What is Amount B?
Specifically, Amount B aims to simplify and streamline the pricing of certain marketing and distribution transactions between interrelated companies in a specific country. Amount B also takes into account existing transfer pricing rules on market conformity.
The OECD has two objectives in this respect:
- To safeguard the general principle of market conformity in situations in which local reference points (so-called comparables) are not or insufficiently available.
- To promote greater fiscal certainty across borders.
The published document is not yet a final agreement, but aims to inform all interested parties about the scope, transfer pricing method and implementation and documentation modalities associated with Amount B.
Which transactions are potentially subject to Amount B?
All buy-sell transactions in which the distribution entity purchases goods from one or more affiliated entities, located in another jurisdiction, for onward sale to third parties in its own local market. The scope may be expanded to include commission agents and sales agents, although there is still considerable disagreement about this.
There are currently no financial (e.g. turnover) thresholds so that in principle any company involved in buy-sell activities that is part of a cross-border group will potentially be subject to Amount B regulations.
Once a company encounters a transaction of this nature, it must consider whether the other criteria apply. These consist of a combination of qualitative assessments (such as job and risk profiles) and quantitative analyses (mainly financial ratios).
The OECD has already submitted a proposal to exclude some specific transactions or products from the Amount B scheme. These are transactions for which a bilateral or multilateral ruling has been obtained and commodities and non-material goods such as software and digital goods. Further analysis is required of situations in which sufficient local reference points are available or another transfer pricing method would be more appropriate. Both could potentially justify the non-application of Amount B.
New or more of an alternative transfer pricing method?
Pricing for the marketing and distribution transactions in question must, according to the proposal, be based on the existing transactional net margin method (TNMM). The TNMM transfer pricing method will use a generally accepted and standardised market analysis (benchmarking) to arrive at a specific pricing proposal for the marketing and distribution transactions to which Amount B will apply.
The OECD is currently looking at the option of a type of pricing matrix (e.g. based on ratios such as operating costs/sales and asset intensity) or a mechanical pricing tool (based on regression analysis) to achieve effective pricing under the TNMM. This could be a form of simplification and standardisation compared to situations in which no local market reference exists or extensive market analysis is unnecessary.
Introduction of Amount B
The current proposal specifically states that there is no unanimity as yet on how to implement Amount B because of the vast differences in legal systems between OECD countries. Nevertheless, the preferred option is to incorporate the Amount B regulations into the existing OECD Transfer Pricing Guidelines. Furthermore, it is not yet clear whether Amount B will be mandatory or optional.
In any case the effective implementation of the Amount B regulations is not expected before 2024. In the meantime, it cannot be ruled out that the current proposal may change.
Finally, still on the table is the possibility of a notification duty requiring companies to submit a notification when they first become subject to the Amount B regulations.
Amount B documentation
In terms of documentation, the additional elements associated with Amount B should be an integral part of the existing local dossier, as the OECD aims to minimize additional administration.
SMEs can also be subject to Amount B regulations
Any group of companies with cross-border buy-sell transactions may fall within the scope of Amount B, including SMEs. It is advisable, therefore, to keep monitoring this issue. In preparation you may want to check whether the analyses and documentation of existing buy-sell transactions have been implemented correctly.
Should you have further questions about Amount B and/or transfer pricing methods, please do not hesitate to contact our experts or your trusted contact at Moore. Please visit our services page for more information.