The Consultation Document
Unlike Amount A of Pillar One and the global minimum tax rules under Pillar 2, there are no monetary thresholds (e.g., minimum global revenue) for Multinational Enterprise (MNE) Groups to be within the scope of Amount B. The scope of Amount B covers both buy-sell and agency arrangements including the wholesale distribution of digital goods. It excludes substantial retail sales, distribution of digital services and the trading, marketing or distribution of commodities.
One vital area on which input is sought is whether the scope determination for Amount B should include an additional qualitative threshold. The Consultation Document proposes two alternatives (A and B) to the scoping criteria. Alternative A proposes no additional qualitative scoping exclusions. Alternative B proposes the scope of Amount B would only include distributors that fit within a definition of "baseline" distributor and that do not make "non-baseline contributions" that cannot be reliably priced under the proposed pricing method.
For pricing under Amount B, the Transactional Net Margin Method (TNMM) is viewed as the most appropriate method (moderated by the Berry ratio), but tax authorities and taxpayers may under specified circumstances assert the applicability of the comparable uncontrolled price (CUP) method.
The Consultation Document contains a pricing matrix of arm's-length results based in part on financial information from a global dataset of companies involved in baseline marketing and distribution activities. Jurisdictions with local market comparables will prepare and publish their own local matrix to apply it as part of Amount B. The arm's-length range derived from the pricing matrix is based on three industry groups and five categories of operating assets and operating expense intensities (providing for 15 different potential operating margins). The range of arm's-length results is between 1.50% and 5.50%. If the taxpayer applying Amount B reports a margin that is outside the identified range, the tax administration should adjust the result to the midpoint of the Amount B range. Agreements reached under mutual agreement procedures (MAPs) and advance pricing agreements (APAs) will be respected over Amount B.
The Consultation Document provides that the documentation requirements under Amount B will build on the existing documentation requirements included in the OECD TPG.