OECD issues Amount B report
The OECD issued the final report on Amount B on 19 Feb 2024. These rules will form part of the OECD transfer pricing guidelines and has been rechristened as the simplified and streamlined approach (the approach), instead of Amount B.
The approach is applicable for wholesale buy-sell marketing & distribution transactions and sales agency and commissionaire transactions. Exclusions are non-tangible goods, services and commodities.
Key aspects of the report are:
- Jurisdictions to decide on implementation of the approach in their respective tax regime. Jurisdictions can include the approach in their tax legislation either in an elective manner or perspective manner
- It is largely based on the public consultation document issued in July 2023.
- The arm’s length consideration in the approach is not to be considered as a floor or ceiling for distribution activities in general.
- India has made several reservations across the report, including not supporting the approach if qualitative criteria is not included.
- Scoping criteria – can be tested using one-sided tp methods and quantitative filters – operating expenses over net sales.
- Arm’s length consideration arrived through pricing matrix, operating expense cross-check and country risk adjustment.
The finalization of the approach is a landmark development in the direction of dispute resolution as it is a consensus document by the G20 inclusive framework. Wide adoption of the approach by jurisdictions can provide tax relief to MNC groups w.r.t. protracted litigation for baseline distribution activities.
The detailed analysis of the report is captured in the attached VSTN alert.