Amount B: more sticky situation than honey sweet

Amount B of Pillar One: game changing for low-capacity jurisdictions but no buzz from multinational enterprises

Amount B incorporated into OECD TP Guidelines

After a hive of activity by the workers at the OECD, the final report on Amount B of Pillar One has crystallised. Amount B is a simplified and streamlined approach to apply the arm’s length principle to baseline marketing and distribution activities. The approach involves a simplified matrix-based return on sales for eligible distributors of tangible goods, which is intended to enhance tax certainty by reducing compliance burdens for taxpayers and supporting tax administrations, particularly those in low-capacity jurisdictions, with efficient resource allocation. Where applicable, the rules negate the need for bespoke benchmarking for in-scope distribution related activities, which will be welcomed. However, there remain significant complexities and uncertainties which, if not resolved, could seriously threaten the success of this project.

Not a one size fits all for countries

Amount B is described as an optional approach and has not been designed as a one size fits all approach. This means that each of the Inclusive Framework member jurisdictions which have approved the Amount B report can decide if, how and when they will adopt it.


The OECD has indicated jurisdictions can choose to apply Amount B for fiscal years commencing on or after 1 January 2025, but a 2025 start date would require a swarm of activity from businesses and tax administrations, noting that 2024 is an election year in both the UK and the United States.

Size doesn’t matter

Unlike other aspects of the OECD’s BEPS 2.0 two-pillar program of international tax reforms, the scope of Amount B is not restricted based on the size of a multinational enterprise. If your business has less than EUR 750 million in revenue, you could still be affected.

In-scope distribution activities

Amount B is limited to the wholesale distribution of tangible goods to third parties (with a 20 percent tolerance for retail sales). Commodities, digital goods, and the provision of services (including financial services) are all excluded from the simplified approach. It was always envisaged that there would be a quantitative gateway test used to identify baseline distribution and marketing activities based on the ratio of operating expenses to sales. In a surprise move the OECD have left it up to jurisdictions to decide where to set this threshold between 20 percent and 30 percent. It is unclear why jurisdictions could not reach a consensus on a 25 percent threshold or even 30 percent, which was the original proposal in the July 2023 consultation document. This increases the possibility for multinationals to be in-scope in one jurisdiction and out of scope in another, making it hard to see how the enhanced tax certainty aims of Amount B will be achieved. 

To compound matters, there is ongoing work on an additional optional qualitative scope criterion, to be completed by 31 March 2024, but no details on what this may be. India has made it clear it sees the inclusion of a qualitative test as critical to gaining its support on Amount B. This means additional optionality for jurisdictions and greater scope for both asymmetrical implementation approaches and disputes.

On a more positive note, where entities also perform out-of-scope functions, the baseline marketing and distribution activity can be included in scope if the other activities can be accurately delineated as separate transactions and reliably priced separate from the distribution activity.

Limited compliance simplification

A key requirement is that the activities of the distributor can be reliably priced using the Transactional Net Margin Method and this necessarily entails the application of the OECD approach to accurate delineation of transactions, including the risk control framework under which contractual terms can be displaced or supplemented based on the conduct of the parties to a controlled transaction. There is also an override to the Amount B approach where an internal ‘comparable uncontrolled price’ (CUP) can be reliably used to price the transaction. Taken together these two points substantially detract from the simplification benefits for taxpayers. The report acknowledges that internal CUPs are likely be rare given the exclusions for commodities which begs the question why it was essential to include this override.

The pricing matrix

Pricing will be based on a matrix setting out different returns on sales depending on three industry groupings and factor intensity (Operating Expenses / Sales and Operating Assets / Sales). There is a +/- 0.5 percent tolerance range from the margins indicated in the matrix. The framework places greater emphasis on operating assets than previous approaches to benchmarking returns for distribution activities and where it applies it is likely to reduce the extent to which multinationals can set standardised returns across geographic regions. Getting to grips with operating assets may not be straightforward for taxpayers, especially for distribution entities with other activities, but will become essential as this factor intensity has a significant bearing on the required margin.

Since the previous consultation there have been some reclassifications of product categories between the industry groupings. Some of these address anomalies noted during the consultation but there are a few surprises such as the movement of pharmaceuticals into industry group two.

A return on operating expenses cross-check acts as a cap and collar mechanism but our initial assessment is that these appear to be largely ineffective.

Data availability mechanism

One of the big topics for debate during the consultation was the extent to which modifications to the global pricing matrix were needed to account for the impact of geographic differences on the profitability of baseline marketing and distribution activities. The Inclusive Framework has landed in a sensible place here, providing a calculation mechanism to increase the Amount B returns in jurisdictions with lower sovereign credit ratings (below BBB-) for which there is limited data in the global dataset used to determine the Amount B global pricing matrix.

Documentation – a missed opportunity

There is nothing in the report to suggest that taxpayers will be able to rationalise their transfer pricing documentation for in-scope distributors. The matrix will avoid the need for individual benchmarking, but the rest of the documentation is more or less the same as would be needed under the traditional arm’s length analysis to support eligibility, with additional financial data to compute the matrix-based return itself. In addition, jurisdictions may introduce their own requirements, for example having contemporaneous intercompany distribution agreements. This does seem to be a missed opportunity to deliver a real compliance benefit.

Implementation – taxpayer elective or mandatory

Many multinationals would have been hoping that Amount B would have been designed as an elective safe harbour which taxpayers could choose whether to apply or not, as for the simplified approach to low-value added intra-group services.  Consensus could not be reached on a one-size fits all approach here, which is perhaps understandable as low-capacity jurisdictions could make a strong case for why it should be mandatory. The OECD have left it for each jurisdiction to decide for themselves whether to implement as an elective or mandatory approach, when adopting Amount B. The downside to this is that it creates more uncertainty and scope for divergent application of the rules.

Tax certainty troubles

The fact that Amount B may not be respected and cannot be relied upon in counterparty jurisdictions that choose not to adopt Amount B will potentially mean that instead of simplifying transfer pricing, it makes it more complex. In a worst-case scenario, a group could be required to prepare a benchmarking analysis for Jurisdiction X, apply Amount B in Jurisdiction Y and if this results in double taxation, it would then require a mutual agreement procedure (MAP) if available to eliminate the resulting double taxation, which cannot be based on Amount B per the OECD report.

One notable plus point is the commitment from the other Inclusive Framework members to respect the application of Amount B when it is applied in a low-capacity jurisdiction irrespective of whether the counterparty jurisdiction has adopted Amount B itself. How this gets implemented will be key from a tax certainty perspective and there may be particular challenges where there is no existing double tax treaty in force between the relevant jurisdictions.

Who will implement?

New Zealand’s tax administration have already confirmed they do not intend to adopt Amount B and India have expressed objections and reservations on a number of aspects of the design of Amount B.

It is likely many low-capacity jurisdictions who have participated in the work on Amount B will want to implement it and the African Tax Administration Forum were quick to put out a communication that they will assist members by providing a model text on enacting changes to their transfer pricing legislation to adopt Amount B.

It is perhaps unlikely we will see many other jurisdictions rushing to adopt Amount B in the next few months whilst uncertainty remains over Amount A of Pillar One and given the further work the OECD is undertaking. It is likely there will be ongoing discussions amongst Inclusive Framework members in the coming months, which will hopefully be aimed at reducing the level of asymmetry in implementation.

Concluding comments

It is unclear at this point what Amount B of Pillar One will amount to. Multinational enterprises are unlikely to be waxing lyrical about the current formulation but tax administrations in low-capacity jurisdictions are likely to see the report as a game changer. There are significant complexities and uncertainties which, if not resolved, could seriously threaten the success of the project, but there is still an opportunity for co-ordinated efforts of Inclusive Framework members to address some of the issues. For more in-depth analysis and our recommendations for how multinational enterprises should respond please see this KPMG International Amount B observations report.