A major overhaul in global transfer pricing, known as Amount B, is inching closer to implementation. As part of the OECD’s Pillar One initiative, the new rules aim to standardise transfer pricing for routine distribution activities, but concerns about tariffs and double taxation are mounting.
Fourteen Asian countries are listed under the OECD’s covered jurisdictions in its Inclusive Framework (IF) on Base Erosion and Profit Shifting, including Malaysia, Philippines, Thailand and Vietnam.
Simplified approach
Amount B replaces traditional benchmarking studies with a pricing matrix, providing a simplified, formulaic approach to calculate returns for limited-risk wholesale distributors.
Implementation requires a multilateral convention with at least 30 countries
Tax professionals will have to navigate technical requirements, jurisdictional variations and strategic considerations amid tax and trade volatility that could affect calculations.
The framework’s implementation requires a multilateral convention with participation from at least 30 countries representing 60% of relevant multinationals. While it has delayed the global rollout, some countries, such as the Netherlands and Ireland, have moved ahead with enacting their own unilateral supporting legislation.
In South-East Asia, Singapore hasn’t formally implemented Amount B yet but has indicated that it will do so, says Kirsty McMillan, partner in transfer pricing and international tax at Forvis Mazars.
‘Singapore is often the counterparty to a distribution company, rather than the distributor itself,’ says McMillan. ‘When the rules were first published, Singapore did openly say that they would respect other jurisdictions if they chose to implement Amount B.’
Highlight risks
Jonathan Stuart-Smith, partner, tax and APAC tax leader at Forvis Mazars, says that companies should begin conducting Amount B impact assessments to identify potential risks and opportunities ahead of implementation.
‘The benefit of doing this will be to highlight potential risks and exposures to additional corporate income tax liabilities, where the current level of return for the distribution entity is lower than the expected level of return to be calculated under Amount B,’ says Stuart-Smith.
Unlike traditional benchmarking studies, Amount B offers greater predictability but less flexibility
Multinational companies operating in volatile, high-tariff jurisdictions with unclear Amount B adoption rules should proactively conduct impact assessments now, advises Irene Lee, partner for global transfer pricing services at KPMG China.
‘The final rules for Amount B and how different jurisdictions will implement it are still evolving,’ Lee says. ‘By modelling scenarios now, firms will be better positioned to adapt once Amount B is finalised and avoid disputes where tariff costs may disrupt Amount B’s fixed margins.’
Framework components
Amount B governs wholesale distribution transactions of tangible goods between related entities in multinational companies. It applies to limited-risk distributors performing baseline marketing and distribution functions, including customer identification, relationship management, after-sales services, warehousing and logistics support.
The framework consists of three key components: a pricing matrix that determines baseline earnings before interest and taxes (EBIT) margins, an operating expense cost-check mechanism, and a country risk-adjustment mechanism.
Unlike traditional benchmarking studies, Amount B offers greater predictability but less flexibility. Distributors must maintain returns within narrower ranges, requiring more frequent adjustments to stay compliant.
The framework also introduces complex technical requirements, including a detailed analysis of operating expense intensity ratios and net operating asset calculations. Scope determination is challenging due to a substantial grey area in the guidelines.
‘For high-risk scenarios, the first line of defence against double taxation is documentation’
‘Amount B shifts focus from the price of the transaction to the functionality of the entities,’ says McMillan. She notes that the framework creates double-taxation risks for multinational companies, particularly when a supplier is based in a jurisdiction without Amount B while the wholesale distributor operates in a jurisdiction with mandatory implementation.
Be prepared
Firms should prepare for scenarios that have a greater chance of leading to double taxation, adds McMillan. ‘For high-risk scenarios, the first line of defence against double taxation is documentation. Accurately delineating the transactions and clearly showing whether a transaction is in or out of scope for Amount B is important,’ she explains.
Lee recommends engaging in bilateral or multilateral advance pricing agreements to secure consistent methodologies. ‘Firms should align policies early to ensure current transfer pricing practices are compliant with Amount B’s scope to avoid disputes,’ she notes.
Companies can take independent action, according to Luis Coronado, global tax controversy leader at EY. ‘Firms can elect to apply Amount B, provided the transaction is with a jurisdiction that is a member of the OECD Inclusive Framework and has made a political commitment to honour the outcomes of Amount B,’ he says.
Global unpredictability
The rollout of Amount B has stalled at a time when companies are already struggling to deal with unpredictable changes in global trade policy, including shifting US tariffs and ongoing trade negotiations.
The framework’s fixed-return structure leaves companies little room to absorb unexpected tariff increases, which could force suppliers to bear additional costs and put pressure on distributors’ profit margins.
‘Amount B’s fixed margins may not align with real-world tariff costs’
‘Amount B’s fixed margins may not align with real-world tariff costs,’ says Lee. If the embedded tariffs are too low, distributors might not get enough compensation to cover their costs. On the flip side, if tariffs drop but Amount B keeps using high baseline figures, they could end up being overcompensated.
Take a company distributing electronics that gets hit with a 25% US tariff. ‘They might find Amount B’s standard return insufficient to cover costs, highlighting the need for a thorough impact assessment,’ notes Lee.
Coronado explains that when tariffs drive up import costs, consumer demand might drop, making it harder for local distributors to hit the target profit margins that Amount B requires. ‘This could result in added pressure on transfer pricing policies and require more careful margin management,’ he says.
Companies need to start by analysing if they can pass these tariff costs downstream on to their customers, especially in markets where alternative sourcing options are limited, adds Coronado.
‘When analysing alternatives such as moving production to jurisdictions with better tariff treatment for qualified originating goods, they should ensure that any cost absorption and functional profile such as risk-taking aligns with their operating model,’ says Coronado.
Ultimately, firms need to look at the bigger picture of trade and tax rules, not just Amount B. ‘Companies should build a framework that allows them to model different scenarios and understand how these policies could affect pricing and profitability,’ says Coronado.
