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On February 19, 2024, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (the “Inclusive Framework”) released a report on Pillar 1 Amount B, which is an optional simplified and streamlined approach to apply the arm’s length principle (ALP) to baseline marketing and distribution activities.

Jurisdictions can choose to apply the simplified approach for transactions carried out between associated enterprises (referred to as ‘controlled transactions for fiscal years starting on or after 1 January 2025.


Amount B deals with two types of qualifying transactions:

  1. Buy-sell marketing and distribution transactions when the distributor purchases goods from one or more associated enterprises for wholesale distribution to unrelated parties.
  2. Sales agency and commissionaire transactions when the sales agent or commissionaire contributes to one or more associated enterprises’ wholesale distribution of goods to unrelated parties.

The above transaction labelling does not influence whether a qualifying transaction falls within scope but places an emphasis on the functions performed, assets used and risks assumed by the parties to the qualifying transaction.

For a qualifying transaction to be in-scope of this approach:

  • The qualifying transaction should demonstrate economically relevant characteristics that allow for reliable pricing through a one-sided transfer pricing method (i.e., Cost Plus, Transactional Net Margin, or Resale Price), with the distributor, sales agent, or commissionaire serving as the tested party.
  • The tested party’s annual operating expenses should fall within a range of 3% to an upper limit, typically set between 20% and 30% of the tested party’s annual net revenue. The specific upper limit criteria will be determined by jurisdictions upon the implementation of Amount B.

Determining the return under the simplified approach

The Report offers detailed instructions on how transactions falling under Amount B should be priced by:

  • Utilising the proposed pricing matrix to quantify the return, considering factors such as the distributor’s industry, operational expense intensity, and operating asset intensity.
  • Implementing the operational expense cross-check to address any unusual outcomes effectively.
  • Incorporating an adjustment via the data availability mechanism for qualifying jurisdictions.

Tax certainty and the elimination of double taxation.

The report acknowledges that the application of Pillar 1 Amount B has the potential to result in double taxation if the jurisdiction in which the counterparty resides, chooses to make a main adjustment inconsistently. In such cases, the Mutual Agreement Procedures (‘MAP’) proceedings must be based on the Transfer Pricing Guidelines, without the direction on Pillar 1 Amount B. The report’s introduction states that, subject to their domestic legislation and administrative practices, Inclusive Framework member countries that choose not to apply Pillar 1 Amount B themselves are committed to respecting its application in “low-capacity jurisdictions”. It also mentions that work is being done to put this pledge into action, including the creation of competent authority agreements that might be incorporated into bilateral tax treaties.

General Observations

The fact that the OECD has implemented an optional implementation for OECD member countries could result in additional disputes. It also remains to be seen which jurisdictions will be considered as “low-capacity jurisdictions” and the selection criteria of how such jurisdictions were chosen.

That being said, there have already been some jurisdictions which have stated that they have certain reservations on the said approach, and it is anticipated that further updates will be issued in relation to Amount B.

Matthew Zampa


Luke Aquilina

Senior Tax Team Leader

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