February 13, 2024

Understanding the OECD Pillar One Amount B as a Simplified Approach to Profit Allocation

By Sophia Castro Jurado, Senior Manager, Tax & Business Services

Understanding the OECD Pillar One Amount B as a Simplified Approach to Profit Allocation International Tax

The Organization for Economic Co-operation and Development (OECD) Pillar One Amount B (Amount B) simplification rules seem to have passed under the radar, overshadowed by the more widely discussed aspects of Pillar One Amount A (Amount A) and the complexities of the imminent implementation of Pillar Two rules. However, with the anticipated integration of Amount B into the OECD Transfer Pricing Guidelines (OECD Guidelines) by early 2024, it is gaining the attention it deserves.

This article provides an overview Amount B and how it proposes simplifying the transfer pricing rules for multinational enterprises (MNEs). Upon publishing the final set of rules, we will address the questions that are still open in a follow-up article.

OECD Two-Pillar Solution

In an ambitious international tax reform initiative, the OECD and G20 have joined forces to develop a strategy as part of the Base Erosion and Profit Shifting (BEPS) project aimed at combating the tax avoidance strategies used by MNEs. To tackle the challenges of the ever-changing digital economy, the OECD introduced a two-pillar solution in 2021: Pillar One and Pillar Two. Although these pillars have separate objectives, they are interconnected in their mission to transform the global tax system. As of today, 138 country members of the OECD/G20 Inclusive Framework on BEPS (IF) – which represents over 90% of the global economy – have agreed on moving forward with this unprecedented and substantial reform of the international tax system.

Pillar One: Reallocation of Profits

Pillar One of the solutions seeks to address the tax challenges arising from digitalization by reallocating some taxing rights to the countries where goods or services are consumed, regardless of whether the business has a physical presence there. This is a significant shift from the traditional nexus rule, which required a physical presence to establish tax jurisdiction.

Pillar One targets the largest and most profitable MNEs, ensuring that a portion of their profits are taxed in markets where they have significant consumer-facing activities (market jurisdictions). The goal is to align taxation more closely with the place where value is created, particularly in the digital economy. The OECD estimates that taxing rights on more than USD 125 billion of profit under Pillar One would be reallocated to market jurisdictions each year.

Pillar Two: Global Minimum Tax (GMT) Rules

Pillar Two addresses tax competition between countries by establishing a global minimum corporate tax rate. This floor is intended to prevent the “race to the bottom,” where countries lower their tax rates to attract MNEs, leading to an overall erosion of the tax base.

The GMT rate is set to ensure that MNEs pay a minimum level of tax on all income regardless of their headquarters’ location or where the income is sourced. This measure is designed to disincentivize MNEs from shifting their profits to low-tax jurisdictions, as they would still be subject to a top-up tax to meet the minimum rate of 15 percent. The OECD expects the GMT rules to generate around USD 150 billion in additional global tax revenues annually.

The Essence of Amount B

While Amount A revises the global tax framework to address the taxation of large and highly profitable MNEs, Amount B aims to streamline transfer pricing rules for all taxpayers. Its focus is on regulating transfer pricing for baseline marketing and distribution activities, among the most common fact patterns that MNEs face. Amount B seeks to bolster tax certainty and lower both compliance and administrative expenses, particularly aiding jurisdictions with limited resources that often lack local market comparables for reference.


Amount B primarily concentrates on the wholesale distribution of goods, including commissionaires and sales agents1. For these arrangements to be within the scope of Amount B, they must be considered “baseline,” and not involve unique and valuable intangibles or bear certain significant economic risks.

According to the draft regulations, for a qualifying transaction to be in-scope, the following conditions should be met: 1. The transaction can be reliably priced using a one-sided transfer pricing method with the distributor, agent, or commissionaire as the tested party, typically the Transactional Net Margin Method (TNMM)2; and 2. The annual operating expenses of the tested party must be between certain ranges3. Nonetheless, the exact quantitative and qualitative criteria to be adopted are still under review and will be confirmed once the final regulations are released.

The scoping framework clearly excludes services and commodities distribution from its purview.

Pricing Framework

Under the simplified approach of Amount B, the transactions that fall within the scope will be valued using a global pricing matrix derived from a global dataset4, unless internal comparable uncontrolled prices (CUPs) are available. This pricing matrix offers a range of arm’s length returns presented as returns on sales (ROS). The draft regulations proposed the following global pricing matrix with ROS from 1.5% to 5.5% with ranges considering +/- 0.5% to allow differences between industry sectors and for variation on the level of operational assets and operating expense intensity, measured by the ratios Operating Assets to Sales (OAS) and Operating Expense to Sales (OES) respectively.

Table 1: Pricing Matrix (Return on Sales as Percentage)

Factor Intensity Industry Grouping 1 Industry Grouping 2 Industry Grouping 3
(A) High OAS / Any OES
> 45% / any level
+/- 0.5%
+/- 0.5%
+/- 0.5%
(B) Med/high OAS / Any OES
30% – 44.99% / any level
+/- 0.5%
+/- 0.5%
+/- 0.5%
(C) Med/low OAS / Any OES
15% – 29.99% / any level
+/- 0.5%
+/- 0.5%
+/- 0.5%
(D) Low OAS / Non-low OES
< 15% /10% or higher
+/- 0.5%
+/- 0.5%
+/- 0.5%
(E) Low OAS / Low OES
< 15% OAS / <10% OES
+/- 0.5%
+/- 0.5%
+/- 0.5%

To determine the arm’s length return that applies to an in-scope distributor by using the global pricing matrix, first, the industry sector is selected in columns 1, 2, or 3, and then, depending on the level of asset and expense intensity applicable, any of the options (A) to (E) in the five rows will be selected. The pricing framework also includes features to address geographical differences and data availability gaps, and it incorporates a corroborative mechanism to address extreme outcomes in low- and high-functionality cases (Berry Ratio cap-and-collar).

Potential Impact and Challenges

The implementation of Amount B could have far-reaching consequences for MNEs. It promises to lower compliance costs and provide greater tax certainty. However, challenges remain in its application. The one-size-fits-all approach may not accurately reflect the unique circumstances of every business and, in some situations, could be inconsistent with the application of the arm’s length principle. Furthermore, there could be complexities in integrating Amount B with existing domestic laws and tax treaties.

Also, the simplified rules may lead to over- or under-taxation in some cases, and there is a risk of new disputes arising as stakeholders interpret and apply the rules. Additionally, MNEs might need to reassess their operational structures and transfer pricing strategies in light of Amount B’s fixed returns.

Developing economies, typically with limited resources, stand to benefit from Amount B. It promises to level the playing field by offering a clearer framework for taxing MNEs operating within their jurisdictions since it can help these countries assert their taxing rights without engaging in costly and complex transfer pricing analyses.


As the OECD works towards refining and implementing the Amount B rules, all eyes are on how these developments will reshape international tax rules and impact the operations of MNEs. The ultimate success of Amount B will depend on its ability to balance simplicity and consistency with the application of the arm’s length principle, and by ensuring that it can be effectively applied across diverse global economic scenarios.


  1. The minimis retail sales are allowed as long as they do not exceed 20% of the total annual sales.
  2. Equivalent to Comparable Profits Method under the U.S. Transfer Pricing Regulations.
  3. Annual operating expenses lower than 3% and greater than 50% or 30% of its annual net sales. Percentages to be confirmed in the final regulations.
  4. A transfer pricing benchmarking analysis was conducted to determine a global dataset of companies involved in baseline marketing and distribution activities. The financial information used has not being provided in the draft regulations.