix.
AMOUNT B – Pricing framework

• The Inclusive Framework is in the process of agreeing

the definitions and lists of Qualifying Jurisdictions for
the purpose of section 5.2 and section 5.3.

OPEN ISSUES • The IF will conclude this work by 31 March 2024, with
any additions to be incorporated into the OECD TP
Guidelines.
IMPLEMENTATION & TAX CERTAINTY
AMOUNT B – Implementation

Incorporated into OECD TP Guidelines as an optional framework. Jurisdictions can

choose to adopt Amount B from January 2025.

Adopting jurisdictions can apply Amount B domestically as a rule or as a taxpayer

safe harbour.

Non-binding on counter-party jurisdictions, except in case of LCJs. IF political

commitment to respect Amount B when applied by an LCJ.

Amount B can also be used to resolve MAP disputes where both Competent
Authorities agree to do so.
AMOUNT B – Implementation

• Where Amount B does apply, the jurisdiction may adopt it as a RULE

or as a SAFE HARBOUR
RULE SAFE HARBOUR
Taxpayer, upon election to apply
Who applies Amount B? Taxpayer and Tax administration
Amount B

Can the tax administration of the tested

YES YES
party verify scoping criteria?

Can the tax administration of the tested

YES NO
party assert Amount B on taxpayers?

Non-binding (except where tested party Non-binding (except where tested party
Counter-party position
is in an LCJ) is in an LCJ)

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AMOUNT B – Tax Certainty

Tax certainty considerations

Scenario 1 – Amount B applied by an LCJ to a distributor in its jurisdiction

• In accordance with the IF political commitment, the application of Amount B by the LCJ to tested parties in that LCJ will be
respected by the counter-party jurisdiction.

Scenario 2 – TP dispute between two jurisdictions that have both adopted Amount B
• If the jurisdictions of both parties elect to apply Amount B, these jurisdictions would be expected to accept the outcome
determined by applying the Amount B approach to the in-scope transaction and provide reciprocal corresponding
adjustments or accept the result as an outcome in a MAP accordingly.

Scenario 3 – TP dispute where one or more jurisdiction(s) have not adopted Amount B
• In a MAP or resulting arbitration procedure, where one or more of the jurisdictions relevant to the MAP has not chosen to
apply or accept the Amount B approach, then the competent authorities of both jurisdictions engaged in that MAP must
justify their positions based only on the remainder of the OECD TPG.
• If there is a competent authority agreement that calls for application of the Amount B approach, or if the jurisdictions of
both parties that take part in the transaction elect to apply the Amount B approach in the relevant case, then the competent
authorities will rely on the Amount B approach. In such circumstances, taxpayers can also rely on such approach.

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AMOUNT B – Implementation

1. Definition of Low-capacity jurisdiction for IF

political commitment
• The Inclusive Framework is in the process of
agreeing the definition and list of Low-capacity
OPEN ISSUES
jurisdictions for the purpose of the political
commitment.
• The IF will conclude this work by 31 March
2024.
AMOUNT B – Timeline

Jan-Feb Mar-Apr May - Jun Jul-Aug Sep-Oct Nov-Dec

Amount B guidance
published

Complete work on open

issues
Produce templates,
further guidance, tools

Provide LCJ assistance

Amount B approved & Complete work on open issues Produce agreement Provide
published templates, guidance, implementation
tools assistance
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AMOUNT B – Concluding remarks

• Amount B is expected to provide substantial administrative and tax certainty

benefits to low-capacity jurisdictions;

• The effectiveness of Amount B will be assessed following an initial review period and
further refinements can be made to enhance the framework in the future;

• Further work is on-going to explore the feasibility of moving beyond an optional

Amount B framework – recognising the interdependency with progress on Amount
A & the MLC;

• OECD CTP is available to provide technical assistance, implementation advice, and

training on Amount B for adopting jurisdictions.
ANY QUESTIONS?
SESSION 2
ILLUSTRATIVE EXAMPLE
Presented by Elvira BUELGA FERNÁNDEZ (Spain)
AMOUNT B – Recap of scoping criteria

SS Co. (Spanish subsidiary)

Main activity: wholesale distribution of fertilizers. Complementary activity of
intermediation (transhipments). The company acquires the product from its related
parties in Chile (manufacturing entities) and distributes it to its clients in Europe and
Asia.

• Does the tested party own unique and valuable IP or assume economically
significant risks?
• Does the tested party distribute commodities, services, or non-tangible goods?
• Does the tested party perform any non-distribution activities? If so, are they
segmentable?
• Does the tested party perform any retail sales? If so, does it exceed the retail sales de
minimis threshold?
AMOUNT B – Pricing example

• If the tested party operates in a jurisdiction that has adopted

Amount B and the entity meets the scoping criteria, you then
proceed to application of the pricing framework;

• The Amount B pricing framework has three core components:

o Pricing matrix
o Operating expense cross-check
o Data availability mechanism (country risk adjustment)
AMOUNT B – Pricing example

• 1. Relevant industry
Parent Company
• 2. Determine the relevant factor intensity
classification.
• 3. Identify and apply the range from the
relevant matrix segment.
SS Co.
• 4. Operating expense cross-check (if
necessary)
• 5. Data availability mechanism for
Unrelated
parties qualifying jurisdictions.
AMOUNT B – Pricing example

1. P&L data (before calculation of Amount B return).

AMOUNT B – Pricing example

2.1. Calculation of Operating expense intensity (OES)

2.2. Calculation of net operating assets intensity (OAS)

AMOUNT B – Pricing example

3. Pricing matrix.

Under the pricing matrix the ROS

in year X should be 3% (+/- 0,5%)
AMOUNT B – Pricing example

4. Operating expense cross-check

oEBIT under Amount B: 200 (sales)*3% =6
oEquivalent return on OPEX: 6/49=12,24%
AMOUNT B – Pricing example

5. Data availability mechanism for qualifying

jurisdictions
oThe list of higher risk qualifying jurisdictions for DAM
purposes will be published on the OECD website;
oSpain is not a qualifying jurisdiction for DAM purposes;
oTherefore, no country risk adjustment is applied to the
Amount B return of the tested party in this case.
Q&A WITH OUR COUNTRY EXPERTS