OECD/G20 project on base erosion and profit shifting

On 19 February 2024, the OECD published the final Pillar One - Amount B report, which provides a simplified and streamlined approach to applying the arm's length principle to core marketing and distribution activities with a specific focus.
  • A simplified approach to the application of the arm's length principle will be part of Chapter IV of the OECD Transfer Pricing Directive from 1 January 2025.
  • The OCED report proposes the introduction of a simple profit margin matrix that can be applied to transfer pricing by marketing or distribution companies that meet the qualitative criteria for applying the simplified approach (Part B).     In the pricing matrix, an entity will be able to find its profit margin, which will be within certain ranges divided by industry, the amount of net operating assets and the amount of operating expenses. The resulting margin will then be subject to subsequent adjustments.
  • Tax jurisdictions will be able to choose whether to use the simplified Part B approach. If tax jurisdictions choose not to implement the simplified approach, they will continue to use their existing transfer pricing methods. The OECD will publish a list of jurisdictions that have opted to apply the simplified approach, effective 1 January 2025, except that members of the OECD/G20 Inclusive Framework will be obliged to apply the simplified approach in their tax jurisdictions where they are low capacity tax jurisdictions. The list of low capacity countries will be published by the OECD by 31 March 2024).
  • If some tax jurisdictions do not adopt the new rules and others do, there may be additional increased administrative costs and double taxation.
Full OECD report on Pillar One Amount B:

author: Marie Roubalová