One of the most common analyses in transfer pricing is on the cusp of being overhauled at a global level. This pending change has the potential to impact many multinational enterprises (MNEs), subject to an analysis of the various exceptions. On July 17, 2023, the OECD released a public consultation document (July PCD), demonstrating significant progress by the Inclusive Framework of more than 130 jurisdictions toward reaching a consensus for the introduction of a standardized approach, referred to as Amount B, for remunerating entities commonly known as limited risk distributors (LRDs) that sell tangible goods on a wholesale level. Despite being part of Pillar One, Amount B has no revenue or profitability thresholds, therefore Amount B may apply to any MNE.
Amount B is on track to be effective as early as January 1, 2024. The stated aim of Amount B is to streamline and simplify the application of the arm’s length principle for baseline marketing and distribution activities to increase tax certainty and reduce resources by MNEs and tax administrations, especially for low-capacity jurisdictions (LCJs). Amount B sets routine wholesale distribution target operating margins based on the type of product and size of operations, essentially eliminating a taxpayer’s ability to benchmark the return.
If your MNE has routine wholesale distributors of any size and is not providing digital or other services, Amount B likely applies to you as early as January 1, 2024.
This edition of CRA Insights: Transfer Pricing seeks to inform readers about whether Amount B may apply to their MNE, how to prepare in the coming months for Amount B adoption, and a perspective on whether Amount B meets the policy objectives.