‘Amount B doesn’t take disputes off the table’: TP Forum

The OECD’s amount B proposal to streamline the arm’s-length principle is “not outrageous” but will not universally take disputes off the table, a major industry forum heard last week.

Robin Hart, California-based principal at consulting firm Charles River Associates, was speaking at ITR’s US Transfer Pricing Forum 2024 on Thursday, September 26.

He was part of a panel discussion titled ‘The latest insights on the industry impact of pillar one – amount B’.

Hart said that the prescribed arm’s-length percentages in amount B, which vary between 1.5% and 5.5% return on sales for distributors on a range of transactions, “are not outrageous”.

“The upper and lower quartiles broadly fit with most transactions,” he added.

However, Hart said that the tested party analysis within amount B, which requires the distributor to be the tested party, leads to “areas of subjectivity”.

“Is it enough to push an entity outside the scope of amount B?”, he questioned.

Hart also queried amount B’s capacity to avoid transfer pricing (TP) disputes.

“Amount B does not universally take disputes off the table. If one country has not adopted amount B, the arm’s-length principle under normal TP rules takes precedence.”

Another panel discussed whether the US would implement pillar two, a subject of much debate in recent months.

Jon Lamphier, vice president for tax at New York-based company Steel Partner Holdings, shared his in-house perspective on preparing for pillar two regardless of the US’s potential adoption.

“We are a domestic company so you may wonder why I am at a TP conference!”, he said.

“But like all businesses, we are becoming increasingly global. We had to do a lot of work to figure out our effective tax rate in multiple jurisdictions and get external advisers in to confirm that we met the requirements for the transitional safe harbour.”

Despite putting in this effort, Lamphier reported that companies can never be too sure of their pillar two obligations.

“We’ve got to that stage of comfort, but then everything changes the next day. Either the pillar two rules change or the business fact pattern changes,” he said.

Lamphier also discussed the difficulty of getting the attention of his business colleagues when it comes to pillar two.

“From a board perspective, [pillar two] has ranged from a standing agenda item to something less frequent. I always push to make sure I get some time with the board to let them know what’s going on in the world of tax.

“I have to make sure that my CFO’s eyes don’t glaze over every day when I talk about pillar two,” he said.

The panellists then speculated on the future of pillar two in the US.

John Kelleher, US-based tax partner at international firm Crowe, said that without knowing what the US, China and India will do, it’s hard to predict what the impact of pillar two will be on US companies.

Lamphier concluded: “The most likely outcome of the upcoming [US] election is a divided Congress, and compromise is hard to come by these days. I wouldn’t bet on it [pillar two].”