Pillar One – Amount B: OECD issues public consultation Document
The OECD / G20 InclusiveFramework (IF) issued public consultation document on AmountB of PillarOne on 08 December 2022.
Though the guidance of Amount B has been issued as part of Pillar 1 still Amount B applicability is not turnover, or profitability based, and its scope covers entities being – whole sale distributors (buy sell) and sales agency, commissionaire arrangements and hence most of the MNCs would need to evaluate the same.
The alert summarises the progress by the IF on various aspects as well as key considerations including:
- Amount B to provide a simplified & streamlined approach to determine an arm’s length remuneration (routine& limited return) for baseline marketing activities by distributors, mostly for low-capacity jurisdictions. Distribution of commodities & non-tangible goods, are being currently out scoped
- Amount B covers buy-sell as well as sales agency, commissionaire arrangements. There are certain quantitative and qualitative parameters for qualifying under Amount B
- Pricing methodology of Amount B consists of benchmarking criteria to arrive at comparable companies. Two output options viz., pricing matrix approach (matrix of various parameters based on which arm’s length profitability range is arrived) and mechanical pricing tool approach (formulaic way to arrive at arm’s length profitability by inputting parameters of the tested party)
- TNMM is considered for Amount B. Alterative PLIs are also being contemplated
- Other aspects cover:
- Documentation – Capturing detailed FAR of distributor to ensure satisfaction of scoping criteria, rationale for comparability adjustments if availed. Alignment of local file, Master File and CbC report
- Transitional issues – where MNE considers reorganising distribution entities to either bring them in or out of scope, MNE will have to be mindful if it would constitute restructuring
- Tax certainty – Opting for AdvancePricingAgreement (APA) to agree on scoping & other aspects of Amount B or MutualProcedureAgreement (MAP) for relief on doubletaxation
Amount B would a milestone in dispute resolution as it is the first occasion where a detailed framework on undertaking benchmarking is issued. Since Amount B would be finalised by over 142 country members & that there are no threshold limits, there is a high probability of MNEs adopting it across jurisdictions, especially LCJ.