The evolution of international standards regarding Transfer Pricing continues to transform the way tax authorities and multinational groups analyze transactions between related parties.
In this context, the development of the so-called Amount B within Pillar One of the OECD seeks to simplify the application of the arm’s length principle to certain routine marketing and distribution activities.
One of the central aspects of the technical framework proposed by the OECD lies in the analysis of the “most appropriate method” for transactions falling within the scope of the B-Amount, as set forth in Chapter 4 of the technical guidance published in 2024.
The Objective of Amount B
Amount B emerges as an initiative aimed at reducing disputes and compliance costs in basic distribution operations carried out by limited-risk entities.
The approach proposes simplified parameters for determining profit margins consistent with the arm’s length principle, particularly in activities where:
- the functions are routine,
- there are no significant intangibles,
- and the risks assumed are limited.
The proposal seeks to generate greater tax certainty and international uniformity in the analysis of this type of transaction.
The “most appropriate method” principle
One of the fundamental pillars of the Transfer Pricing regime remains the selection of the most appropriate method based on the economic characteristics of each transaction.
The OECD guidelines establish that the selected method must adequately reflect:
- the functions performed,
- the assets used,
- and the risks assumed by the related parties.
In the case of Amount B, Chapter 4
notes that transactions falling within its scope generally have characteristics that allow for the use of simplified methodologies, particularly the Transactional Net Margin Method (TNMM).
Limited-Risk Distributors and Simplification
The technical guidance indicates that entities falling under Amount B typically act as:
- basic distributors,
- routine marketers,
- or agents with limited functions.
These entities typically:
- do not develop strategic intangibles,
- do not assume significant market risks,
- and operate under highly centralized structures within the multinational group.
Due to these characteristics, the OECD considers that the use of standardized margins may represent a reasonable approximation of the arm’s length principle.
The TNMM as the predominant method
Among the transactions covered by Amount B, the Transactional Net Margin Method plays a predominant role due to:
- the availability of financial information,
- operational simplicity,
- and the practical difficulty of applying other traditional methods to routine activities.
The approach proposes evaluating financial indicators such as:
- operating margin on sales,
- operating profitability,
- asset intensity,
- and level of operating expenses.
Based on these elements, profitability ranges are established that seek to reflect market conditions for comparable distributors.
Comparability and technical criteria
Although Amount B aims to simplify the analysis, applying the most appropriate method still requires a proper technical assessment.
The guidance emphasizes the need to analyze:
- the entity’s functional profile,
- the nature of operations,
- the industry,
- operating intensity,
- and relevant economic conditions.
Likewise, the OECD acknowledges that the simplified approach does not completely eliminate the need to make comparability adjustments when economically significant differences exist.
Optional Scope and Local Adoption
One of the most relevant aspects of Amount B is its non-automatic nature.
The OECD itself has noted that the application of this mechanism depends on the express adoption by each jurisdiction within its local regulations.
For this reason, various countries continue to evaluate:
- its incorporation into law,
- the scope of the safe harbor,
- and its interaction with traditional Transfer Pricing methods.
In jurisdictions where there is no formal adoption, taxpayers must continue to apply the methodologies provided for in local legislation and support their analyses in accordance with the traditional arm’s length principle.
Greater tax certainty and reduction of disputes
The development of Amount B represents one of the most significant simplification efforts within the international Transfer Pricing system.
The correct application of the most appropriate method principle will allow for:
- reducing compliance costs,
- improving legal certainty,
- reducing tax disputes,
- and strengthening consistency in routine marketing and distribution operations.
However, its practical implementation will continue to depend on coordination between international standards and each country’s domestic regulations.
At TPC Group, we have Transfer Pricing specialists ready to advise multinational companies on functional analysis, technical documentation, and compliance with international standards aligned with OECD guidelines.
Sources: OECD