On 19 February 2024, the OECD published its simplified and streamlined approach to in-country baseline marketing and distribution activities – formerly referred to as “Amount B”. This publication now forms part of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
The design of this approach was strongly focused on the specific needs of countries that were unable to, or experienced extreme difficulties in, applying existing transfer pricing approaches. Given this, the OECD acknowledged the simplified and streamlined approach would not be appropriate in all jurisdictions. Specifically, there are three options which a country can elect to apply in respect of the simplified and streamlined approach to in-country baseline marketing and distribution activities, namely:
1. These rules do not apply
2. Optional for qualifying activities
3. Mandatory for qualifying activities
Observations
Inland Revenue has advised that New Zealand has opted not to apply the simplified and streamlined approach. As a result, there is no change to New Zealand’s current transfer pricing rules or practice.
This means the existing simplification measure for small foreign-owned wholesale distributors remains available and existing transfer pricing rules apply in all other cases. Accordingly, transfer pricing documentation will still need to be maintained in accordance with the arm’s length principle for New Zealand.
If foreign owned businesses apply the simplified and streamlined approach to in-country baseline marketing and distribution activities in respect of their New Zealand activities, this could expose them to penalties.
Similarly, if a New Zealand headquartered group operates in a jurisdiction that applies the simplified and streamlined approach to in-country baseline marketing and distribution activities, it must still apply existing transfer pricing approaches to the relevant transaction in respect of its New Zealand obligations.
To the extent that double taxation arises from a transfer pricing adjustment, the simplified and streamlined approach cannot be relied upon in Competent Authority negotiations to relieve this.
Inland Revenue’s position is not unexpected. New Zealand has a relatively mature transfer pricing regime that is based on OECD principles, but with appropriate safe-harbours to allow smaller distributors to manage compliance costs. Adopting the simplified and streamlined approach for in-country baseline marketing and distribution activities would have created additional costs for little gain in overall robustness of transfer pricing outcomes.
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