On 19 December 2024, the OECD/G20 Inclusive Framework on BEPS (the ‘OECD Inclusive Framework’) published two additional documents on Amount B. Amount B is a new approach for transfer pricing baseline marketing and distribution activities that seeks to streamline and simplify the application of the arm’s length principle from 1 January 2025. All businesses, regardless of size, are potentially in the scope of Amount B if they carry out suitable distribution activities. Amount B forms part of the Pillar One package on profit allocation, under the ‘two pillar’ approach to international tax reform being developed by the OECD Inclusive Framework.

The OECD Inclusive Framework’s Report of February 2024 (’Amount B Report’) set out the core rules for Amount B, with supplementary guidance published in June 2024. For the technical details of the Amount B approach see here and here.

The newly published documents include: an Amount B factsheet which provides a high-level overview of the mechanics of Amount B, including the steps businesses and tax authorities should take to implement Amount B’ and a Pricing Automation Tool designed to automatically compute the Amount B return for an in-scope tested party, based on the data input. 

The OECD Inclusive Framework has developed the Amount B approach to simplify and streamline the application of the arm’s length principle to in-scope baseline marketing and distribution activities. The approach sets out scoping criteria, pricing methodology, documentation and tax certainty considerations relating to Amount B.

Amount B Factsheet

The factsheet provides a high-level overview of the core rules for Amount B as set out in the Amount B Report, including:

Step 1 – Scoping: Identify qualifying transactions and assess whether they meet the Amount B defined qualitative and quantitative scoping criteria.

Step 2 – Pricing: Determine the arm's length return on sales for in-scope transactions using a three-step pricing framework:

• Pricing matrix: Identify the relevant industry grouping and factor intensity to determine a baseline return on sales range.
• Operating expense cross-check: Corroborate the return on sales derived from the pricing matrix by comparing it to operating expenses. Adjustments are made if the return falls outside pre-defined cap-and-collar ranges.
• Data availability mechanism: Apply upward adjustments to the return on sales where there is insufficient data and the country is considered 'higher risk'.

Amount B Pricing Automation Tool

The Pricing Automation Tool has been developed by the OECD Inclusive Framework to automate the calculations of the return on sales of qualifying transactions. The tool automatically computes the return based on data inputs from local financial statements, including calculation under the basic matrix and any adjustments needed under the operating expenses cross-check and data availability mechanism.

The Pricing Automation Tool, an Excel spreadsheet, consists of a number of tabs, including:  

• Inputs for scoping: Businesses input financial information and the spreadsheet indicates whether the scoping criteria are met. If the criteria are not met, businesses cannot apply the Amount B approach.
• Inputs for pricing: Businesses input further information (e.g. in respect of industry grouping) and the spreadsheet provides a return on sales percentage.
• Automated calculations: The final tab provides details of each step of the return on sales percentage calculation.                                                                               

Next steps

The OECD will hold a technical webinar on 11 February 2025 on the latest developments relating to Amount B, including a demonstration of the Pricing Automation Tool.

Countries can apply Amount B to in-scope transactions for accounting periods beginning on or after 1 January 2025.

Revised profit allocation and nexus rules

Three proposals are being explored which share the same objective of expanding the taxing rights of market/user countries in situations where value is considered to be created in that market/country of the user. The proposals are being looked at on their individual merits, but the Inclusive Framework is also considering some common design issues and how some of the proposals could be framed in a more aligned manner. Any of the proposals will require changes to the allocation between countries of the right to tax corporate profits (‘nexus’) and the methods or mechanisms that allocate profits to business activities in different countries (‘profit allocation’).

“User participation” proposal – social media platforms, search engines and online marketplaces . The proposal focuses on highly digitalised businesses where user participation is seen to represent a significant contribution to value creation.