If you are out of Amount B, you can let go a sigh of relief

Originally published: March 2024

A transfer pricing (TP) specialist recently told me: “if you do the analysis and conclude you’re not in scope of Amount B, you can let go a sigh of relief”.

Many saw the potential for TP simplification in Amount B as promising. But the mood has shifted, especially after last month’s Amount B guidance (https://lnkd.in/eDadDBM2). This is due to lack of agreement and simplification aims seem focused on tax authorities only.

We have already seen certain countries opting out (New Zealand) or others making lots of reservations (India). So, Amount B adoption will be unequal. In non-Amount B countries, MNEs will have to use “traditional” or “regular” non-Amount B TP. Elsewhere, Amount B methods will either be optional or mandatory. This means using different methods on the same fact pattern, usually a big no in TP. But it’ll get worse.

If MNEs have bilateral or multilateral operations in Amount B and non-Amount B countries, they’ll have to apply both rules and better hope the results are consistent. If not, there is a TP conflict to be resolved bilaterally, ultimately via a MAP. Amount B guidance cannot be applied in the MAP, so “traditional” TP would win (unless the Amount B country is a “low capacity” jurisdiction). So, taxpayers may choose or be required to take a little detour through Amount B, but ultimately they will fall back on regular TP (except if the two happen to align, but in that case you could have also skipped Amount B and go straight to regular TP).

So, Amount B does not prevent the existing complexity of TP, but adds the additional Amount B requirements (which have their own complexity, which I won’t dive in here). It will also be difficult to disentangle intercompany flows correctly. If a group company in Setia (non-Amount B) sells to an intermediate company in Tedia (Amount B optional), which sells to a sales entity in Noria (Amount B), would Amount B apply? The sale between Tedia and Noria can in principle be governed by Amount B. If the entity in Tedia then makes a small TP supported margin on the sale, this effectively pushes Amount B TP into the sale between Setia and Tedia. This shows that any combination of Amount B and non-Amount B entities can taint the whole structure, leading to deeper TP complexity.

Newtonian physics is more simple than modern physics (which includes both theories of relativity and quantum mechanics). Although modern physics is more accurate, Newtonian physics is roughly correct for almost all situations we can encounter on Earth. Physics students usually apply Newtonian physics to everyday situations. There is benefit to having something like that in TP too. But the answer right now is that you are allowed to apply Newtonian physics in some cases, but only if you also do a calculation under all parts of modern physics too to back it up. That’s not a simplification.

Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.