The Consolidated report on Amount B compiles all relevant materials published by the Inclusive Framework throughout 2024. The content of the original publications has not been amended or modified; the Consolidated Report on Amount B simply replicates the original content for ease of reference. The Inclusive Framework published a report on Amount B, which provides a simplified and streamlined approach for baseline marketing and distribution activities, on 19 February 2024. Content from that report was incorporated as an annex to Chapter IV of the OECD Transfer Pricing Guidelines. The report was published pending completion of further work on certain administrative aspects of the guidance, including the definitions of qualifying jurisdiction within the meaning of Section 5.2 and Section 5.3 of the guidance and the list of jurisdictions within scope of the political commitment on Amount B recognised in the introduction of the Amount B report. The Inclusive Framework subsequently published statements on the definitions of “qualifying jurisdiction” within the meaning of section 5.2 and section 5.3 and “covered jurisdiction” for purposes of the Inclusive Framework political commitment on Amount B on 17 June 2024. On 26 September 2024, the Inclusive Framework further published a Model Competent Authority Agreement on the application of the simplified and streamlined approach designed to facilitate the implementation of that political commitment ...

16 December 2024, the US Treasury Department and the Internal Revenue Service issued Notice 2025-04 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 notice as the Simplified and Streamlined Approach (“SSA”), is based on OECD’s Pillar One – Amount B report from February 2024 ...

66. Finally, when the taxpayer is seeking to apply the simplified and streamlined approach for the first time, the taxpayer should include in its local file, or in any other documentation relevant to the application of the approach, a consent to apply the approach for a minimum of 3 years, unless transactions are no longer in scope during that period, or there is a significant change in the taxpayer’s business, and notify that circumstance to the tax authorities of the jurisdictions involved in the qualifying transaction. As part of the first-time notification procedure, tax administrations could require the taxpayer to provide some or all of the items of information listed in paragraph 60. In addition, tax administrations may require taxpayers seeking to apply the simplified and streamlined approach to provide a written contract signed prior to the occurrence of the qualifying transaction. The preceding sentence is not intended to change in any way the role of a written contract in the accurate delineation of the transaction, as discussed in Section D.1 of Chapter I ...

65. The fact that the taxpayer has prepared and submitted the above information to the tax administration does not prevent the tax administration from examining the taxpayer’s self-assessment on whether the scoping criteria are met and the pricing methodology has been applied properly ...

67. MNE Groups may reorganise their distribution business models and, as result, conclude qualifying transactions that meet the conditions to be in-scope of the simplified and streamlined approach. Equally, there may be MNE Groups with in-scope transactions which, following the restructure of their distribution arrangements, no longer meet the conditions to apply the simplified and streamlined approach ...

68. As stated in paragraph 9.34, MNE Groups are free to organise their business operations as they see fit and tax administrations do not have the right to dictate to MNE Groups how to design their structure or where to locate their business operations. Tax administrations, however, have the right to determine the tax consequences resulting from the reorganisation. In this regard, the guidance in Chapter IX remains relevant whether the simplified and streamlined approach is applicable to the pre-restructuring or post- restructuring qualifying transactions ...

69. Some Associated Enterprises may attempt to artificially reorganise their arrangements to derive tax advantages from the application of the simplified and streamlined approach. Such scenarios may come under greater scrutiny by tax authorities to prevent the use of the approach for tax planning opportunities and jurisdictions may adopt targeted approaches to address these concerns.Any business restructuring should be properly documented in the master file and the local file. See paragraphs 9.32 – 9.33 of these Guidelines. 44Any business restructuring should be properly documented in the master file and the local file. See paragraphs 9.32 – 9.33 of these Guidelines ...

70. In some instances, the simplified and streamlined approach may apply to a restructured distributor with built-in losses from prior fiscal years. The tax treatment of such losses, in particular whether they are available or can be deductible, depends on each jurisdiction’s domestic legislation and administrative procedures and is not within the scope of this guidance ...

71. Where a tax administration makes a primary adjustment resulting in double taxation of the profits derived from the relevant qualifying transaction, a corresponding adjustment can mitigate or eliminate double taxation by adjusting downwards the tax liability of the associated enterprise in a second tax jurisdiction. Some jurisdictions may be able to remedy economic double taxation through unilateral corresponding adjustments making use of provisions in their domestic laws ...

72. See Commentary to Article 25, para. 12.However, most jurisdictions would only be able to consider corresponding adjustments as part of a Mutual Agreement Procedure.See paragraph 4.32 of these Guidelines. 45See Commentary to Article 25, para. 12.46See paragraph 4.32 of these Guidelines ...

73. Taxpayers, on filing for a Mutual Agreement Procedure, where one or more of the jurisdictions relevant to the Mutual Agreement Procedure has not chosen to apply or accept the simplified and streamlined approach, should base any justification of their positionThis specifically refers to situations where a taxpayer should present a position to a competent authority when filing for a Mutual Agreement Procedure or chooses to present such a position and is not to suggest that a taxpayer is obligated to present a position in order to access a Mutual Agreement Procedure. In other words, a taxpayer that does not justify its position only on the remainder of the Guidelines still has access to a Mutual Agreement Procedure. only on the remainder of these Guidelines.If there is a competent authority agreement that calls for application of the simplified and streamlined approach, or if the jurisdictions of both parties that take part in the transaction elect to apply the simplified and streamlined approach in the relevant case, then the competent authorities will rely on the simplified and streamlined approach. In such circumstances, taxpayers can also rely on such approach. If there is no such competent authority agreement, and if the competent authorities have not otherwise agreed to apply the simplified and streamlined approach in the relevant case, then, in the event that the taxpayer presents a position, it should be based on the remainder of these Guidelines. In a Mutual Agreement Procedure or resulting arbitration procedure, where one or more of the jurisdictions relevant to the Mutual Agreement Procedure has not chosen to apply or accept the simplified and streamlined approach, then the competent authorities of both jurisdictions engaged in that Mutual Agreement Procedure must justify their positions based only on the remainder of these Guidelines. Specifically in such cases, the simplified and streamlined approach under this guidance must not be considered or referenced by the relevant competent authorities as an approach which is treated as leading to an acceptable outcome.See footnote 54. This includes for the purposes of conducting the Mutual Agreement Procedure, as a basis of a resolution of the Mutual Agreement Procedure, or by any party (including arbitrators) in the conduct of any arbitration procedure.Note that the same principles apply to unilateral corresponding adjustments described in paragraph 71, which are provided under the domestic law of the jurisdictions where such procedures are legally permissible, based on the domestic law of such jurisdictions. 47This specifically refers to situations where a taxpayer should present a position to a competent authority when filing for a Mutual Agreement Procedure or chooses to present such a position and is not to suggest that a taxpayer is obligated to present a position in order to access a Mutual Agreement Procedure. In other words, a taxpayer that does not justify its position only on the remainder of the Guidelines still has access to a Mutual Agreement Procedure.48If there is a competent authority agreement that calls for application of the simplified and streamlined approach, or if the jurisdictions of both parties that take part in the transaction elect to apply the simplified and streamlined approach in the relevant case, then the competent authorities will rely on the simplified and streamlined approach. In such circumstances, taxpayers can also rely on such approach. If there is no such competent authority agreement, and if the competent authorities have not otherwise agreed to apply the simplified and streamlined approach in the relevant case, then, in the event that the taxpayer presents a position, it should be based on the remainder of these Guidelines.49See footnote 54.50Note that the same principles apply to unilateral corresponding adjustments described in paragraph 71, which are provided under the domestic law of the jurisdictions where such procedures are legally permissible, based on the domestic law of such jurisdictions ...

74. This general principle is illustrated below, considering two potential sources of double taxation. These scenarios should not be considered as being exhaustive, and instead should be considered as an attempt to illustrate the process by which such double taxation may be relieved ...

75. One potential source of double taxation could occur where the simplified and streamlined approach has been applied by a taxpayer to price an in-scope transaction in a jurisdiction that has chosen to apply the approach, and a primary adjustment is made by the counterparty jurisdiction based on the remainder of these Guidelines ...

76. To remedy any resulting double taxation, a request for a corresponding adjustment should be analysed under paragraph 2 of Article 9. Since the primary adjustment is made by a jurisdiction based on the remainder of the Guidelines, this request could be made to the jurisdiction where the simplified and streamlined approach applies.Depending on the applicable tax treaty, a taxpayer may be required to file for the Mutual Agreement Procedure in its jurisdiction of residence. In such a case, to the extent the primary adjustment can be substantiated under the remainder of these Guidelines,See paragraph 6 of the commentary to Article 9(2) of the Model Tax Convention. the competent authority of the jurisdiction where the simplified and streamlined approach applies shall provide relief from double taxation by making a corresponding adjustment. 51Depending on the applicable tax treaty, a taxpayer may be required to file for the Mutual Agreement Procedure in its jurisdiction of residence.52See paragraph 6 of the commentary to Article 9(2) of the Model Tax Convention ...

77. If relief from double taxation cannot be achieved in that manner under paragraph 2 of Article 9,Equally considering the same commentary in paragraph 6 of Article 9(2) of the Model Tax Convention. this may lead to a Mutual Agreement Procedure. In these cases, taxpayers engaged in a Mutual Agreement Procedure should support their position only based on the remainder of these Guidelines. 53Equally considering the same commentary in paragraph 6 of Article 9(2) of the Model Tax Convention ...

78. In such cases, where one of the jurisdictions in the Mutual Agreement Procedure is a jurisdiction that has chosen not to apply the simplified and streamlined approach, the simplified and streamlined approach under this guidance should not be considered or referenced by the competent authorities as an approach which leads to a result which is treated as an acceptable outcome for purposes of the Mutual Agreement Procedure or any arbitration procedure.However, the outcome of applying the simplified and streamlined approach may in some cases be consistent with the outcome of applying the remainder of these Guidelines. This includes for the purposes of conducting the Mutual Agreement Procedure, as a basis of a resolution of the Mutual Agreement Procedure, or by any party (including arbitrators) in the conduct of any arbitration procedure. In such situations the competent authority of the tax administration originally applying or accepting the application of the simplified and streamlined approach must justify its position in the Mutual Agreement Procedure and any resulting arbitration procedure based on the remainder of these Guidelines. 54However, the outcome of applying the simplified and streamlined approach may in some cases be consistent with the outcome of applying the remainder of these Guidelines ...

79. Another potential source of double taxation could occur where the simplified and streamlined approach is applied under the second option discussed in paragraph 7 and a primary adjustment is made by a tax administration to ensure that taxation is levied in accordance with the outcome of applying the simplified and streamlined approach. In such cases a request for relief from double taxation may be made to the counterparty jurisdiction under a Mutual Agreement Procedure. The relevant competent authorities should note the guidance in paragraphs 4.117 and 4.131 of these Guidelines in attempting to relieve double taxation. Where the counterparty jurisdiction has not agreed to apply the simplified and streamlined approach in a competent authority agreement with the jurisdiction making the adjustment, or to apply it specifically to resolve double taxation in the case under consideration,See paragraph 79. the competent authority of the jurisdiction where the adjustment was made must substantiate its position based on the remainder of these Guidelines in any Mutual Agreement Procedure or resulting arbitration, noting the general principles articulated in paragraph 72 above. 55See paragraph 79 ...

80. Whether or not it applies the simplified and streamlined approach, a jurisdiction may provide a corresponding adjustment that reflects the outcome of the simplified and streamlined approach on a case- by-case basis if it considers that it produces an acceptable outcome in a specific case.If the jurisdictions of both parties that take part in the transaction elect to apply the simplified and streamlined approach, these jurisdictions would be expected to accept the outcome determined by applying the simplified and streamlined approach to the in-scope transaction and provide reciprocal corresponding adjustments or accept the result as an outcome in a Mutual Agreement Procedure accordingly. Jurisdictions may also choose to enter into competent authority agreements with other jurisdictions to provide corresponding adjustments according to the result determined by applying the simplified and streamlined approach. It is recommended that in such an agreement, the jurisdiction considering the corresponding adjustment has the ability to verify whether the qualifying transaction meets the conditions to apply the approach and whether the approach has been applied correctly in determining the amount of the primary adjustment.See guidance in paragraphs 5 and 6 of the Commentary on Article 9 and Section C.2 of Chapter IV of these Guidelines. 56If the jurisdictions of both parties that take part in the transaction elect to apply the simplified and streamlined approach, these jurisdictions would be expected to accept the outcome determined by applying the simplified and streamlined approach to the in-scope transaction and provide reciprocal corresponding adjustments or accept the result as an outcome in a Mutual Agreement Procedure accordingly.57See guidance in paragraphs 5 and 6 of the Commentary on Article 9 and Section C.2 of Chapter IV of these Guidelines ...

81. For the avoidance of doubt, for any agreement reached under Article 25 of the Model Tax Convention (including bilateral or multilateral APA cases as well as Mutual Agreement Procedure cases)In the case of unilateral APAs reached prior to the adoption of the streamlined and simplified approach, this approach respects legally binding agreements between a jurisdiction and a taxpayer but recognises that there could be changes to such an APA in a bilateral Mutual Agreement Procedure. See further paragraph 4.140 of these Guidelines, and in general Section F of Chapter IV of these Guidelines. obtained prior to the implementation of the simplified and streamlined approach, the terms and conditions of such agreements would continue to be valid in relation to the covered qualifying transactions. This approach respects legally binding agreements and avoids uncertainty as to whether disputes already settled between competent authorities may be subject to review and reassessment and enhances predictability for concerned taxpayers. 58In the case of unilateral APAs reached prior to the adoption of the streamlined and simplified approach, this approach respects legally binding agreements between a jurisdiction and a taxpayer but recognises that there could be changes to such an APA in a bilateral Mutual Agreement Procedure. See further paragraph 4.140 of these Guidelines, and in general Section F of Chapter IV of these Guidelines ...

This Appendix describes the relevant benchmarking search criteria applied for the purposes of identifying companies involved in baseline marketing and distribution activities and relied upon to establish the global dataset which in part forms the basis for the approximation of arm’s length results under the simplified and streamlined approach. Database filtering Moody’s BvD Orbis databaseThere are database license restrictions associated with the use and dissemination of detailed data and company information. was used for the initial research of defining relevant benchmarking search criteria and only the following criteria were considered initially. Active companies Companies with primary NACE codes 45 – Wholesale and retail trade and repair of motor vehicles and motorcycles and 46 – Wholesale trade except of motor vehicles and motorcyclesNoting further refinements through the qualitative review outlined in the next section. Companies with consolidated accounts, or unconsolidated only where the company is known to own less than 50% of any subsidiaries Companies with no shareholders with ownership of more than 50% of the shares of the company Companies with operating revenue and EBIT data available for 2017, 2018 and 2019 Companies with operating revenue average of at least EUR 2 million for 5 years (2015-2019) Companies with a website address Companies with business overview information available in the database Excluding companies with a research and development to sales ratio of more than 3%This is an initial database search criteria, later refined through the manual rejection of companies described as carrying out research and development activities in their business descriptions and further quantitative filtering described below. Manual review of company descriptions After the filtering described above, a manual review of the companies was performed. This review aimed at rejecting from the final dataset any companies undertaking more than baseline wholesale marketing and distribution activities based on scoping criteria outlined in Section 2. Initially, keyword searches were used to make rejections of companies, and then manually reviewed the companies in the dataset using only the descriptive information on businesses activities provided in the database. This review comprised – • Rejection of companies with the following terms in their business overview: o “design and manufactur”, o “financ”, o “insurance”, o “manufacture “, o “research”, “software d” and “system integrat”. • Rejection of all companies that do not describe wholesale distribution as their main activity. • Rejection of companies which describe any development, research or manufacturing activity, or more than minority or ancillary levels of additional activities such as retail, repairs and maintenance, and other services. Quantitative review of company data Companies reporting a 5-year weighted average of intangible fixed assets to sales higher than 1% were rejected. Of companies reporting a figure for research and development expenses those reporting a 5 year weighted average of R&D over sales of more than 0% were rejected. Companies reporting losses in 3, 4 or 5 of the 5 years considered in this analysis were rejected as persistent loss makers. Application of the commodities exemption Companies remaining in the dataset have been subject to further high-level qualitative checks of company website and internet information to identify the products being distributed. Where a company is distributing products which meet the definition of commodity in this guidance, that company has been removed from the data set in line with the scoping exemption for commodities. 1There are database license restrictions associated with the use and dissemination of detailed data and company information.2Noting further refinements through the qualitative review outlined in the next section.3This is an initial database search criteria, later refined through the manual rejection of companies described as carrying out research and development activities in their business descriptions and further quantitative filtering described below ...

The assumptions in the following numerical examples are intended for illustrative purposes only and should not be taken as prescribing adjustments and arm’s length arrangements in actual cases or particular industries. While the examples seek to illustrate the interplay of the different components of the pricing methodology in section 5, the simplified and streamlined approach must be applied in each case according to the specific facts and circumstances. The illustrative examples use the midpoint for the adjustment under section 5.1, but any point within a range equal to the return on sales percentage derived from the pricing matrix (Table 5.1) plus or minus 0.5% can be relied upon for the purpose of demonstrating compliance with section 5.1. 1. The following 8 examples show how to calculate the return on sales of a tested party in scope of the simplified and streamlined approach. It assumes that the jurisdictions involved in the illustrations have implemented the simplified and streamlined approach, and that the tested party meets the scoping criteria, with no exclusions being applicable. Balance sheet items in the examples are calculated on an average basis in accordance with footnote 4 of the guidance. Example 1 – Basic fact pattern with the industry Group 1 and the factor intensity classification [C] 2. Assume that GROUP AB is an MNE group that manufactures and distributes household consumables. Company A is the parent company of the group, resident in Country A. Company B is a subsidiary of GROUP AB resident in Country B that undertakes wholesale distribution activities in Country B. 3. Company A sells household consumables to Company B, who then sells the products, without further modifications, to third party retailers in Country B. Unless indicated otherwise in the examples, Country B is not a qualifying jurisdiction within the meaning of sections 5.2 and 5.3. 4. Assume Company B shows the following figures (before the calculation of the return under the simplified and streamlined approach): 5. In order to determine the return of Company B in Year X under the simplified and streamlined approach, the following steps should be undertaken: • Step 1 – Determine the relevant industry grouping of the tested party. Company B falls into Group 1 of the industry groupings in the definitions section of the guidance. • Step 2 – Determine the relevant factor intensity classification. o As illustrated in the following tables, the net operating asset intensity of Company B calculated based on a weighted average of the preceding three-year period (from Year X-3 to Year X-1) is 29.22%, and the operating expenses intensity for the same period is 23.87%. Therefore, under the pricing matrix in section 5.1, the factor intensity classification of Company B is [C]. o The account payable guardrail of 90 days under footnotes 5 and 29 of the guidance is not triggered as calculated in c). • Step 3 –Identify and apply the range from the relevant matrix segment. Under the pricing matrix in section 5.1 the return of Company B in year X should be 2.5% (+/- 0.5%). • Step 4 – Apply the operating expense cross-check of section 5.2. The operating expense cross-check described in section 5.2 is not triggered because the equivalent return on operating expenses result (10.20%) is within the operating expense cap-and-collar range (10%-60%). • Step 5 – Apply data availability mechanism of section 5.3. Data availability mechanism described in Section 5.3 is not triggered because Country B is not a qualifying jurisdiction. 6. The table below illustrates the calculation of the operating margin of the tested party under the streamlined and simplified approach. Example 2 – Basic fact pattern with the industry Group 3 and the factor intensity classification [D] 7. The facts are the same as in Example 1 except the figures of the profit & loss and balance sheet items calculated on an average basis of Company B in Year X-3 through Year X have changed as follows, and the MNE group produces and sells medical machinery. 8. In order to determine the return of Company B in Year X under the simplified and streamlined approach, the following steps should be undertaken: • Step 1 and Step 2 – Company B falls into Group 3 of the industry groupings and the factor intensity classification of Company B is [D] as illustrated in the table c). The account payable guardrail of 90 days under footnotes 5 and 29 of the guidance is not triggered. • Step 3 – Step 5 – Under the pricing matrix in section 5.1, the return of Company B in year X should be 3 % (+/- 0.5%). The operating expense cross-check described in section 5.2 is not triggered because the equivalent return on operating expenses result (16.67%) is within the operating expense cap-and-collar range (10%-40%), and Data availability mechanism described in Section 5.3 is not triggered because Country B is not a qualifying jurisdiction. 9. The table below illustrates the calculation of the operating margin of the tested party under the streamlined and simplified approach. Example 3 – Application of the Data availability mechanism for qualifying jurisdictions 10. The facts are the same as in Example 2 except that Country B is a qualifying jurisdiction within the meaning of sections 5.2 (operating expense cross-check) and 5.3 (the data availability mechanism) and has a sovereign credit rating for the relevant fiscal year of BB-. 11. As in Example 2, the operating expense cross-check described in section 5.2 is not triggered because the equivalent return on operating expenses result (16.67%) is within the operating expense cap- and-collar range (10%-45%). 12. In accordance with the data availability mechanism, Company B will earn an adjusted return in accordance with the following formula: Adjusted return on sales = ROSTP + (NRAJ x OASTP) 13. ROSTP is 3% (the return on sales percentage of the tested party calculated in accordance with Sections 5.1 and 5.2 where applicable), NRAJ is 1.8% (the net risk adjustment percentage of a jurisdiction with the sovereign credit rating with BB-) and OASTP is ...

Foreword In an increasingly globalised economy, multinational enterprises operate expansive value chains spanning several countries. As a result, lengthy cross-border tax disputes may arise, especially in relation to baseline marketing and distribution activities. These disputes often drain the financial and administrative resources of all parties involved. This challenge is only amplified for low-capacity jurisdictions whose tax administrations often grapple with limited resources and unavailable data. This report provides guidance designed to simplify the application of transfer pricing rules with regards to baseline marketing and distribution activities, alleviate administrative burden, cut compliance costs, and enhance tax certainty for tax administrations and taxpayers alike. Released in October 2020, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting report Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint stated that Amount B was intended to simplify and streamline the application of the arm’s length principle to baseline marketing and distribution activities, with a focus on the specific needs of low-capacity jurisdictions. In October 2021, the Inclusive Framework agreed a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. For the past two years, Inclusive Framework members have worked on an equal footing to ensure that Amount B delivers meaningful simplification to price baseline marketing and distribution activities, considering in particular the challenges that low-capacity jurisdictions face in applying transfer pricing. In designing Amount B, the Inclusive Framework has benefited from businesses, tax practitioners, academics, and other stakeholders’ inputs through the public consultations held in December 2022 and July 2023. As a key deliverable of Pillar One, Amount B is expected to not only provide relief of compliance burdens for taxpayers but also to enable tax administrations to allocate resources towards riskier and more complex transactions, thereby ensuring a more efficient and impactful approach to their work. This report was approved and declassified by the Inclusive Framework.1 Introduction In its Statement of October 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework) agreed to simplify and streamline the application of the arm’s length principle to in- country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity jurisdictions. In July 2023, the Inclusive Framework agreed to publish a final Amount B report, content from which would be incorporated into the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 by January 2024 with due consideration given to both the needs of low-capacity jurisdictions, and the interdependence of Amount B with the signing and entry into force of the Multilateral Convention to Implement Amount A of Pillar One (“MLC”).2 This report responds to the mandate of the Inclusive Framework by providing an optional simplified and streamlined approach – formerly referred to as Amount B – that jurisdictions can choose to apply to in- scope distributors resident in their jurisdictions.3 It reflects the consensus of the Inclusive Framework and takes account of comments received in response to the public consultation documents released on 8 December 2022 and on 17 July 2023. As part of the current workstream, the Inclusive Framework is working on an additional optional qualitative scoping criterion that jurisdictions may choose to apply as an additional step to identify distributors performing non-baseline activities for the purpose of the simplified and streamlined approach. The Inclusive Framework will conclude this work by 31st March 2024, with any additions to be incorporated into the OECD Transfer Pricing Guidelines.4 The simplified and streamlined approach draws from the general principles outlined in the OECD Transfer Pricing Guidelines and is incorporated into the OECD Transfer Pricing Guidelines as an Annex to Chapter IV. Notably, nothing in the guidance contained in this report should be construed as a basis to interpret the application of the general principles in the remainder of the OECD Transfer Pricing Guidelines with respect to any transactions, nor should this guidance be interpreted as revising those principles. Following the publication of this report, jurisdictions can choose to apply the simplified and streamlined approach for in- scope transactions of tested parties in their jurisdictions for fiscal years commencing on or after 1 January 2025. Jurisdictions can choose to apply the simplified and streamlined approach to the qualifying transactions of their in-scope tested parties according to the options articulated in Section 2 of this report. Similar to other elective approaches in the OECD Transfer Pricing Guidelines, the outcome determined under the simplified and streamlined approach by a jurisdiction that has chosen to apply the simplified and streamlined approach to qualifying transactions of its in-scope tested party is non-binding on the counter- party jurisdiction where the associated enterprise that is a party to the controlled transaction is located. However, subject to their domestic legislations 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 approach is applied by a low-capacity jurisdiction5 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 low-capacity jurisdiction where there is a bilateral tax treaty in effect between the relevant jurisdictions.6 The Inclusive Framework will work on the implementation of this commitment in 2024, including through the development of competent authority agreements that could be used within the context of bilateral tax treaty relationships, taking into consideration the dual objective of bilateral tax treaties to avoid double taxation, as well as to prevent double non-taxation. The Inclusive Framework will agree on the design elements and on the list of low-capacity jurisdictions within scope of this commitment by consensus in 2024. The Inclusive Framework will agree on the list of low-capacity jurisdictions by 31 March 2024.7 Section 3 of this report describes and defines the set of qualifying transactions within scope of this simplified and streamlined approach, and consequently the characteristics of in-scope distributors. In- scope distributors, for instance, should not own unique and valuable intangibles nor should they assume certain economically significant risks. The simplified and streamlined approach allows in-scope distributors to ...

Where a tested party is located in a qualifying jurisdiction, an adjustment will be made to the return initially determined under Section 5.1 and Section 5.2 where applicable. A relevant taxpayer in an aforementioned qualifying jurisdiction will earn an adjusted return in accordance with the following formula: Adjusted return on sales = ROSTP + (NRAJ x OASTP) Where – ‒  ROSTP is the return on sales percentage of the tested party calculated in accordance with Section 5.1 and Section 5.2 where applicable. ‒ NRAJ is the net risk adjustment percentage of the qualifying jurisdiction derived from table 5.3 below, where the applicable category is determined by reference to the sovereign credit ratingWhere there exists multiple and varying sovereign credit ratings for a qualifying jurisdiction from the recognised independent ratings agencies, the determination of the applicable net risk adjustment percentage from table 5.3 should be based on the sovereign credit rating for that qualifying jurisdiction that was issued or re-affirmed nearest to the first day of the relevant fiscal year. of the qualifying jurisdiction of the tested party applicable on the first day of the relevant fiscal year. Where there exists no sovereign credit rating for a qualifying jurisdiction from the recognised independent ratings agencies, the applicable net risk adjustment percentage will equal the average net risk adjustment percentage for all non-investment grades derived from table 5.3. ‒  OASTP is the net operating asset intensity percentage of the tested party for the relevant fiscal year but will not exceed 85% for the purpose of computing the adjusted return on sales of the tested party. The methodology applied to calculate the net risk adjustment percentages in this table comprises determining the five-year average sovereign debt default spread for each credit rating grade (sourced from data compiled by Aswath Damodaran, NYU Stern School of Business) less a double counting adjustment that seeks to approximate for the existing country risk present in the global dataset. 37Where there exists multiple and varying sovereign credit ratings for a qualifying jurisdiction from the recognised independent ratings agencies, the determination of the applicable net risk adjustment percentage from table 5.3 should be based on the sovereign credit rating for that qualifying jurisdiction that was issued or re-affirmed nearest to the first day of the relevant fiscal year.38Where there exists no sovereign credit rating for a qualifying jurisdiction from the recognised independent ratings agencies, the applicable net risk adjustment percentage will equal the average net risk adjustment percentage for all non-investment grades derived from table 5.3.39The methodology applied to calculate the net risk adjustment percentages in this table comprises determining the five-year average sovereign debt default spread for each credit rating grade (sourced from data compiled by Aswath Damodaran, NYU Stern School of Business) less a double counting adjustment that seeks to approximate for the existing country risk present in the global dataset ...

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. 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. 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. 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 basis 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. Operating expenses refers to total costs excluding cost of goods sold, pass-through costs appropriately excluded under the accurate delineation of the transaction 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. Operating expense intensity (OES) refers to the ratio of operating expenses to net revenue, expressed as a percentage. 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 list of qualifying jurisdictions for Section 5.3 purposes will be fixed prospectively based on those qualifying criteria, published and updated every 5 years ...

45. The approximation of arm’s length results has been presented as matrix segments according to the following factors: net operating asset intensity (OAS), operating expense intensity (OES) and industry groupings ...

46. For the purposes of the simplified and streamlined approach, return on sales has been applied as the net profit indicator for the purpose of establishing pricing outcomes for in-scope transactions ...

47. In order to determine the return for a tested party involved in in-scope transactions for the relevant fiscal year, a tax administration and relevant taxpayerWith reference to the implementation options outlined in paragraph 7 of this guidance, “relevant taxpayer” refers to: (i) taxpayers who elect to apply the simplified and streamlined approach in a jurisdiction of residence that permits such election, and (ii) taxpayers who are otherwise obligated to apply the simplified and streamlined approach in the jurisdiction of residence. will apply the following 3-step process: a. Step 1 – determine the relevant industry grouping(s) of the tested party from the three possible groupings (i.e. industry grouping 1, 2, 3) and identify the applicable vertical column(s) of return on sales in the pricing matrix in table 5.1 that correspond to that industry grouping. In the case that the products distributed fall into more than one industry grouping, the proportion of sales falling into each industry grouping should be calculated. In the case that at least 80% of sales fall into a single industry grouping and so 20% of sales or less fall into different industry grouping(s), the latter will not be determinative for setting the matrix return and instead the return will be set by reference only to the relevant matrix cell for the industry grouping where the majority of sales fall. In the case that more than 20% of sales are from products which fall into a second and/or third industry grouping, a weighted average return should be calculated. b. Step 2 – determine the relevant factor intensity classification of the tested partyFor the purpose of calculating the net operating assets of the tested party for relevant years and mitigating the risk of distortive credit terms, an accounts payable days guardrail of 90 days applies, such that the value of creditors used in the respective calculations shall not exceed cost of goods sold / 365 * 90. An illustrative example, example 6, on the practical application of the accounts payable days guardrail is included in Appendix B. from the five possible classifications (i.e. factor intensity classification A, B, C, D, and E) and identify the applicable horizontal row of return on sales in the pricing matrix in table 5.1 that correspond to that factor intensity classification. The factor intensity classification of the tested party should be calculated based on a weighted average of the three preceding fiscal years.Where the qualifying transaction has been in place for two years, a two-year weighted average ratio should be used, and where the qualifying transaction has been in place for only one year the ratio should be calculated based on the financial results for that year. c. Step 3 – identify the range from the pricing matrix segment that corresponds to the intersection of the industry grouping(s) and the factor intensity classification of the tested party. If needed, the weighted average return should be calculated by multiplying each return from the relevant cells of the matrix by the proportion of sales to be priced by reference to that cell and totalling these proportional returns to give a single weighted average return rate applicable to all sales by that distributor. In this way, the weighting of factor intensity classifications relies only on the proportion of sales assigned to each industry grouping and does not require a calculation that recognises the operating expenses and assets that are specific to each industry grouping. 28With reference to the implementation options outlined in paragraph 7 of this guidance, “relevant taxpayer” refers to: (i) taxpayers who elect to apply the simplified and streamlined approach in a jurisdiction of residence that permits such election, and (ii) taxpayers who are otherwise obligated to apply the simplified and streamlined approach in the jurisdiction of residence.29For the purpose of calculating the net operating assets of the tested party for relevant years and mitigating the risk of distortive credit terms, an accounts payable days guardrail of 90 days applies, such that the value of creditors used in the respective calculations shall not exceed cost of goods sold / 365 * 90. An illustrative example, example 6, on the practical application of the accounts payable days guardrail is included in Appendix B.30Where the qualifying transaction has been in place for two years, a two-year weighted average ratio should be used, and where the qualifying transaction has been in place for only one year the ratio should be calculated based on the financial results for that year ...

48. The return derived from application of step 3 in Section 5.1 will produce a range equal to the return on sales percentageIn the case where more than 20% of sales are from products which fall outside of a single industry grouping, the return derived from step 3 will produce a range equal to the weighted average return determined in accordance with paragraph 47 plus or minus 0.5%. derived from the pricing matrix (Table 5.1) plus or minus 0.5%. Any point within that acceptable range can be relied upon for the purpose of demonstrating compliance with Section 5.1 and will form the basis for any subsequent adjustments that may apply in accordance with Section 5.2 and 5.3 below. 31In the case where more than 20% of sales are from products which fall outside of a single industry grouping, the return derived from step 3 will produce a range equal to the weighted average return determined in accordance with paragraph 47 plus or minus 0.5% ...

49. For the purposes of the simplified and streamlined approach, relevant taxpayers will apply and test the actual outcome of in-scope transactions to demonstrate the conditions of these transactions were consistent with the simplified and streamlined approach on an ex post basis (i.e. the arm’s length outcome- testing approach). Such test typically takes place as part of the process for establishing the tax return at year-end.See paragraph 3.70 of these Guidelines. 32See paragraph 3.70 of these Guidelines ...

50. In asserting the application of the simplified and streamlined approach to in-scope transactions, tax administrations should bear in mind the guidance in paragraph 3.60 of these Guidelines regarding controlled transactions that are within the range. Moreover, when the margin reported by a relevant taxpayer falls outside the range resulting from the appropriate application of the simplified and streamlined approach by a tax administration, tax administrations should use the return on sales percentage derived from the pricing matrix (table 5.1) to adjust the margin of the controlled transaction ...

51. For the purposes of the simplified and streamlined approach, an operating expense cross-check is applied as a guardrail within which the primary return on sales net profit indicator is applied. Where the application of the return on sales net profit indicator produces a result outside of the pre-defined operating expense cap-and-collar range specified in table 5.2 below, the profitability of the tested party will be adjusted in accordance with paragraph 52(d) ...

52. The operating expense cross-check applies to all in-scope transactions and requires a tax administration and relevant taxpayer to apply the following 4-step process: a. Step 1 – a tax administration and taxpayer will determine the return on sales for the tested party in accordance with the guidance in Section 5.1 and compute an equivalent return on operating expense derived from that return. b. Step 2 – the tax administration and taxpayer will determine the applicable operating expense cap- and-collar range derived from table 5.2. The applicable cap rate is determined by reference to: (i) the factor intensity classification of the tested partyThis should correspond to the factor intensity classification of the tested party as determined in accordance with paragraph 47(b) in Section 5.1., and (ii) whether the tested party is subject to the default cap ratesDefault cap rates apply for the purpose of step 2 unless the tested party is located in a qualifying jurisdiction within the meaning of Section 5.2. or alternative cap ratesAlternative cap rates apply for the purpose of step 2 where the tested party is located in a qualifying jurisdiction within the meaning of Section 5.2. for qualifying jurisdictions within the meaning of Section 5.2. c. Step 3 – the tax administration and taxpayer will compare the equivalent return on operating expense of the tested party against the operating expense cap-and-collar determined in Step 2. d. Step 4 – where the equivalent return on operating expense of the tested party determined in Step 1 falls within the operating expense cap-and-collar range, no further adjustment is required to the return on sales calculated in Section 5.1. However, where the equivalent return on operating expense of the tested party determined in Step 1 exceeds the operating expense cap, the return on sales of the tested party will be adjusted downwards until it results in an equivalent return on operating expense equal to the operating expense cap. Conversely, where the equivalent return on operating expense of the tested party falls below the operating expense collar, the return on sales of the tested party will be adjusted upwards until it results in an equivalent return on operating expense equal to the operating expense collar. 33This should correspond to the factor intensity classification of the tested party as determined in accordance with paragraph 47(b) in Section 5.1.34Default cap rates apply for the purpose of step 2 unless the tested party is located in a qualifying jurisdiction within the meaning of Section 5.2.35Alternative cap rates apply for the purpose of step 2 where the tested party is located in a qualifying jurisdiction within the meaning of Section 5.2 ...

53. The data availability mechanism is intended to account for cases where there is no or insufficient data in the global dataset for a particular tested party jurisdiction and that jurisdiction is a qualifying jurisdiction within the meaning of Section 5.3.See paragraph 1.167 of these Guidelines. 36See paragraph 1.167 of these Guidelines ...

55. In order to simplify compliance burdens associated with administering the simplified and streamlined approach, the analysis supporting the determination of the ranges referenced in Section 5.1 and operating expense cap-and-collar rates in Section 5.2 will be updated every five years unless there is a significant change in market conditions that warrants an interim update ...

56. The financial data and other datapoints referenced in Section 5.1 and Section 5.3 will be reviewed annually and updated where necessary ...

57. In general, transfer pricing documentation ensures that tax administrations have access to the necessary information to conduct risk assessment processes and/or to audit the taxpayer’s transfer pricing practicesSee paragraphs 5.5 and 5.6 of these Guidelines.. In the case of the simplified and streamlined approach, documentation is important to ensure that tax administrations have sufficient and reliable information to assess whether taxpayers’ qualifying transactions meet the scoping criteria and taxpayers have properly applied the simplified and streamlined approach to in-scope transactions. 40See paragraphs 5.5 and 5.6 of these Guidelines ...

58. This section identifies the main items of information in the local file that can be useful in substantiating the taxpayer’s position on the applicability of the simplified and streamlined approach and provide tax administrations with the relevant information for its application. When considering the introduction of targeted documentation requirements for the simplified and streamlined approach, jurisdictions may consider simplifying such requirements for small and medium enterprises to limit their costs and compliance burden.See paragraph 5.33 of these Guidelines. 41See paragraph 5.33 of these Guidelines ...

59. The three-tiered approach to transfer pricing documentation described in Chapter V includes a local file, which provides detailed information on the taxpayer’s specific intercompany transactions. The documentation approach for the simplified and streamlined approach is built on the premise that the current content of the local file (see Annex II of Chapter V) includes the items of information and documents which are relevant to examine the taxpayer’s position ...

60. The following items of information may already be included in the local file and can be particularly relevant and useful to tax administrations in assessing whether the taxpayer’s qualifying transactions meet the scoping criteria, and, if the taxpayer applied the pricing methodology, whether it did so properly: a. An explanation on the delineation of the in-scope qualifying transaction, including the functional analysis of the taxpayer and relevant associated enterprises with respect to the in-scope transactions, and the context in which such transactions take place (e.g. whether there are any other commercial or financial relations between the tested party/taxpayer and other associated enterprises that may influence the accurate delineation of the qualifying transaction potentially in scope). b. Written contract or agreements concluded governing the qualifying transaction and supporting the explanation on the delineation of the in-scope qualifying transaction described in (a). c. Calculations showing the determination of the relevant revenue, costs and assets allocated or attributed to the in-scope transaction; d. Information and allocation schedules showing how the financial data used in assessing the applicability of the simplified and streamlined approach and applying the transfer pricing method ties to the annual financial statements ...

61. In relation to the information item in 60(b), where it is consistent with the scoping criteria and the conduct of the parties, the provision of a written contract would ease the administration of the simplified and streamlined approach when a taxpayer is seeking to apply the approach to a qualifying transaction. However, regardless of whether a written contract is in place, tax administrations or taxpayers can assert or challenge the approach based on the accurate delineation of the transaction performed under the principles articulated in Chapter I of these Guidelines.See paragraph 1.49 of these Guidelines. 42See paragraph 1.49 of these Guidelines ...

62. Financial information on the tested party is needed to understand whether the qualifying transaction meets the scoping criteria, irrespective of whether the tested party is a domestic or foreign entity.See paragraph 3.22 of these Guidelines. Accordingly, the taxpayer will also need to provide the annual financial accounts of the tested party for the relevant fiscal years. 43See paragraph 3.22 of these Guidelines ...

63. Where one or more items of information relevant to assess the application of the simplified and streamlined approach are not included as part of the transfer pricing documentation, tax administrations may require taxpayers to provide them upon request. Importantly, making this information available to tax administrations as part of the annual transfer pricing requirements or upon request may translate into fewer follow-up requests for information and audits for the taxpayer, as well as in a more efficient use of tax administrations’ resources ...

64. In addition to the information in the local file, taxpayers and tax administrations should leverage the information provided in the master file to support their position with regards to the application of the pricing approach. In particular, the master file can provide valuable information on the MNE Group’s business, such as main products, main geographic markets, pricing policy or the general strategy of the MNE Group for the development, ownership and exploitation of intangibles. As a matter of good practice, to avoid excessive compliance burden for taxpayers, when evaluating the applicability of the simplified and streamlined approach to qualifying transactions of a given taxpayers, tax administrations should refrain from requesting the taxpayer to produce or submit information already in the hands of the tax administration ...

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 ...