16 December 2024, the US Treasury Department and the Internal Revenue Service issued a Notice announcing their intention to issue regulations that would provide a new method under the US tranfer pricing rules in Section 482 for pricing certain controlled transactions that involve baseline marketing and distribution activities. The new method, referred to in the US notice 2025-04 as the Simplified and Streamlined Approach (“SSA”), is based on OECD’s Pillar One – Amount B report from February 2024 ...

12 December 2024, the German Federal Ministry of Finance published updated administrative principles on transfer pricing 2024 (VWG VP 2024). The updates mainly concern the chapter on financial transactions, where paragraphs 3d and 3e have recently been added to the AStG. Paragraph 3d concerns the determination of arm’s length interest rates, group or stand-alone rating and whether capital should be treated as a loan or equity, and paragraph 3e concerns the treatment of financing arrangements, i.e. cash pools, hedging, etc. New guidance is also provided on the application of OECD Pillar 1 – Amount B. Click here for an unofficial English Translation ...

DEFINITIONS The following terms have the meanings set out below solely for the purposes of this guidance. Distributor refers to wholesale distributors, sales agents, and commissionaires involved in the sale of goods.1 Where applicable, specific references may be made to a wholesale or retail distributor, sales agent, or commissionaire. Wholesale distribution includes distribution to any type of customer except end consumers. For the purposes of this guidance, a distributor that engages in wholesale and retail distribution is deemed to solely carry out wholesale distribution if its three-year weighted average net retail revenues do not exceed 20% of its three-year weighted average net revenues.2 Retail distribution is distribution to end consumers, typically through physical or online stores. Baseline distribution refers to activities performed by distributors where such distributors act as tested parties in qualifying transactions under paragraph 10 of this guidance, and where such distributors meet the scoping criteria outlined in paragraphs 13 and 14 of this guidance. Core distribution functions are distribution functions that are typically performed by baseline distributors, depending on the business model of the distributor, i.e. whether it is a buy-sell distributor, sales agent, or commissionaire. Core distribution functions may include buying goods for resale, identification of new customers and managing customers’ relationships, certain after-sales services, implementing promotional advertising or marketing activities, warehousing goods, processing orders or performing logistics, invoicing and collection. Core distribution functions may vary in intensity and complexity and specifically exclude non-distribution activities that may render a distributor out of scope of the simplified and streamlined approach (see Section 3.3.4 of this guidance). Non-distribution activities are economic activities that are distinct from wholesale distribution, including, for example, manufacturing, research and development, procurement or financing that are non-incidental to a qualifying transaction. Note that, strictly for the purposes of applying scoping criteria 14.b, non-distribution activities include retail distribution above the de minimis threshold noted in the definition of wholesale distribution (in cases where this threshold is exceeded all retail distribution is treated as a non-distribution activity). Global dataset refers to the set of companies that has been derived from a search of a commercial database containing global company financial data, without application of any geographic filter, and which in part forms the basis for the approximation of arm’s length results under the simplified and streamlined approach referenced in Section 5. Applicable accounting standards refers to any accounting standard that is permitted as a basis upon which to prepare financial statements in the jurisdiction where the tested party performing baseline distribution activities is resident, and to any other accounting standard whose use is permitted by such jurisdiction for purposes of applying the simplified and streamlined approach referenced in Section 5. Net revenues refers to total sales revenue excluding any sales returns, allowances, and discounts, calculated in accordance with applicable accounting standards. Earnings before interest and taxes (EBIT) refers to financial account profit before income taxes and finance income/expense. Finance income/expense includes, but it is not limited to, interest income, interest expense, and gains & losses on investments.3 As a general matter, EBIT should not include any exceptional items that are unrelated to recurring business operations, which should be quantified in accordance with applicable accounting standards. Return on sales refers to the ratio of EBIT to net revenues, expressed as a percentage, and calculated in accordance with applicable accounting standards. Net operating assets refers to the tangible and intangible fixed assets plus working capital calculated on an average basis4 for a relevant fiscal year in accordance with applicable accounting standards. Tangible fixed assets include property, plant, and equipment net of accumulated depreciation, plus land plus net capital leases. Intangible fixed assets include all intangible fixed assets, net of accumulated amortisation, but excluding goodwill. Working capital is the sum of stock plus debtors less creditors.5 Operating expenses refers to total costs excluding cost of goods sold, pass-through costs appropriately excluded under the accurate delineation of the transaction6 and costs related to financing, investment activities or income taxes, calculated in accordance with applicable accounting standards. Moreover, operating expenses should not include any exceptional items that are unrelated to recurring business operations, which should be quantified in accordance with applicable accounting standards. Net operating asset intensity (OAS) refers to the ratio of net operating assets to net revenue, expressed as a percentage.7 Operating expense intensity (OES) refers to the ratio of operating expenses to net revenue, expressed as a percentage.8 Industry grouping refers to the categorisation of specific industries and industry sectors in which inscope distributors operate into three pre-defined groupings based on the observed relationships between specific industries / products and the profitability attributed to baseline distribution of those products. The categories of goods falling into each of the three industry groups are: Group 1 – perishable foods, grocery, household consumables, construction materials and supplies, plumbing supplies and metal. Group 2 – IT hardware and components, electrical components and consumables, animal feeds, agricultural supplies, alcohol and tobacco, pet foods, clothing footwear and other apparel, plastics and chemicals, lubricants, dyes, pharmaceuticals, cosmetics, health and wellbeing products, home appliances, consumer electronics, furniture, home and office supplies, printed matter, paper and packaging, jewellery, textiles hides and furs, new and used domestic vehicles, vehicle parts and supplies, mixed products and products and components not listed in group 1 or 3. Group 3 – medical machinery, industrial machinery including industrial and agricultural vehicles, industrial tools, industrial components miscellaneous supplies. Factor intensity classification refers to the segmentation of different levels of net operating asset and operating expense intensity into five pre-defined classifications based on the observed relationships between asset and expense intensity and the profitability attributed to baseline distribution. The factor intensity classifications are defined in the pricing matrix in table 5.1 of Section 5. Qualifying jurisdiction(s) within the meaning of Section 5.3 refers to jurisdictions where the data availability mechanism referenced in Section 5.3 applies for the purpose of determining adjusted returns for tested parties located in those aforementioned jurisdictions. The qualifying criteria will be incorporated into this guidance in a subsequent update. The ...

On 17 June 2024, additional guidance and lists of qualifying and coverred jurisdictions under Amount B was released by the OECD. The additional guidance includes: The definitions of qualifying jurisdictions within the meaning of section 5.2 and 5.3 of the Amount B guidance. These definitions will facilitate adjustments to the return calculated under the simplified and streamlined approach for tested parties located in those qualifying jurisdictions. The respective definitions are now incorporated into the Amount B guidance in the annex to Chapter IV of the OECD Transfer Pricing Guidelines. The definition of covered jurisdictions within scope of the political commitment on Amount B. That political commitment recognises that subject to their domestic legislation and administrative practices, members of the Inclusive Framework commit to respect the outcome determined under the simplified and streamlined approach to in-scope transactions where such an approach is applied by a covered jurisdiction and to take all reasonable steps to relieve potential double taxation that may arise from the application of the simplified and streamlined approach by a covered jurisdiction where there is a bilateral tax treaty in effect between the relevant jurisdictions. The approach developed to produce the list of covered jurisdictions facilitates tax certainty for jurisdictions most interested in implementing Amount B from 1 January 2025. Note that an expression of interest in applying Amount B does not necessarily mean that a jurisdiction will proceed to implement it. Further work on the Pillar One package, including the Amount B framework, is still ongoing as indicated in the Statement by the Co-Chairs of the Inclusive Framework on 30 May 2024 ...

17 June 2024 OECD released a fourth set of Administrative Guidance on the Global AntiBase Erosion Model Rules (Pillar Two), in order to further clarify technical issues under the GloBE Rules. The Administrative Guidance will eventually be incorporated into the Commentary to the GloBE Model Rules. Administrative Guidance on the GloBE rules has also previously been release in July 2023, December 2023, and February 2024 ...

On 19 February 2024, the OECD/G20 Inclusive Framework on BEPS released the report on Amount B of Pillar One, which provides a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. Drawing from existing principles in the OECD Transfer Pricing Guidelines, Amount B provides a simplified and streamlined pricing framework that determines a return on sales for eligible distributors. This framework is expected to reduce transfer pricing disputes, compliance costs, and enhance tax certainty for tax administrations and taxpayers alike. Low-capacity jurisdictions facing limited resources and data availability will especially benefit from the administrative simplification provided by Amount B. The report, which introduces two options for implementation for jurisdictions that opt into the simplified and streamlined approach from January 2025, describes the circumstances under which a distributor is within scope of Amount B including cases where it also performs certain non-distribution activities, such as manufacturing. It also sets out the activities that may exclude a distributor from the scope of the simplified and streamlined approach, such as the distribution of commodities or digital goods. The report is released in line with the July 2023 Outcome Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, with further work on the interdependence of Amount B and Amount A under Pillar One to be undertaken prior to the signing and entry into force of the Multilateral Convention. The inclusion of the Amount B guidance into the OECD Transfer Pricing Guidelines is accompanied by conforming changes to the Commentary on Article 25 of the OECD Model Tax Convention. The conforming changes signpost specific language relating to tax certainty and the elimination of double taxation included in the report on Amount B and are intended to ensure optionality is preserved in all dispute resolution mechanisms for non-adopting jurisdictions. In particular, the amendments to the Commentary on Article 25 direct States and taxpayers to have regard to and follow specific directions within the report on Amount B where relevant to issues being considered under mutual agreement and MAP arbitration procedures. The conforming changes were prepared by Working Party 1, approved by the Inclusive Framework and will be submitted shortly for approval to the OECD Council prior to publication ...

On 9 December 2022 OECD published a consultation document on Amount B as part of the ongoing work on OECD’s two-pillar solution to address the tax challenges arising from the digitalisation of the economy. Amount B is one of the components of Pillar One and aims to simplify and streamline application of the arm’s length principle in regards to in-country baseline marketing and distribution activities. A particular concern of low capacity jurisdictions has been the relative unavailability of appropriate local market comparables through which arm’s length prices can be established. Amount B will address this issue by providing a basis to establish an arm’s length price in all cases using suitable comparables, wherever they are geographically drawn from. The consultation document outlines the main design elements of Amount B  – scope, pricing methodology and the current status of discussions concerning an appropriate implementation framework. Deadline for submission of comments is 25 January 2023 ...