“Pillar One – Amount B” – Publication of model competent authority agreement
Amount B of Pillar One offers a simplified transfer pricing approach for distribution entities of multinationals that meet certain criteria. In 2024, the OECD published the Amount B guidance, incorporated as an Annex to Chapter IV of the OECD Transfer Pricing Guidelines, and provided lists of covered and qualifying jurisdictions. (Follow the links to access our previous newsletters.). Now a model bilateral agreement for tax authorities has been provided.
In September 2024, the OECD released a Model Competent Authority Agreement (MCAA) for Amount B. The MCAA is a template for an optional bilateral agreement distinct from the Inclusive Framework (IF) commitment to respect Amount B results from covered jurisdictions. The MCAA aims to clarify the bilateral application of Amount B, offering greater certainty in the calculation and recognition of Amount B results by tax authorities.
Tax authorities in different jurisdictions can adapt the MCAA to set up agreements in which they bilaterally commit to respecting Amount B results and specify the version of the Amount B guidance they apply, for example to include future amendments.
Significantly, the MCAA allows jurisdictions to mutually agree the applicable upper bound for one of the eligibility criteria, the operating expense intensity (OES) ratio, which can be set between 20% and 30%. The MCAA thus addresses previous concerns that the variability of the OES criterion could lead to disputes between tax authorities.
The MCAA also includes sample clauses on respecting Amount B results in mutual agreement procedures and notifying the other authority of downward profit adjustments.
If and when it is implemented, Amount B will not fully standardize transfer pricing for eligible distribution transactions of multinationals, as the eligibility criteria and Amount B returns will vary by geography, the company’s activities and economic profile, and bilateral agreements. However, the approach could have far-reaching effects on transfer pricing for MNEs with significant international distribution activities.
At present, it remains uncertain if Austria will implement Amount B and what recognition rules will apply in relation to Amount B results from other jurisdictions. Nevertheless, as an Inclusive Framework member, Austria has in principle committed to respecting Amount B outcomes at least for the pricing of transactions with covered jurisdictions. This means that Amount B transfer pricing could affect certain intercompany transactions between Austria and covered jurisdictions from 2025.
As noted in our previous newsletter, the list of covered jurisdictions includes the following countries from Austria’s top 50 export destinations in 2023: Bosnia and Herzegovina, Brazil, Egypt, Kazakhstan, Malaysia, Mexico, Serbia, South Africa, Ukraine.
PwC offers support on potential issues relating to Amount B and has dedicated tools available. If you have questions about eligibility for Amount B, or would like to explore the financial impacts that Amount B could have for your company or group, please contact us for more information.
Author: Edward Saunders
