On December 8, 2022 the OECD opened a public consultation in which it invites the public to provide input on the design elements of Amount B under Pillar One relating to the simplification of transfer pricing rules. The consultation period runs from December 8, 2022 util January 25, 2023.
In this respect the OECD Secretariat released a consultation document for the purposes of obtaining input from stakeholders on the technical design of Amount B. The documents presents the work undertaken to date, which has reached a sufficient level of detail and stability that public comments would be appropriate and helpful, though it does not yet reflect the final views of the IF. IF members have agreed to release this consultation document on the basis that it is without prejudice to the final agreement on the different design elements of Amount B.
The comments provided will assist members of the IF in completing the work on the technical development of Amount B. Comments are sought with respect to the specific questions outlined in this document and with respect to the overall technical approach to the Amount B design features included in this document. Where relevant, input should refer to the relevant design features. While general comments are invited on any aspect of the design features, input will be most helpful in areas where commentators hold the view that certain specific design feature or features could be modified in a manner that better satisfies the IF mandate as well as input on whether anything is missing or incomplete in the rules.
Aim and structure of the public consultation document
This consultation document outlines the main design elements of Amount B, i.e. the scope, the pricing methodology and the current status of discussions concerning an appropriate implementation framework, and seeks inputs from stakeholders in a number of specific questions.
The main challenge in designing Amount B relies on the significant linkages across its three main design elements. Jurisdictions recognise that some of the features considered for scoping purposes cannot be decided until further information becomes available in the context of the developing the Amount B pricing methodology, which would itself inform the feasibility of some of the options being considered for implementing Amount B. These interactions need to be borne in mind in the context of the discussions included in this consultation document.
The scope of Amount B defines the controlled transactions that would be subject to Amount B and sets out qualitative and quantitative criteria to help that determination. If the scoping criteria are met and the taxpayer is therefore within the scope of Amount B, the Amount B pricing methodology would be applied to establish the arm’s length price for the in-scope transaction, subject to potential exemptions currently under consideration. See Section 3 of the consultation document.
On-going work with regards to the Amount B pricing methodology is reflected in Section 4 which describes relevant aspects of the benchmarking criteria, the net profit indicators and the comparability adjustments that would need to be considered in pricing transactions in scope of Amount B. The design of the Amount B pricing methodology has significantly progressed and this consultation document provides a summary of its key features and notes the further analysis that is required to be undertaken.
Upon completion of the design of Amount B, the IF will be in a position to consider the best implementation framework for Amount B. The implementation framework of Amount B refers to the parameters for determining the baseline marketing and distribution activities to which Amount B applies. The appropriate design of the Amount B implementation framework requires consideration of several interrelated aspects. First, the implementation framework will need to ensure that the Amount B objectives stated in the IF Statement are achieved, in particular with regards to its adherence to the arm’s length principle and its capacity to mitigate the risk of double taxation and double non-taxation. Second, the implementation framework will need to consider that IF member jurisdictions have different legal systems, which could have an impact on how Amount B is eventually designed. Against this backdrop, the IF is currently assessing the appropriateness of different means of implementing Amount B with the expectation that the Amount B guidance will have a broad and consistent application amongst jurisdictions. Ideally, this could be achieved through the inclusion of the Amount B guidance in the OECD TPG. However, there is not a common view on the form of the implementation at this stage and other options are being explored, including consideration of the mandatory or elective nature of Amount B. These options range from designing Amount B as a safe harbour (as defined in Chapter IV of the OECD Transfer Pricing Guidelines) to prescribing Amount B as the interpretation of how the arm’s length principle applies to baseline marketing and distribution activities. Resolution of these issues can have an impact on the design of certain aspects of Amount B, such as the adoption of the potential exemptions described in Box 3.2, as well as implications in the level of tax certainty attained with Amount B. While this consultation document is not inviting specific comments on any particular implementation option, commentators are invited to indicate whether their answers to certain questions would be impacted by alternative approaches to the implementation of Amount B. If so, commentators are invited to elaborate their answers.
Finally, the IF will also consider the appropriateness of a mechanism to collect information from jurisdictions on the actual application of Amount B to assess its impact and effectiveness.
The consultation document as released by the OECD can be found here.
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