As part of the Two-Pillar solution to address the Tax Challenges arising from the digitalisation of the economy, Amount B of Pillar 1 provides for a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity jurisdictions (LCJ). On 19th of February, the OECD/G20 Inclusive Framework (IF) released its report.

The objectives of Amount B framework are to reduce transfer pricing disputes, compliance costs and promote tax certainty for tax administrations and taxpayers alike, particularly those in LCJ.
A jurisdiction may choose to apply Amount B either as safe harbor or as a mandatory rule, as from January 2025. This means that a jurisdiction can permit residents within its jurisdiction, to elect to apply the approach or a jurisdiction will require residents to adopt Amount B, even if not respected by counterparties.

Since implementation is optional, we might find that some jurisdictions opt to adopt Amount B while others do not. The global stance with regards to Amount B is quite diverse currently. India has expressed its inability to make a commitment towards the framework while New Zealand has already opted not to follow the guidance. The African Tax Administration Forum is generally supportive of the framework while the West African Tax Administration Forum (WATAF) is assuming a cautious viewpoint and has recommended member countries to monitor the development in the framework before considering making any changes in their transfer pricing approaches. Many countries in Asia have not yet taken a position on Amount B. It is, by and large, expected that the UK and the US will implement the framework as the UK played an important role in its development and the US has expressed firm support. In the Middle East, there seem to be no plans yet for the introduction of Pillar 1. The list of jurisdictions that choose to apply the framework will be made available on the OECD website.

There are diverging thoughts as to whether the objectives set by the OECD will be achieved. Potentially there is the risk that more uncertainty and complexity will arise from the optional nature of the implementation. Multinationals might find that they have to adopt a two-pronged approach, i.e., using the Amount B matrix and the traditional benchmarking. An impact assessment is a worthwhile exercise in assisting with any transition that might occur. Multinationals can review their group structure and select a sample of pilot jurisdictions to work out the impact from Amount B, compare the pricing matrix under the framework with the current policy and identify if information required under the framework is available. The bottom line is that documentation is set to stay, and multinationals might find that they have to provide additional information to justify their eligibility under Amount B.