Episode Transcript
[00:00:00] Foreign.
[00:00:05] And welcome to our podcast series A and M Tax Docs Tax Policy Updates where we bring you the insights into the latest developments in the global tax policies and controversy matters.
[00:00:15] This is Adnan Begich. I'm a Transfer Pricing Managing Director in the Tax practice of A and M. Based out of Singapore.
[00:00:22] I have around 20 years of experience in transfer pricing and have worked across Asia, PAC and Oceania. My work focuses on complex DP matters including value chain transformation, peer documentation, APAs and dispute resolutions.
[00:00:35] Over the years, I advise clients from wide range of sectors including consumer goods, automotive and manufacturing, hospitality, oil and gas, logistics, financial services and fund management.
[00:00:48] Our topic today is Pillar one Amount B. Where do we stand?
[00:00:53] Well, over the last few years most of the public attention under BEPS 2.0 was focused on the more political and headline driven parts of the projects, particularly Amount A and Pillar two.
[00:01:04] But in practice, for many multinational organizations, Amount B may be the more immediate and operationally relevant deployment.
[00:01:11] Why?
[00:01:13] Because Amount B goes directly to one of the most common and recurring transfer pricing questions in global business.
[00:01:21] How should routine distributors be priced?
[00:01:24] The promise of Amount B is straightforward.
[00:01:27] Simpler rules, greater consistency, less controversy and potentially lower compliance costs. But the reality is, at least as it's today looks very different. While OECD has now finalized the technical framework and incorporated Amount B into the transfer pricing guidelines, adoption across jurisdictions remains, well, uneven.
[00:01:51] Some countries have implemented it, some only accept it conditionally.
[00:01:57] Others have decided not to adopt it, or at least not adopted for now.
[00:02:01] So the key question is no longer what Amount B is. The more important question is where do we stand today and how does that impact the multinational organizations operating across multiple jurisdictions?
[00:02:16] That is exactly what we will unpack in today's episode.
[00:02:20] So we take a step back before we go into Amount B.
[00:02:26] We'll look at Pillar one and we know that Pillar one has very two different components. First, Amount A.
[00:02:35] Amount A focuses on the reallocation of residual profit for large multinational enterprises. Two market jurisdictions.
[00:02:43] This one is highly political. It's complex and still not fully implemented globally.
[00:02:49] It mainly applies to large digital and consumer facing businesses and introduces an entirely new nexus and allocation rules. Then we have Mount B under Pillar one.
[00:03:02] Mount B is very different.
[00:03:04] It is much more practical and operational.
[00:03:07] It focuses on baseline marketing and distribution activities. And the goal is simple, as we said before, to standardize how routine distribution distributors are priced.
[00:03:16] So instead of debating among the margins between countries, Amount B introduces a simplified and standardized return on sales. You can almost think of it as prepackaged TNMM outcome.
[00:03:30] Now let me frame where we stand today.
[00:03:32] Pillar 1 Command B is a key component of the OECD and G20 BEPS 2.0 project. OECD inclusive Framework released the final consolidated report with a Revised version in June 2020 and formally integrated Amount B into the OECD Transfer Pricing Guidelines as annexed to Chapter four.
[00:03:53] At its core, Amount B is an optional safe harbor framework that means jurisdictions can choose to implement it for fiscal year starting on or after January 1, 2025.
[00:04:07] Well, however, and this is critical, Amount B is not mandatory. Each country decides whether and how to adopt it, and this has led to what we see today a fragmented global landscape. As of April 2026, some countries have introduced the MandB, often on an elective basis.
[00:04:28] Others only accept it conditionally, and many are still undecided or have not explicitly opted out.
[00:04:36] Some have opted out, some haven't. A Mount B as an optional safe harbor approach means that OECD does not force countries to adopt it. Instead of each country can choose whether to apply it, and if they choose, they will have to apply. They have two options.
[00:04:52] The first option to implement a Mon B is the elective approach. Under this model, taxpayers can choose whether to apply a Mon B.
[00:05:00] If it's beneficial, they can opt in. If not, they can continue using traditional TP methods. The United States is a good example for this approach.
[00:05:09] The second implementation approach is the mandatory approach.
[00:05:12] In theory, a country could require all qualifying distributors to basically apply Amount B, but in practice, as of today, no major economy has taken this step.
[00:05:24] Most countries moving forward are doing so on an elective or conditional basis.
[00:05:32] Another very important point is that Amount B is jurisdiction specific.
[00:05:36] If a country adopts it, the outcome is considered arm's length in that country, but it does not mean that other side of the transaction will accept it.
[00:05:45] If a counterparty jurisdiction has not adopted Amount B, the fixed margin is not automatically recognized. So the OECD is very clear that Amount B does not replace the existing TP framework. It only standardizes pricing for routine distribution. For everything else, traditional TP methods still apply.
[00:06:04] So how does a Mount B work in practice?
[00:06:07] MONDB applies only to baseline distribution.
[00:06:12] These are typically limited risk distributors or sales agents.
[00:06:16] That said, it means they must not own unique valuable intangibles and they must not assume an economically significant risk.
[00:06:24] There are also clear exclusions such as distribution of services, digital goods, and commodities.
[00:06:31] And if distributors perform additional activities such as manufacturing or significant rd, they will fall out of scope. Except if these activities can be clearly separated, the pricing follows Structure three Step process and it's very simple. Step number one, identify the industry category. Number two, assess the distributors, assets and expense density based on the three year average. And then three, apply the return from the OECD pricing metrics. The pricing matrix is a fixed return on sales and what we see is typically between 1.5%, 2 point to 5.5%.
[00:07:06] Post release, there have been a number of clarification reports. The first report was issued in February 2024 and it had two critical clarifications. First was covered jurisdictions. Definition of covered jurisdictions. These are countries that commit to apply or respect Amount B. There are about 66 of them, mostly developing countries or developing economies. And the idea is that outcomes should be, you know, broadly accepted across borders.
[00:07:38] Second is qualifying jurisdictions. This is more technical. It allows adjustments where local data is limited or economic conditions differ.
[00:07:47] Then in September 2024, OECD introduced a model Competent Authority agreement. This is essentially a framework for countries to align outcomes and reduce double taxations through mutual agreement procedures.
[00:07:59] And finally in February 2026, Oyster released the practical FAQs covering things like working capital, pricing ranges, startup distributors and revenue definitions.
[00:08:11] So overall these updates are really about one thing. Moving Amount B from theory into practice again. At its core, Amount B is not a new method. It's really just standardized version of tnmm. Instead of running a local benchmarking study, just apply a preset return. That means obviously less effort and potentially future dispute, but only if the transaction is in scope and the country adopts it. This brings us to the most important practical question.
[00:08:39] Where do we actually stand globally?
[00:08:42] Well, globally adoption as far as we see is a very mixed landscape.
[00:08:48] Some countries have implemented it, other accepted only in specific cases and many are still undecided or have specifically chosen not to adopt it.
[00:08:58] The United States is the first major economy to operationalize Amount B. It introduced Mount B as an elective safe harbor from fiscal year starting 2025.
[00:09:09] Singapore is another key mover. It introduced the Mount B as an elective pilot program from 2026 to 2028. And it's closely aligned with the OECD framework.
[00:09:19] So even amongst the early adopters we are not seeing mandatory regimes.
[00:09:25] Everything is elective or pilot based. Then several European countries have taken what I would call a conditional approach. For example, Germany and Denmark do not have broad domestic safe harbor, but they allow the use of amount B in cross border situations where the counterparty restrictions apply. Amount B, the counterparty is in the color jurisdiction list and there is a 3T in place. Then we have countries Like Netherlands which has decided not to apply amount B to Dutch taxpayers, but it will accept the amount B outcomes for covered jurisdictions to avoid out of taxation. France and UK have not introduced domestic safe harbors, but they have indicated that they will accept amount B outcomes in treaty situations and will encourage jurisdictions.
[00:10:14] Again, the objective is to prevent double taxation.
[00:10:18] And then on the other hand we have Japan who has explicitly confirmed that it will not adopt demand B at this stage. Austria and New Zealand have taken similar position to Japan not adopting.
[00:10:29] India has expressed significant reservations. For now, China remains silent and regions such as rest of Asia, Middle East, Africa, Latin America they show interest and the interest is growing. But formal implementation is still very limited.
[00:10:45] If I step back and summarize, amount B is technically finalized, but globally we are well far from consistent applications. What we instead see is a three tiered landscape. A small number of early adopters, a group of well conditional adopters focusing on avoiding double taxation, and a large number of countries either undecided or not adopting.
[00:11:07] Now let me come back to what is probably the most important practical point. Audit exposure and double taxation risk. This is really the key risk with the manb.
[00:11:16] If only one country applies it and the other doesn't, you can end up with double taxations.
[00:11:22] We're already seeing this in practice. For example, Japan has made it clear that if they do not adopt a MonB, they will continue applying traditional methods regardless of what the other country does.
[00:11:34] So the key takeaway is simple. Always check both sides of the transaction before applying in MOND balance.
[00:11:40] Now stepping back, what are the broader implications for multinational groups? On a positive side, a MON B can reduce compliance work and bring more consistency. But in reality, because adoption is very, very fragmented, many groups will, if they adopt, it will end up with basically running two systems in parallel. So let me close with few practical points and recommendations.
[00:12:04] First, do not approach this as a global yes or no decision. You really need to assess it country by country.
[00:12:12] Second, always look at both sides of the transaction. This is critical. Even if one jurisdiction adopts and applies a monb, the outcome only works if counterparty jurisdiction accepts it. If not, well, you immediately create a mismatch. Third, make sure that entities actually qualify. The scope is quite narrow. Fourth, compare the outcome with your current policy before making any decisions. Your current policies may actually give you a better outcome than it might be. And finally, where there is a real risk of mismatch or double taxation. Of course consider APAs or more traditional approach if it's a better option.
[00:12:50] That brings us to the end of our podcast today. Thank you for joining us.
[00:12:55] Stay with us as we continue this journey in our upcoming podcasts.
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[00:13:17] Thank you very much.
