Out-Law Analysis 4 min. read

OECD approach to ‘Amount B’ a milestone but global tax challenges remain


The OECD has updated its guidelines on transfer pricing to reflect a new approach that has been developed for calculating ‘Amount B’, which concerns how profits within a group for baseline marketing and distribution activities are attributed for tax purposes across jurisdictions.

Transfer pricing refers to the necessary charges made between different parts of a multinational business for goods, services or intangible assets, including intellectual property. Tax rules provide that transactions between connected parties should be taxed as if they were on arm's length terms.

The OECD guidelines have been updated after publication of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting’s final report on Amount B. The report is the latest step in the reform of the global tax system, which stems from a July 2021 agreement where 130 of the world’s major economies agreed a landmark deal to change the international tax system to address the tax challenges arising from the digitisation of the economy. It concerns one aspect of ‘Pillar One’ of those reforms, which involves a partial reallocation of taxing rights over the profits of the largest and most profitable multinational businesses to the jurisdictions where consumers, rather than the businesses, are located.

The approach adopted in respect of Amount B is designed to reduce the burdens in so-called ‘low-capacity jurisdictions’, where tax authorities are under-resourced or lack sufficient access to data, which can hamper them in exercising their taxing rights. However, there are shortcomings to what has been adopted in respect of Amount B, as I recently wrote for Bloomberg Tax. A version of the Bloomberg Tax article, published on 8 March 2024, is reproduced below, with permission. For further use, please consult Bloomberg’s copyright and use guidelines.


The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting’s final report on Amount B represents the culmination of a great deal of effort since 2021, as well as active engagement and input by interested stakeholders. However, a lot more work is necessary for Amount B to be the game-changer that many expect it could be, especially for low-capacity jurisdictions.

The framework expects the simplified and streamlined approach set out in February’s report to reduce transfer pricing disputes and compliance costs/obligations, as well as to enhance tax certainty for taxpayers and tax administrations. However, a lack of consensus on Amount B implementation remains.

Three-step approach

The report sets out a three-step approach for simplifying pricing of in-scope transactions that approximates an arm’s-length result in the tested party’s jurisdiction. The approach includes a pricing matrix, a cross-check mechanism for operating expenses, and a mechanism to address instances when data is unavailable or insufficient in a specific jurisdiction.

While we should welcome the simplified and streamlined approach, along with its intention to simplify the pricing of certain distribution activities, the ability of jurisdictions to opt out is disappointing.

This disappointment is compounded by the implementation optionality outlined in the report. Adopting jurisdictions are permitted to allow businesses to elect themselves whether to apply the approach where the scoping criteria are met.

The report confirms that the analysis supporting the simplified and streamlined approach will be updated every five years, save for significant market changes. Financial data will be reviewed annually and updated where necessary. This is a positive step to simplify associated compliance burdens.

Additional work

The report highlights areas where additional work is being, and will be, carried out on Amount B. This includes design of additional optional qualitative scoping criteria that jurisdictions may choose to apply as an additional step to identify distributors performing non-baseline activities.

The report confirms the Inclusive Framework members’ commitment to respect the outcome determined under the simplified and streamlined approach to in-scope transactions where the approach is applied by a low-capacity jurisdiction. Further, members will take all reasonable steps to relieve potential double taxation that may arise from the application of the approach by a low-capacity jurisdiction where there is a bilateral tax treaty between the relevant jurisdictions.

A two-fold implementation of these commitments will be carried out this year. First, competent authority agreements will need to be developed for bilateral tax treaty relationships where Amount B is applied by low-capacity jurisdictions to avoid and prevent double taxation. Second, the framework will need to agree by 31 March 2024 on the list of low-capacity jurisdictions for this purpose.

The commitment is vital to low-capacity jurisdictions and seeks to answer the calls of such jurisdictions by allowing them to secure revenue and preserve valuable tax administration resources.

However, jurisdictions’ ability to opt out – as well as the potential for voluntary effective operation – significantly undermines the position of low-capacity jurisdictions. The extent of the additional work required in this area also calls into question whether these measures will ultimately benefit low-capacity jurisdictions.

Alongside the inclusion of the Amount B guidance into the OECD’s transfer pricing guidelines, the Inclusive Framework also plans to develop text for inclusion in the commentary on Article 25 of the OECD Model Tax Convention on mutual agreement and Mutual Agreement Procedure (MAP) arbitration procedures.

The changes, which must be approved by the OECD Council prior to publication, will signpost specific language in terms of tax certainty and the elimination of double taxation. The relevant changes will aim to ensure preservation of optionality in all dispute resolution mechanisms for non-adopting jurisdictions.

Information gathering

The report also highlights the need for the framework to gather information on the practical application of the simplified and streamlined approach. The system’s design will build on information available from current reporting requirements and audit practices. The framework doesn’t expect an unreasonable administrative burden to be placed on tax administrations in this regard.

India, in contrast, expressed reservations about the information-gathering proposal on the basis that no further details have been provided on the resource-intensive nature of any such exercise, especially for low-capacity jurisdictions. The country also expressed concern over aspects of the report it views as incomplete, because the definitions of low-capacity jurisdictions and qualifying jurisdictions were not included.

Amount A interdependence

Amount A of Pillar One provides a new taxing right to jurisdictions in which consumers and users are in respect of a portion of the resident profits of the largest and most profitable multinational enterprises.

The framework will need to do more work on the interdependence of Amount B and Amount A prior to the signing and entry into force of the Multilateral Convention to Implement Amount A, the text of which was released in October 2023.

Despite the need for further work, the Inclusive Framework has made progress on Amount B since 2021, but the importance attached to certain outstanding provisions of the initiative, along with the disappointing introduction of optionality around implementation, will mean that many taxpayers and advisers will likely be underwhelmed.

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