Update note on Amount B

Amount B introduces a simplified and standardised approach (“SSA”) to transfer pricing for baseline marketing and distribution activities, aiming to improve consistency and reduce uncertainty in applying the arm’s length principle. The Report brings together all relevant materials on Amount B issued by the OECD/G20, including Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) between February and December 2024. According to the OECD, the content remains unchanged from the original publications and has been compiled solely for ease of reference.

Key highlights of the Report

• Defined Scope of Application: The guidance targets routine marketing and distribution functions, specifically excluding entities that bear economically significant risks or hold valuable intangible assets.
• 3 - Step Pricing Framework: A structured three-step process is used to determine an appropriate return on sales for in-scope distributors:
• Industry Classification: The tested entity is first categorised into one of three industry groupings, based on the nature of the goods it distributes. This classification ensures that pricing reflects industry-specific characteristics.
• Factor intensity Assessment The entity is then evaluated on two key financial metrics: net operating asset intensity and operating expense intensity. These indicators help gauge the complexity and resource intensity of the distribution functions; and
• Return on Sales Determination: A pricing matrix is applied, combining the industry classification with the factor intensity results to derive an appropriate arm’s length return on sales within a defined range.

Adoption of the guidance is optional. Jurisdictions may choose to apply the simplified approach to eligible transactions beginning with fiscal years starting on or after 1 January 2025.

Key jurisdictions and Amount B status

• Ireland: Amount B was officially adopted in the Finance Bill of 2025, effective for chargeable periods starting on or after 1 January 2025.
• United Kingdom: While the UK has not formally adopted Amount B, it has approved the final report, indicating a possibility for future adoption.
• United States: As of now, the United States has not signed Amount B into law. However, the U.S. Department of the Treasury has issued guidance indicating that it plans to propose regulations allowing U.S. companies to apply the SSA under Amount B for tax years beginning on or after January 1, 2025.
• Countries that have expressed interest in adopting Amount B include Argentina, Brazil, Costa Rica, Mexico, and South Africa. 
• The Netherlands has committed to accepting the outcome of the application of Amount B by covered jurisdictions with which it has concluded a bilateral tax treaty for both legal entities and permanent establishments. However, Amount B is not introduced for Dutch taxpayers performing baseline marketing and distribution activities.
• India, New Zealand and Australia: India have expressed reservations on the adoption of Amount B; while Australia have stated that it will not introduce Amount B for local distributors.  New Zealand had decided not to adopt Amount B.

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