Amount B – Navigating the Uncertainty Before Implementation

Amount B was first introduced in October 2020 but it wasn’t until December 2022 that a discussion draft was released for a public consultation. Since then, several guidelines and reports were published by OECD, however many multinational groups still face uncertainty regarding the implementation status, potential financial impact on their existing financial model and whether the proposed rules can truly simplify their transfer pricing compliance.

In this article, we share the latest news as well as address some of the most frequently asked questions regarding Amount B. Companies should pay attention to the potential implications, as due to the lack of applicability thresholds. The new rules might affect any multinational group, regardless of the consolidated turnover as early as 1st January 2025.  

Background and scope  

Amount B establishes a simplified remuneration model for baseline distribution activities that have a routine character. The remuneration should represent a return on sales based on the transactional net margin method (TNMM). Amount B applies in the following situations:

• core distribution functions (including agents and commissionaires) with retail sales not exceeding 20 percent;  
• operating expense should be between 3 percent and an upper bound of 20 percent to 30 percent of annual net revenues;  
• transactions involving non-tangible goods, services or commodities are out of scope.  

Once a transaction has been deemed in scope of Amount B, the level of remuneration is determined based on a 3-step process:  

• identification of the relevant industry and product classification from 3 available brackets;  
• determination of the factor intensity classification with respect to operating assets and operating expenses; 
• identification of the correct range based on the industry group and factor intensity. 

Comments regarding application and enforceability  

Many companies struggle with understanding when and in which jurisdictions they might be impacted by the new rules. As of today, only 5 out of about 60 of covered jurisdictions (Argentina, Brazil, Costa Rica, Mexico and South Africa) explicitly expressed willingness to apply Amount B. However, more countries may eventually apply Amount B, with e.g. Ireland addressing this in their recent budget proposal, the US suggesting a compulsory application of this methodology while the Netherlands issued a statement that it won’t apply to Dutch taxpayers but will take steps to avoid double taxation.  
 As Amount B is voluntary to implement, the following situations may occur: 

• Both country A and country B require application of Amount B. Amount B is applicable and disputes should be solved based on the Amount B report. 
• Only country A applies Amount B, whether as an option or an obligation. In this case, disputes should be solved based on the OECD Transfer Pricing Guidelines. 

Comments regarding wholesale and retail sales  

While the Report provides only a high-level definition of retail sales (as distribution to end consumers) some companies struggle to classify their sales to, for instance, public bodies, local authorities and other forms of governmental representatives. Industries including pharma, medical device, cosmetics, health and wellbeing products due to specific regulatory permits might be considered wholesale or retails sellers, depending on the country’s regulatory framework (e.g. direct vs indirect sales channel, via pharmacies). Amount B analysis needs to consider specific market conditions and assess whether retail sales exceed the de minimis threshold.  

Comments regarding existing benchmarks and industry classification 

The OECD divided industries into three groups. While the database filtering based on the Moody’s BvD Orbis criteria has been described in Appendix A, there is no specific matrix or conversion table between NACE or SIC codes commonly used for benchmark preparation. This can be problematic for some groups as their products fall into multiple categories with different industry RoS ranges:  

• Screws and fasteners: might be classified as construction materials and supplies being in Group 1 or industrial components in Group 3,  
• Medical devices can be e.g. health and wellbeing products in Group 2 or medical machinery in Group 3.  

While the Report provides examples on the split calculation when sales represent 2 different industry groups, there is no guidance on how to select the most appropriate group. Similarly, it might be problematic for distributors selling different products as it might require segmentation in the financial statements on a product level.  

Some industries, especially post-covid, might benefit from the Amount B pricing matrix over current benchmark studies, however tax authorities are likely to scrutinize these actions to prevent tax planning. This has been also addressed in the report.

PwC’s recommendation 

Companies should prepare for initial uncertainty and potential disputes in certain countries. At the same time, Amount B may present an opportunity to limit risks of disputes in other jurisdictions and prevent the duplication of transfer pricing analyses through certain synergy effects. In the initial phase Amount B might require more in-depth operational transfer pricing monitoring of achieved margins in covered jurisdictions. PwC closely monitors at a worldwide level the developments relating to Amount B and supports clients with analyzing the impact of Amount B. PwC also offers customized solutions from workshop to financial analysis of existing data and how current transfer pricing models might be impacted by Amount B.