Executive Summary

  • We welcome the efforts made to simplify the tax base determination rules under Pillar One.
  • We highly appreciate the transparent representation of the current status of discussion regarding the main design elements of Amount B, the implementation framework as well as the different points of view, doubts and concerns of the IF members.
  • The declared aim of Amount B is “to streamline the process for pricing baseline marketing and distribution activities in accordance with the arm’s length principle (ALP), thereby aiming at enhancing tax certainty and reducing resource-intensive disputes between taxpayers and tax administrations”. As acknowledged in various parts of the Document itself, there is a need to strike a balance between the different goals of Amount B, and adherence to the ALP must be eased in order to achieve a meaningful simplification.
  • We appreciate the simplification measures designed at increasing administrability of the ALP. Nevertheless, we believe that the current Amount B framework includes some features for which the balance is still too much on the side of the strict adherence to the ALP rather. For example, the Document constantly referring to the “requirement to accurately delineate a transaction” under the ALP is an indication of this tendency as well as too excessive scope restrictions and exclusions.
  • The scoping provisions significantly and unnecessarily narrow the scope of use cases for Amount B. This results into missed opportunities as it would not be able to bring much benefit to neither the tax administration nor the taxpayers. For example, excluding entities that also sell software or provide certain complementary services will result into the exclusion of entities from many industries. Same applies for the pharma industry, where entities distribute pharmaceutical products but also perform support services on clinical which will result in an exclusion of Amount B. Hence, in line with the ALP we need to link the scoping question with the selection of the comparables in the benchmarking process. As long as the independent comparables perform same/similar activities (e.g., regulatory activities, packaging or services) those entities should not be automatically excluded from the application of Amount B.
  • Multifunction entities should not be excluded from scope. It is key to apply an activity-based approach based on a robust functional analysis instead of an entity approach when defining the scope. As done now, it can be solved with reasonable segmentation. MNEs impacted by Amount A should fall under Amount B and benefit from tax certainty.
  • We find the documentation requirements excessive. Partly, they go beyond the documentation requirements under the current requirements in Master and Local File. Such excessive documentation requirements reduce the attractiveness of Amount B for MNEs as well as for tax authorities who will need to build up the resources to review the documentation.
  • One important element that is missing in the current Document, is the practical difficulty to reach a certain target arm’s length margin which can have various reasons (business cycle of products, duration from customer order to final delivery and invoicing, customs considerations etc.). Therefore, we recommend that the Document also addresses the possibility of so-called year-end adjustments. Without year-end adjustments it is practically not possible for many MNEs to reach the required target margin. In this regard, in order to mitigate risks, also customs compliance needs to be considered and ensured.
  • We recommend that Amount B should be implemented as a safe harbor to properly mitigate tax risks of both double taxation and double non-taxation; in fact, we consider that presenting the Amount B as an interpretation of how the arm’s length principle applies to baseline marketing and distribution activities would leave too much room to subjective interpretations and it would not achieve the declared objective of increasing tax certainty. Hence, the benchmarks used and Amount B to determine the profitability targets should be ideally prepared by OECD (or by a specific committee in charge for Amount B). Exceptions should be not provided (e.g., other method such as CUP, execution of comparability adjustments, etc.). For agents/commissionaires and certain buy/sell distributors (as an exception) also the application of the Berry Ratio could be considered (or a combination as proposed in 69 b). Key is clarity and simplicity.
  • It must be avoided that the new target ranges (Amount B) are considered as a minimum profit level (“floor”) for baseline marketing and distribution activities, which may then result into additional disputes. This is particularly important for distribution activities that will be out of scope for Amount B.
  • As stated above we recommend that Amount B is provided and updated by the OECD. However, we appreciate the guidance provided in Annex A regarding the execution of reasonable benchmarking studies. More clarity in this important area is key to limit material tax disputes in future (not only for benchmarking distribution activities/functions).

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