“Pillar One – Amount B” – Latest developments

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). Since the publication of the country lists in June 2024, there have been further developments surrounding Amount B, which are presented in the following article.

Publication of model competent authority agreement

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.

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.

Pillar One Update from the Co-Chairs of the Inclusive Framework on BEPS

Significant progress has also been made in the development of the Amount B Framework towards achieving a common final agreement among the Inclusive Framework member countries, with only a few outstanding issues remaining between certain jurisdictions. In the statement by the Co-Chairs of the Inclusive Framework on BEPS, the following unresolved points are reported:

 1. Adequate consideration of the interaction between the Multilateral Convention (MLC) and Amount B.

 2. Development of a filter to exclude jurisdictions with only a few legal disputes related to the transactions covered by Amount B.

 3. Introduction of an optional qualitative test to ensure that transactions generating significantly higher returns than basic distribution functions are not included within the scope.

 4. Concerns of certain countries that the pricing matrix delivers inappropriate results for taxpayers.

While discussions on the first three points are well advanced and focus on procedural issues and the precise formulation of the tests, point four remains a challenge. Various solutions have been proposed, including limiting the application of Amount B to distribution companies below a certain revenue threshold. Despite constructive discussions, no solution has yet been found that supports all members, so work continues on finding a consensus solution.

National and International Implementation of Amount B

Austria

At present, it remains uncertain if and how 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.

Germany

In Germany, the revised “Administrative Principles on Transfer Pricing – Principles for the Correction of Income according to § 1 Foreign Tax Act” (“VWG VP”), published in December 2024, included the final OECD/G20 report on Amount B dated February 19, 2024, as Appendix 4. The newly added paragraph 3.63a refers to the simplified approach for basic distribution activities described therein, applicable from the 2025 assessment period. Amount B is to be applied only if:

• there is a business relationship with a tax jurisdiction listed in Appendix 5 of the VWG VP (List of Covered Jurisdictions for the Inclusive Framework political commitment on Amount B),
• a double tax treaty agreement has been concluded with the jurisdiction,
• and is not considered a non-cooperative tax jurisdiction under the Tax Haven Defense Act.

United States

The U.S. Internal Revenue Service (IRS) has also addressed the U.S. implementation of Amount B and published a notice 2025-04 titled “Application of the Simplified and Streamlined Approach under Section 482” on December 18, closely aligning with the OECD’s final report of February 19, 2024, in terms of national implementation. The U.S. Treasury Department’s announcement allows U.S. taxpayers who fall within the scope to apply Amount B as an optional safe harbor for tax years starting January 1, 2025. The Treasury Department has announced further regulations on the application of Amount B. Key points include:

• Amount B is an optional safe harbor that taxpayers can apply at their discretion. The IRS cannot mandate its use.
• Amount B can be applied to transactions between U.S. distribution companies and foreign affiliated suppliers or vice versa, although recognition may be withheld if the foreign jurisdiction has not also adopted Amount B.
• Taxpayers can annually opt for the application of Amount B for qualifying transactions based on OECD criteria and an operating expense to net revenue ratio between 3% and 30%.
• The application of Amount B must be stated in the tax return and its proper application must be demonstrated.

The announcement invites comments on various aspects and provides that taxpayers can apply Amount B from the 2025 tax year before final regulations are issued. Future support from the new U.S. Administration is uncertain, especially given the announcement to exit Pillar II—the global minimum taxation.

OECD Pricing Tool and Fact Sheet

On December 19, the OECD released a “Pricing Automation Tool” and a “Fact Sheet” for Amount B. The Excel-based tool automatically calculates the Amount B result for a company within the scope and is updated annually to reflect changes to the pricing matrix and other relevant data points. Required inputs include specific items from the income statement and balance sheet over a four-year period, as well as information on industry classification. The Fact Sheet provides an overview of how Amount B operates.

PwC offers a wide range of support on potential questions relating to Amount B and has corresponding advanced tools available. If you would like to assess the eligibility of Amount B, or would like to explore the potential financial impacts that Amount B could have for your company or group, please contact us for more information.

Author: Edward Saunders, Florian Egner