Transfer pricing: Simplified pricing for routine sales activities from 2024?

While the second pillar of the OECD's BEPS 2.0 project (known as Pillar II) with global minimum taxation is attracting a great deal of attention worldwide, it is often assumed that the package of measures known as Pillar I only affects the very large multinational groups. However, it also contains regulations on Amount B, which applies to all corporate groups with cross-border sales functions and is not linked to any turnover or profitability requirements. This means that a large number of taxpayers, including SMEs, would be affected by the Amount B rules.

The consultation paper presented by the OECD on 17.07.2023 clarifies what is intended with the Amount B regulations: As part of the initiative to reform international corporate taxation, Amount B is intended to simplify and standardize the transfer pricing of routine distribution units within the group ("baseline marketing" and "distribution activities") by making corresponding adjustments to the OECD Transfer Pricing Guidelines. In doing so, the OECD is aiming to simplify administrative procedures for both multinational companies and the tax authorities.

Scope of application of Amount B

The standardized remuneration by the Amount B concept should primarily apply to the (wholesale) distribution of goods. The following intra-group business relationships should fall within the scope of Amount B:

• the purchase/sale of finished goods (wholesale) to third parties,
• the activities of a commercial agent or commission agent that lead to the wholesale of goods.

However, application to raw materials and services is currently excluded. The distribution company should also only be able to carry out additional economically significant activities if these can be clearly defined. Compliance with certain key figures is envisaged as an additional requirement.

Note: In contrast to the global minimum taxation of companies and other measures in Pillar I, the regulations on Amount B are not linked to specific turnover thresholds and therefore also apply to small and medium-sized groups of companies.

If the sales company meets these requirements, the transfer prices should be calculated using the transaction-based net margin method and the EBIT margin as a comparative indicator. For this purpose, the OECD provides a price matrix that determines an EBIT margin of between 1.5% and 5.5% depending on the sector and economic indicator (asset and cost intensity). There are also plans to adjust the matrix to take account of individual country risks.

Implementation at the beginning of 2024

The OECD's final report on Amount B is expected at the end of 2023. This means that the planned measures are likely to be included in the OECD Transfer Pricing Guidelines as early as January 2024. An implementation plan and the date of the first application are currently being discussed. Whether this will be a binding application or whether taxpayers will be free to implement the measures remains to be seen. Companies should therefore follow the developments closely and make the necessary preparations.

Would you like to receive further information on the simplifications for intra-group sales activities? Then register for our webinar at the beginning of 2024, which we will organize directly after the publication of the final OECD report on Amount B.