How companies operating in Singapore should prepare for BEPS 2.0 Pillar One Amount B

Given Singapore’s status as a hub jurisdiction, BEPS 2.0 Pillar One Amount B is particularly relevant for Singapore entities, which are often counterparties to transactions with multiple jurisdictions. 

Amount B, a key component of Pillar One of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 initiative, is expected to be implemented by more than 60 jurisdictions from 1 January 2025. This has far-reaching implications for Singapore entities engaged in related party transactions. 

Amount B aims to simplify the application of transfer pricing (TP) rules and increase tax certainty for baseline marketing and distribution activities, which are the most common type of related party transactions that multinational enterprises are engaged in. These activities are also the most common transactions subject to TP disputes.  

Many countries in the region have indicated intention to implement Amount B, including Malaysia, the Philippines, Thailand and Vietnam.  

Given Singapore’s status as a hub jurisdiction, Amount B is particularly relevant for Singapore entities, which are often counterparties to transactions with multiple jurisdictions.  

Scope

Amount B focuses on the wholesale distribution of goods, including commissionaires and sales agents. Qualifying transactions must entail “baseline” marketing and distribution activities and meet both qualitative and quantitative scoping criteria. The distribution of intangible goods, services and commodities are excluded from the scope. Distribution transactions where the transactional net margin method is applied may fall within the scope of Amount B. 

Pricing framework

Qualifying transactions are priced based on a “return on sales” metric, which is determined based on a pricing matrix. The applicable return depends on the types of products distributed and the level of operating assets and operating expenses incurred in the distribution activities that fall within scope. The return must also be adjusted with prescribed formulas in certain instances to account for geographical and functional differences as well as data availability gaps. The applicable returns on sales vary from 1.5% to 5.5%, depending on the product category, operating asset and operating expenses intensity. Distributors earning a return that deviates by 50 basis points from the applicable return must apply an adjustment so that the return falls within the acceptable range.  

What are the profiles of Singapore entities that may be impacted?

Common types of operating models in Singapore that may be impacted by Amount B include: 

• A Singapore distribution entity buying tangible goods from foreign related party suppliers for sale to unrelated parties in Singapore 
• A Singapore regional distribution hub or re-invoicing hub entity buying tangible goods for resale to foreign related party distributors 
• A Singapore principal entity selling tangible goods to foreign related party distributors 
• A Singapore entity that is booking foreign sales supported by marketing service providers located in the foreign jurisdiction where the sales originate 
• A Singapore entity that is acting as a sales agent with originating sales booked by foreign related entities 

Key considerations

Common considerations for Singapore entities include: 

• Which entity should ultimately bear the corresponding TP adjustment required for the transacting in-scope distributor to comply with Amount B pricing?  
• In the context of regional distribution or re-invoicing hub model, where the Singapore entity earns a routine profit for its buy-sell role and the related in-scope distributor earns a profit different than Amount B, should the corresponding TP adjustment be passed on to residual profit earning entities in the value chain? 
• If a Singapore or a foreign in-scope distributor is earning a profit higher than the Amount B return, is there a requirement to adjust the margin of the distributor downward to align with the Amount B pricing? 
• Is the profit level indicator (PLI) of in-scope transactions aligned with the return on sales PLI under Amount B? 
• When year-end adjustment is required to align with Amount B pricing, does that adjustment qualify for Article 3.2.3 adjustment required under Pillar Two? 
• Do distribution activities under joint-venture arrangements qualify for Amount B? If so, is it possible to adjust TP under the joint-venture arrangement? 
• What are the direct and indirect tax implications in Singapore and in the counterparty jurisdictions related to the TP adjustment? 
• When a Singapore entity is transacting with a jurisdiction that has implemented Amount B, is there a tax treaty between Singapore and that jurisdiction? 
• What is the financial data required in the implementation of Amount B? Can the group financial reporting system produce such information? 
• How to manage the tax uncertainty resulting from a qualifying transaction between a jurisdiction that has implemented Amount B and a jurisdiction that has not? 
• How should qualifying transactions be documented to be aligned with local TP documentation requirements? 

What companies should do next

The Amount B implementation framework is being deployed by the OECD through the final Amount B report (Amount B guidance) published in February 2024, the lists of covered jurisdictions and qualifying jurisdictions within sections 5.2 and 5.3 of the Amount B guidance issued in June 2024 and, more recently, the Model Competent Authority Agreement on Amount B issued in September 2024.  

The OECD is expected to release further guidance, including the list of jurisdictions that will implement Amount B, before end of the year. Certain jurisdictions, including the US and Ireland, have already released or announced they will release draft regulations on Amount B. Numerous jurisdictions are expected to make Amount B announcements in the coming months. 

Companies should prepare for Amount B by taking the following actions:  

• Identify transactions that are potentially in scope. 
• Compare the current TP policy of in-scope transactions with Amount B pricing.  
• Monitor future developments, including the list of jurisdictions that will implement Amount B and the optional qualitative scoping criteria that jurisdictions may apply.  
• Model the financial and cash tax impact on the group TP and operating models.  
• Assess existing reporting systems to ensure they can produce the financial data required and monitor the TP outcome aligned with Amount B requirements. 
• Prepare risk mitigation strategies to reduce tax uncertainty resulting from inconsistent application of Amount B among counterparty jurisdictions.  

The co-authors of this article are Jonathan Belec, Partner, International Tax and Transaction Services – Transfer Pricing, Ernst & Young Solutions LLP and Rachel Kok, Partner, International Tax and Transaction Services – Transfer Pricing from Ernst & Young Solutions LLP.