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Feb. 19, 2024, 6:14 AM PST; Updated: Feb. 19, 2024, 10:38 AM PST


OECD SETS OUT GLOBAL TRANSFER PRICING RULES IN NEW REPORT (2)

By Danish Mehboob and Lauren Vella

Danish Mehboob
Reporter

Lauren Vella
Reporter


RELATED STORIES

OECD Seeks Input on Global Deal's Transfer Pricing Rule Details (1)
July 17, 2023, 5:00 AM PDT

SEARCH BY TOPIC

 * corporate income tax
 * transfer pricing methods
 * non-U.S. tax

A new OECD report breaks down rules to simplify transfer pricing methods for
certain transactions under part of the 2021 global tax deal known as Amount B.

The rules seek to simplify transfer pricing methods for baseline marketing and
distribution transactions. Transfer pricing refers to the way in which companies
value their transactions between related entities.

“This framework is expected to reduce transfer pricing disputes, compliance
costs, and enhance tax certainty for tax administrations and taxpayers alike,”
the Organization for Economic Cooperation and Development said in the report
issued Monday. “Low-capacity jurisdictions facing limited resources and data
availability will especially benefit from the administrative simplification
provided by Amount B,” it added.

The report comes after the OECD in July released a consultation document laying
out two options for determining which transactions fall within the purview of
Amount B.

“We welcome the progress on Amount B and all of the work by the Inclusive
Framework members,” said Anne Gordon, vice president of international tax policy
at the National Foreign Trade Council in Washington. “We recognize the need to
adjust the approach for low-capacity countries and continue to urge that the
OECD expand the scope of Amount B to include services,” she added.

The report introduces two options for implementing the rules, and describes
circumstances under which a distributor is within scope of Amount B, including
cases where it also performs certain non-distribution activities, such as
manufacturing.

“We have heard from business that they wanted the expansion of scope to include
things such as digital services and they will be disappointed that the Inclusive
Framework has not agreed to that expansion from previous consultations,”
Alistair Pepper, managing director of economic and valuation services at KPMG’s
Washington National Tax Practice, said.


MISMATCH SITUATION

The new report is aimed at addressing the needs of “low-capacity” countries by
simplifying the approach to transfer pricing for certain distributors. It states
that countries can opt to apply the Amount B rules.

Pepper said there can be a mismatch situation when a company is dealing with one
country that opts to apply Amount B and the other doesn’t.

“I think the concern about the optional implementation is that you end up with
that mismatch across a broader range of activities,” explained Pepper, who noted
businesses will have more work cut out for them in identifying when they have
transactions in scope of Amount B and in what jurisdictions the simplified
approach will apply.

The OECD noted in the report that India has reservations with the work on Amount
B and doesn’t agree with the report in part because it fails to define
“low-capacity jurisdictions” and “qualifying jurisdictions.”

“I suppose the main point India is trying to make is them saying that you have
not actually told us what the list of low capacity jurisdictions is, so we can’t
make any political commitments unless you give us this list,” Meenakshi Iyer,
transfer pricing partner at BDO in London, said.

“I don’t think India would be called a low capacity jurisdiction because it’s
one of the more sophisticated transfer pricing authorities with very high rates
of competent authority process that they enter into, so they could potentially
lose out if they’re forced to accept a lower margin,” Iyer added.

The OECD’s Inclusive Framework negotiating the global tax deal will agree on the
list of low-capacity jurisdictions by March 31 and the other design elements of
Amount B later in 2024.

The content from the report has now been incorporated into the OECD Transfer
Pricing Guidelines.

Countries can start applying the Amount B approach from January 2025.

Continue Reading

To contact the reporters on this story: Danish Mehboob in London at
dmehboob@bloombergindustry.com; Lauren Vella at lvella@bloombergindustry.com

To contact the editors responsible for this story: Vandana Mathur at
vmathur@bloombergindustry.com; Rose Walker at rwalker1@bloombergindustry.com


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