Pillar One - Amount B

Foreword

In an increasingly globalised economy, multinational enterprises operate expansive value chains spanning several countries. As a result, lengthy cross-border tax disputes may arise, especially in relation to baseline marketing and distribution activities. These disputes often drain the financial and administrative resources of all parties involved. This challenge is only amplified for low-capacity jurisdictions whose tax administrations often grapple with limited resources and unavailable data. This report provides guidance designed to simplify the application of transfer pricing rules with regards to baseline marketing and distribution activities, alleviate administrative burden, cut compliance costs, and enhance tax certainty for tax administrations and taxpayers alike.

Released in October 2020, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting report Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint stated that Amount B was intended to simplify and streamline the application of the arm’s length principle to baseline marketing and distribution activities, with a focus on the specific needs of low-capacity jurisdictions. In October 2021, the Inclusive Framework agreed a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

For the past two years, Inclusive Framework members have worked on an equal footing to ensure that Amount B delivers meaningful simplification to price baseline marketing and distribution activities, considering in particular the challenges that low-capacity jurisdictions face in applying transfer pricing. In designing Amount B, the Inclusive Framework has benefited from businesses, tax practitioners, academics, and other stakeholders’ inputs through the public consultations held in December 2022 and July 2023. As a key deliverable of Pillar One, Amount B is expected to not only provide relief of compliance burdens for taxpayers but also to enable tax administrations to allocate resources towards riskier and more complex transactions, thereby ensuring a more efficient and impactful approach to their work.

This report was approved and declassified by the Inclusive Framework.1

Note

← 1.  Note by India: India wishes to record its reservation on the incomplete nature of the report owing to the non-inclusion of the definitions of ‘low-capacity jurisdictions (LCJs) and ‘qualifying jurisdictions’; and an appropriately designed optional qualitative scoping criterion. Further, India also wishes to record its reservation on various aspects of the Amount B design, including but not limited to the operating expense cross-check mechanism and the overall design of the pricing methodology. The detailed reservations are incorporated as footnotes within the report.