Multinational enterprises (MNEs) may want to review the Organization for Economic Co-operation and Development (OECD)’s latest consultation on Pillar One of its two-pillar approach to address tax challenges from the digitalization of the economy. The OECD has now released a new consultation paper on Amount B, which is intended to simplify the application of the arm’s length principle to in-country baseline marketing and distribution activities, particularly to address the needs of low-capacity jurisdictions (i.e., jurisdictions that have resource constraints). The OECD’s consultation paper outlines the main design elements of Amount B (the scope), the pricing methodology to be used, documentation requirements and the design of a tax certainty framework for dispute resolution. Stakeholders are asked to provide comments on these guidelines, which could have a far broader impact than the rules for Amount A of the Pillar One proposal, by January 25, 2023.

The OECD’s request for feedback on Amount B is the latest in a series of planned public consultations to consider different elements of its Pillar One proposal, on which not all countries have reached consensus. The OECD states in this public consultation document that, based on its revised timeline, it aims to reach agreement on Amount B by mid-2023, so that these rules may be able to come into effect in 2024, alongside Amount A.


The OECD first released details of the proposals under review to address challenges of tax and the digital economy in 2019 as part of its base erosion and profit shifting (BEPS) project. Generally, the OECD/G20 Inclusive Framework contemplates tax proposals under two specific “pillars”. More than 135 countries and jurisdictions of the OECD/G20 Inclusive Framework (including Canada) agreed to certain key aspects of this approach in October 2021.

The OECD’s Pillar One proposal introduces a new mechanism for allocating profit, which applies to MNEs with global revenue above €20 billion and profit before tax exceeding 10%, with 25% of adjusted profit before tax in excess of the 10% (i.e., Amount A) to be reallocated to market jurisdictions. A market jurisdiction will be eligible to tax Amount A if the “Covered Group” derives more than EUR 1 million in revenues from that jurisdiction, or, alternatively, EUR 250,000 if that jurisdiction’s GDP is lower than EUR 40 billion. Extractives and regulated financial services that meet defined criteria are excluded from the scope of these rules. In addition, Pillar One also outlines a proposed approach to mandatory binding dispute prevention and resolution for Amount A.

Pillar One also contemplates simplifying the application of the arm’s length principle to in-country baseline marketing and distribution activities (Amount B), which would have a broader scope and would not be subject to the revenue and profitability thresholds applicable to Amount A.

Over the last year, the OECD has asked for public feedback on various aspects of Amount A under Pillar One but had yet to launch consultation on Amount B, until now. The OECD/G20 Inclusive Framework also recently published model rules and commentary to help Canada and other jurisdictions to implement changes under Pillar Two of these rules, including that certain MNEs will be subject to a minimum 15% tax rate.

Amount B consultation — Scope

The scope of Amount B would apply to certain “buy-sell” arrangements where the tested party purchases goods from a related party for wholesale distribution to unrelated parties. The consultation paper states that Amount B may also apply to sales agency and commissionaire arrangements, but acknowledges that this could pose challenges for establishing a standardized pricing methodology and asks for feedback on this issue.

The consultation paper proposes that Amount B would apply to controlled transactions involving the distribution of tangible property and asks for stakeholder feedback on proposed exclusions relating to distribution and marketing of:

  • Services (including financial services) or
  • Digital property (e.g., software).

The OECD notes that Amount B, when applied to distributors meeting the above broad definitions, would be based on a number of qualitative and quantitative scoping criteria and requests feedback on the proposed criteria. The OECD provides qualitative examples including that an in-scope distributor should not:

  • Undertake valuable and material regulatory compliance activities
  • Perform important technical or specialized services
  • Own or generate unique and valuable assets or
  • Assume more than limited risks.

Proposed quantitative examples include limits on proportions of marketing and advertising expenses, packaging and assembly costs and support services.

The OECD also requests comments on whether an exemption from Amount B should apply where another transfer pricing method is the most appropriate method and/or where there are local market comparables.

Despite the introduction of Amount B, the consultation paper indicates that terms of existing Advance Pricing Agreements (APAs) should be respected and that APAs will continue to play a role in delivering tax certainty.

Amount B consultation — Other considerations

The OECD consultation on Amount B also includes sections that describe in some detail and ask for consultation on:

  • Pricing methodology — Proposed Amount B pricing methodology aligns with current transfer pricing practices but includes additional outputs for consideration such as a pricing matrix approach or a mechanical pricing tool
  • Documentation requirements — Retain and build upon the current master file / local file documentation standards set out in the OECD Transfer Pricing Guidelines
  • Tax certainty — Outlines a tax certainty framework that could be used to resolve disputes from the application or operation of Amount B.

For details, see the following alert from KPMG’s U.S. member firm, “KPMG report: Public consultation on Amount B under Pillar One, initial observations and analysis”.

We can help

Your KPMG adviser can help you assess the effect of the OECD’s proposals on your business and provide guidance on how this might impact you going forward.

For more information, contact your KPMG adviser, or:

Demet Tepe
National Leader Transfer Pricing
T: 514-840-5767

Information is current to December 19, 2022. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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