OECD Identifies Countries That Could Benefit from Simplified Transfer Pricing Rules

The OECD has identified Argentina, Brazil, Mexico, and South Africa as among the countries that could benefit from the simplified transfer pricing (TP) rules under the amount B framework. This list, published on June 17, includes what the OECD refers to as "covered jurisdictions."

While these jurisdictions are highlighted as potential beneficiaries, the OECD clarifies that being listed does not imply that these countries are "low capacity," meaning their tax authorities are not necessarily under-resourced. Furthermore, being included as a covered jurisdiction does not obligate these countries to adopt the simplified approach, nor does it guarantee they will do so.

The OECD confirmed that the list of covered jurisdictions will undergo a review every five years. "This will be a mechanical review to re-validate the low- and middle-income status of covered jurisdictions based on the latest available World Bank classifications," the OECD stated. Any additional countries included in this list will require approval by the Inclusive Framework.

The amount B framework aims to simplify and streamline the application of the arm’s-length principle, particularly focusing on in-country baseline marketing and distribution activities. This proposal is part of pillar one, the first aspect of the OECD's two-pronged international tax reform strategy.

Alongside the publication of the list, additional guidance was provided on the definitions of 'qualifying jurisdictions' within sections 5.2 and 5.3 of the amount B rules. Section 5.2 pertains to the operating expense cross-check mechanism, while section 5.3 deals with the data availability mechanism under amount B.

Moreover, the Inclusive Framework released further guidance to clarify and simplify the application of the OECD’s global minimum tax, the cornerstone of its pillar two rules. The pillar two agreement mandates that multinationals with revenues of at least €750 million ($805 million) must pay a minimum effective tax rate of 15% in all countries where they operate. Should a multinational's profit be taxed below this rate in any country, other countries can impose a top-up levy.

The list of covered jurisdictions follows a report on amount B published on February 19 by the OECD/G20 Inclusive Framework on BEPS. This report introduced two options for implementation for jurisdictions that opt into the simplified approach starting January 2025.

By fLEXI tEAM