Background

Transfer pricing disputes relating to BMDA may result in challenges for tax administrations and compliance burdens for taxpayers. The S&S Approach (formerly known as Amount B of Pillar One) is incorporated as annex into the OECD Transfer Pricing Guidelines and aims to enhance compliance and efficiently resolve disputes. The June Guidance completes certain design aspects of the S&S Approach, allowing jurisdictions to start implementation as of 1 January 2025.

For more background on the S&S Approach and the Report we refer to our previous website post.

Pricing under the S&S Approach

Under the S&S Approach, the remuneration of BMDA is in principle determined by the use of a pricing matrix (Pricing Matrix) included in the Report. This remuneration shall, however, be subject to (potential) profitability adjustment mechanisms, being (i) the Operating Expense Cross-Check and (ii) the Data Availability Mechanism. These profitability adjustment mechanisms are addressed in the Report and can be applied by relying on the lists of 'Qualifying Jurisdictions’ published in the June Guidance.

June Guidance

In the June Guidance, lists of ‘Qualifying Jurisdictions’ within the meaning of the Operating Cross-Check and the Data Availability Mechanism have been published. Additionally, the June Guidance provides a list of ‘Covered Jurisdictions’ to whom the IF extended its political commitment to respect outcomes under the S&S Approach if this approach is applied by any of these jurisdictions.

What can taxpayers do?  

Taxpayers can assess, taking into account the now published lists on Qualifying and Covered Jurisdictions, whether (i) their activities are in scope for the application of the S&S Approach, and (ii) remunerations of their marketing and distribution activities align with the returns from the Pricing Matrix, taking into account the profitability adjustments.

Entry into force  

Jurisdictions can choose to apply the S&S Approach for fiscal years beginning on or after 1 January 2025.

We will keep you informed about further developments. Should you have any questions or need assistance in assessing the impact of the June Guidance, please contact a member of our Transfer Pricing team or your trusted Loyens & Loeff adviser.