by Jason Rauhe, CPAMarch 15, 2024

Additional Guidelines Aimed to Reduce Compliance Burden

The OECD released Pillar One – Amount B, in continuation of their two-pillar approach to combat base erosion and profit shifting, particularly targeted towards large MNEs. The approach under Amount B will become effective in 2025. Its purpose is to reduce the compliance burden and increase tax certainty for base-line marketing and distribution activities in low-capacity countries. The outcome of implementing Amount B is yet to be determined — stay tuned for updates on this matter.

Pillar One & Implementation

Pillar One is an ongoing transformation of the foundation for transfer pricing among OECD member countries. The text is agreed upon between OECD members and is intended to be codified into each participating countries tax code. A key element of Pillar One is Amount A, which includes the implementation of the Digital Services Tax

OECD transfer pricing guidelines are typically widely adopted. For example, most tax treaties between OECD countries match the standard OECD treaty word for word. The key to ensuring a globally fair and competitive environment is mutual understanding of tax nexus. However, it comes at the cost of additional compliance.

Amount B – What Is It? 

On February 19, 2024, the OECD published Pillar One – Amount B as an annex to chapter IV of its transfer pricing guidelines. The goal is to reduce compliance burden and increase tax certainty with the aim of aiding low-capacity countries. Amount B gives a simplified approach to transfer pricing for qualified transactions, including:

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

The key to the streamlined approach is the simplified benchmarking. Using screening and manual review, the OECD has created three industries grouping for return on sales based on certain operating ratios. There is also a crosscheck based on operating expenses. This eases the heavy lifting of benchmarking and replaces it with the compliance to prove the transactions qualify.

The OECD continues to implement Pillars One and Two in their transfer pricing guidelines. Amount B should ease the administrative burden and allow for greater efficiencies for MNEs. With all changes to regulations, the result can be unpredictable. The intention of reduced compliance burden is a good one. The decisions of MNEs as a result of this regulation remain to be seen.

If you have questions about OECD guidelines or any of our international tax services, please contact our Global Business Services team.

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    Jason Rauhe, CPA

Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.

Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.

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