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February 23, 2024

Report on recent US international tax developments 23 February 2024

The US Congress returns to Washington next week from the Presidents Day recess, with the Senate reconvening on 26 February and the House on 28 February. The Senate is likely to focus on the government funding deadlines of 1 March and 8 March, and possibly the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), passed by the House on 31 January. Senate Republicans say the bill, which addresses various TCJA business provisions, will require a Finance Committee markup to proceed.

The OECD on 19 February published the final report on BEPS 2.0 Pillar One Amount B, which is intended to simplify and streamline the application of the arm's-length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. The report sets out which distributors and sales agents are in scope and how to price their in-scope intercompany transactions. Distribution of non-tangible goods and services and marketing, trading or distribution of commodities are excluded from the scope of Amount B.

Unlike other BEPS 2.0 measures, Pillar One Amount B is not subject to a revenue threshold (unlike both Pillar One Amount A and Pillar Two) and is widely applicable to multinational businesses. The OECD plans to publish a list of the jurisdictions that choose to apply Amount B. Companies should consider whether they have transactions that may be in scope of Amount B and evaluate the potential impact of the Amount B approach on those transactions. Amount B will be treated as providing an arm's-length outcome only in jurisdictions that choose to apply the approach. In jurisdictions that do not choose to apply it, Amount B will not be treated as providing an arm's-length outcome, including for the purposes of Article 9 of the OECD Model Tax Convention (MTC) and by extension Article 25. The outcome determined under the Amount B approach by a jurisdiction is not binding on the counter-party jurisdiction.

The report also identifies additional work that is being done with respect to several aspects of Amount B, including updated Commentary on Article 25 of the MTC that will include specific language relating to tax certainty and the elimination of double taxation to ensure that optionality is preserved in all dispute resolution mechanisms for jurisdictions that do not adopt Amount B.

It will be important for companies to monitor whether and how the jurisdictions that are relevant to their business choose to implement Amount B, including assessing whether they may have in-scope transactions that involve a jurisdiction that implements Amount B and a jurisdiction that does not.

The report is incorporated into the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022. Jurisdictions can choose to apply the Amount B approach for in-scope transactions of tested parties in their jurisdictions for fiscal years starting on or after 1 January 2025. A Global Tax Alert provides details.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor