OECD's simplified approach to the evaluation of transactions
OECD's new Simplified Approach under Amount B streamlines evaluations for marketing and distribution transactions. This update offers clear criteria and a simplified pricing matrix, reducing complexity and enhancing clarity in cross-border transactions. Discover how it could impact your business!
OECDINTERNATIONAL TAXTRANSFER PRICING
Exciting Update on Transfer Pricing! As part of the OECD guidance on Amount B, a Simplified Approach has been introduced to streamline the evaluation for certain transactions.
Here's what you need to know:
Qualifying Transactions & Scope:
Applicable to buy-sell marketing, distribution transactions, and sales agency or commissionaire setups.
Requires reliable pricing using a one-sided transfer pricing method.
Tested party’s annual operating expenses must be between 3% and 30% of annual net revenues.
Exclusion Criteria:
Excludes transactions involving non-tangible goods or commodities.
Also excluded are scenarios where the tested party undertakes significant non-distribution activities, such as manufacturing or substantial service delivery, unless these can be reliably priced and evaluated separately.
This ensures that only transactions that are straightforward and have less ambiguity in their pricing are included under this simplified scheme.
Key Financial Terms:
Operating Expenses: Excludes COGS, pass-through costs, financing, investment activities, and taxes.
Net Operating Asset Intensity (OAS) and Operating Expense Intensity (OES): Both are calculated on a three-year weighted average basis.
Industry Grouping:
Group 1: Perishable foods, construction materials, household consumables.
Group 2: IT hardware, pharmaceuticals, consumer electronics.
Group 3: Medical and industrial machinery, and other industrial supplies.
Simplified Pricing Matrix:
A structured method to determine suitable returns for distribution activities based on industry group, OAS, and OES ratios.
Requires taxpayers to document proof of qualification and proper method application.
This approach aims to reduce complexity and ensure a more uniform application of transfer pricing rules. It’s a significant step towards clarity and efficiency in cross-border transactions.
Could this be a game-changer for international business operations?
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