Additional guidance on Amount B

July 1, 2024
Amount B


On 17 June 2024 the OECD/G20 Inclusive Framework on BEPS (the ‘OECD Inclusive Framework’) published two additional guidance documents on Amount B. Amount B aims to simplify and standardize the application of the arm’s length principle for baseline marketing and distribution activities from 1 January 2025. All businesses, regardless of size, are potentially in the scope of Amount B if they carry out certain pre-defined distribution activities, as defined in the OECD Inclusive Framework’s Report of February 2024 (the ‘February 2024 Report’). This additional guidance aims at filling the gaps of three missing elements in the February 2024 Report: (A) the definition of “Covered Jurisdictions” including specific criteria for low- and middle-income countries and other countries that could form part of the political commitment to respect Amount B pricing outcomes; the definition of ‘Qualifying Jurisdictions’ for a modified Amount B distribution based on the operating expense cross-check mechanism; and separately a definition of ‘Qualifying Jurisdictions’ for the data availability mechanism adjustment that further modifies the Amount B distribution returns.

Covered Jurisdictions

A specific definition of “low capacity jurisdiction” was not included in the February 2024 Report and the first additional guidance has replaced this with a new definition of “Covered Jurisdiction”, extending the coverage to involve low- and middle-income countries that may not necessarily be low capacity. The agreed criteria for a “Covered Jurisdiction” include: (a)  low- and middle-income Inclusive Framework jurisdictions, based on World Bank Group country classifications by income level, but excluding EU, OECD, and G20 member countries; or (b)  low- and middle-income OECD or G20 Inclusive Framework jurisdictions that expressed , a willingness to apply Amount B by March 2024; or (c)  low- and middle-income jurisdictions, not in the Inclusive Framework, but otherwise meeting the first criterion, that express a willingness to apply Amount B. The list of covered jurisdictions will be published on the OECD’s website and will be reviewed every five years. Countries can also extend their political commitment to any other countries on a bilateral basis. Currently the list includes about 60 countries which meet the criteria, with five countries − Argentina, Brazil, Costa Rica, Mexico and South Africa − having expressed a willingness to apply Amount B.

Operating expense cross-check and data availability mechanism

Qualifying jurisdictions, for the purposes of the operating expense cross-check, are countries where the corroborative guardrail applies to assess whether the return on sales provided using the Amount B global pricing matrix is appropriate or whether additional adjustments are required. Where the return on sales determined under the pricing matrix, converted into an equivalent ratio of EBIT to operating expenses, is outside the applicable operating expense ‘cap and collar range’, the return on sales will be adjusted to the nearest edge of the range. The February 2024 report indicated that (higher) alternative cap rates would apply for ‘qualifying jurisdictions’, which is now defined. Similarly, the February 2024 report stated that a ‘data availability mechanism’ should be used in circumstances where there is no or insufficient data in the global dataset underpinning the pricing matrix, to assess the appropriateness of the pricing matrix for a particular distributor in a ‘higher risk’ country, measured by reference to the sovereign credit rating. The data availability mechanism will result in an upward adjustment to the returns derived from the pricing matrix for such qualifying countries. Overall, the operating expense cross-check and the data availability mechanism impacts over 130 qualifying countries, notably including Argentina, Brazil, China, Egypt, India, Mexico, Nigeria, and South Africa.

What can we expect next?

Amount B is part of the Pillar One package, which includes a multilateral convention (‘MLC’) for Amount A (to reallocate taxing rights of large profitable groups to market countries) even as the negotiations on broader acceptance of Amount B continue among countries. It is expected that the number of countries adopting Amount B, and the legal form of adoption as a safe harbor or mandatory rule, will be contingent on the outcome of Amount A MLC.

Read a KPMG June 2024 report and access our Amount B page for further insights and resources. Our  Transfer Pricing team is happy to discuss these developments specific to your distribution functions.

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