Executive summary

On 20 December 2024, the Organisation for Economic Co-operation and Development (OECD) released a “fact sheet” that explains, step-by-step, the application of Amount B and an “automated tool” for pricing the return on sales for baseline distribution activities under Amount B. Both are available on a new “Pillar One – Amount B” website (Pillar One – Amount B | OECD). Taken together, the release amounts to an electronic “gift” and associated set-up instructions, just in time for the holidays.

Pillar 1 Fact sheet

The fact sheet provides an illustrated five-page summary of the February 2024 publication on a step-by-step basis. Step 1 provides guidance on applying the qualitative and quantitative criteria to determine potential eligibility for Amount B, corresponding to Section 3 of the February publication. Step 2 provides guidance on applying the Amount B pricing framework, corresponding to Section 5 of the February 2024 publication. Each step has several sub-steps illustrating the underlying key details of applying the Amount B rules in evaluating a specific individual potential in-scope distributor:

• Step 1-1: Identify qualifying transactions based on the Amount B definitions
• Step 1-2: Apply the qualitative and quantitative scoping criteria, including how the operating expense intensity is calculated
• Step 2-1-1: Determine the relevant industry grouping (corresponding to the column of pricing matrix)
• Step 2-1-2: Determine the relevant factor intensity classification (corresponding to the rows of the pricing matrix
• Step 2-1-3: Determine the appropriate cell in the matrix that establishes the Amount B range
• Step 2-2-1: Compute the equivalent return on operating expense
• Step 2-2-2: Determine the applicable cap-and-collar rates
• Step 2-2-3: Compare the equivalent return on operating expense against the cap and collar and make and adjustment if the cap or collar are triggered.
• Step 2-3-1: Check the applicability of the “Data Availability Mechanism” (DAM) based on the list of qualifying jurisdictions for the DAM
• Step 2-3-2: Calculate the adjusted return on sales, if necessary, in order to determine the final Amount B return for the qualifying distributor

The Amount B automated tool

With the fact sheet as background, the Amount B automated tool is an Excel spreadsheet that provides a rudimentary input-output calculator for a specific individual potential in-scope distributor. That is, the tool does not allow for multiple distributors to be evaluated at once, although no doubt a skilled user could modify the tool to do so. It provides for user-provided inputs, such as the name of the distributor jurisdiction, three years of financial information (consisting of net revenues, cost of goods sold, operating expenses, fixed assets, working capital and liabilities), and industry grouping or groupings.

The model then provides a number of key outputs, including:

• Whether the quantitative scoping criteria are met
• Whether the accounts payable guardrail is triggered
• The return on sales from the pricing matrix
• Whether the default cap rate or the alternative cap rate applies for the cap-and-collar (per section 5.2 of the February 2024 and July 2024 publications)
• The amount of adjustment required, if any, from the operating expense cap-and-collar
• The amount of adjustment required, if any, under the data availability mechanism (section 5.3 of the February 2024 and July 2024 publications)
• The final return on sales – the final Amount B determination

Implications

The Amount B automated tool has value in its own right (for determining the Amount B results for a particular distributor), and also as a check on the calculations that should be used for more complicated and comprehensive Amount B tools (e.g., taxpayer-developed calculators that determine Amount B for all distributors in the entire corporate group).