Unpacking Pillar One, Amount B from a Transfer Pricing Perspective

By Chad Martin and Ricardo Rosero, BaseFirma USA


In late 2021, the OECD announced the preliminary design of its two-pillar approach to modernizing global taxation in the context of integrated, digitalized economies. Broadly speaking, Pillar One aimed to provide guidance on the proper allocation of taxation rights between jurisdictions. On the other hand, Pillar Two recommended the introduction of minimum tax rules designed to further diminish the incentive and ability for multinational enterprises (MNEs) to artificially shift income in order to minimize their income tax burden.

To date, Pillar Two has progressed and matured more rapidly than Pillar One, with dozens of jurisdictions around the world adopting or preparing to adopt its key components into domestic legislation in the coming years. Meanwhile, Pillar One has been mired in negotiations and public consultation procedures, largely because it lacks the self-reinforcing mechanisms that Pillar Two has in the form of the income inclusion/top-up tax rules. These rules allow implementing jurisdictions to unilaterally impose the effect of the rules on non-implementing jurisdictions.

The purpose of this article is therefore to:

  • Explain the mechanics of Pillar One at a high level and from a transfer pricing perspective; and
  • Advise MNEs on whether and how to implement Pillar One considerations into their current transfer pricing operating models.

High-level overview of Pillar One

The Pillar One rules are broken into two constituent calculations, referred to as Amount A and Amount B. Amount A is intended to reallocate the taxable income of large MNEs in a way that precludes double or non-taxation. Amount B, on the other hand, has no threshold related to MNE size and was designed as a way to streamline the arm’s length profit allocation calculation for routine sales and marketing activities (either at the segment or legal entity level).

In its current form, Amount B would apply with few exceptions to entities which engage in routine buy-sell activities with respect to tangible goods. Its primary pricing methodology is set forth in a “pricing matrix” which lists recommended return on sales (ROS) margins for three separate industry groupings plotted against a range of distributor functionalities, based on asset intensity and OPEX intensity ratios. For example, a grocery distributor with an operating assets/sales ratio below 15% and an OPEX/sales ratio below 10% would be entitled to the lowest recommended ROS of 1.50%. A pharmaceutical distributor with an operating assets/sales ratio above 45% would be entitled to the highest recommended ROS of 5.50%.

In order to address a range of concerns from national tax authorities and other interested parties, the OECD in its latest consultation document (responses to which were due on September 1 and are currently being processed) provided for a range of proposed adjustments and exceptions to the pricing matrix, including:

  • Modified ROS recommendations for “qualifying jurisdictions” which can demonstrate a material geographic effect based on local benchmarking;
  • Modifications for variations in distributor functionality, including a corroborative Berry Ratio analysis; and
  • Allowance for the application of the comparable uncontrolled price (CUP) method in lieu of the pricing matrix recommendations, where demonstrated to be appropriate.

For detailed information on the Amount B pricing matrices, including industry grouping classifications and discussion on distributor functional intensity, please reference the previously-linked consultation document.

BaseFirma’s commentary and recommendations

While we understand the need for the OECD to address the array of tax administration and practitioner interests and concerns, we feel the main effect of the latest consultation document is to highlight the barriers to operationalizing Pillar One in general, and Amount B in particular. In theory, Amount B should be the simplest component of Pillar One in that its implicit aim is to bypass the complexities of detailed transfer pricing economic analysis in favor of a streamlined, safe harbor style approach to establishing arm’s length returns. The fact that even this exercise required a 39-page consultation document with myriad permutations and exceptions to the base calculation demonstrates that the OECD faces many hurdles in proposing a solution that is both politically feasible and operationally palatable.

Nevertheless, BaseFirma believes that there are several steps that MNE tax departments should consider given the latest guidance on Amount B. First, the prospect of adoption may motivate changes and updates to existing transfer pricing policies, such as adopting a globally-consistent policy for routine distributors that align as closely as possible with the Amount B recommendations. This may include introducing or bolstering ROS policies which consider functional intensity in line with the aforementioned Amount B financial ratios, among others. In BaseFirma’s experience, two primary examples of MNEs which should consider such alignment include a) those with routine distributors that have unfavorable or unreliable data with respect to the ROS and therefore rely on an alternative net profit indicator; and b) those which analyze the manufacturer’s margin on sales to a routine distributor (rather than the distributor’s ROS on products purchased on an intercompany basis) for similar reasons. Second, and relatedly, MNEs should take the opportunity to refine their operational transfer pricing practices, as both Pillar One and Pillar Two calculations are heavily dependent on the ability to retrieve and synthesize accurate and targeted data at the jurisdictional and/or segment level.

Finally, whether or not Pillar One is adopted in the near term (or at all, for that matter), MNEs should evaluate their approach to global tax controversy. We expect that the commentary received on the latest consultation document will request additional clarity on matters of tax certainty, such as the role of APAs in the BEPS 2.0 Inclusive Framework, but regardless of the outcome, a comprehensive, consistent, and up-to-date approach of evaluating, quantifying, and mitigating risk with respect to intercompany distribution transactions benefits virtually any MNE tax department.

For expert guidance on BEPS 2.0, please reach out to us at:



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