Local implementation expectations for pillar one’s amount B
The OECD has continued working on the development of the pillar one package on profit allocation. Pillar one is part of the OECD’s two-pillar approach to international taxation reform and broadly covers nexus and profit allocation rules. Amount B is under the umbrella of pillar one and refers to the adoption of a “simplified and streamlined” approach to pricing intercompany transactions related to routine marketing and distribution activities from January 1 2025.
The amount B framework was originally added to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations on February 19 2024 as an appendix to Chapter IV on Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes. The following is a summary of the amount B framework:
It applies to businesses of any size that have in-scope distribution activities; i.e.:
Buy-sell marketing and distribution transactions, where a distributor purchases goods from a related group entity for distribution to third parties; and
Sales agency and commissionaire transactions, where an entity helps to facilitate another group entity’s wholesale distribution of goods to third parties.
A transaction can be reliably priced using a one-sided transfer pricing method, which implies that the tested party should not assume significant risks or own unique and valuable intangible assets.
It does not apply to transactions involving:
The distribution of services;
The distribution of commodities;
The distribution of digital goods;
Retail sales above 20% of net sales; or
Non-distribution activities (if no proper segmentation is available).
If the application of the internal comparable uncontrolled price method is available, it should be used instead of the amount B framework.
The tested party should not incur annual operating expenses lower than 3% or greater than an upper bound of between 20% and 30% of its net revenues. Operating expense intensity should be calculated on a three-year weighted average basis.
An arm’s-length range of return on sales is determined based on the amount B pricing matrix, which is dependent on financial ratios (operating expense to sales and operating assets to sales) and industry grouping. The pricing matrix produces a range of +/- 0.5% of the corresponding return on sales, which spans from 1.50% to 5.50%.
Potential adjustments may apply for:
Operating expense cap-and-collar mechanisms;
Geographic risk factors; and/or
A lack of information.
With regard to the adoption of the amount B provisions around the world, there are few countries that have expressed a formal commitment to implement them locally, with the US the most significant case. On December 16 2024, the US Internal Revenue Service published Notice 2025-04, which stated an intention to issue regulations to address the local application of the OECD’s amount B.
Mexican implementation of amount B
The Mexican tax authority has not published an official statement regarding the adoption of the OECD’s amount B, but informally it is known to have an inclination to adopt the framework in the upcoming years.
Historically, Mexico has enthusiastically participated in the OECD’s tax efforts and particularly on transfer pricing, as it was an early adopter of the OECD’s three-tiered approach to transfer pricing documentation under Action 13 of the BEPS project.
Additionally, on June 17 2024, the OECD published a list of low- or middle-income countries that would benefit from a political commitment from other countries to respect amount B pricing outcomes, with Mexico included. The key implication of being on the list is that there is a political commitment from the countries supporting the OECD’s two-pillar approach to international taxation – subject to domestic legislation and administrative practices – to respect an amount B outcome where it is applied by a country on the list and to take all reasonable steps to avoid potential double taxation if a bilateral tax treaty is in force.
Moreover, while the amount B framework is intended to simplify pricing for routine marketing and distribution activities to reduce the compliance burden for taxpayers, it is also strategically designed to reduce transfer pricing disputes so that tax administrations optimise their limited resources and can better focus on more complex transactions. This is particularly relevant for Mexico, as the tax authority faces tremendous challenges in enforcing tax compliance due to:
Having limited resources with which to conduct specialised and complex tax audits;
An increased burden regarding advance pricing agreements, mutual agreement procedures, and a significantly large shadow economy in the country; and
A continuous fight against taxpayers that issue invented invoices to artificially reduce their income tax (ISR).
Adding to such problems is that Mexico is experiencing a major transformation of its judicial sector, which has implications for tax courts. On September 15 2024, Mexico’s official gazette published proposals for a reform of the federal judiciary. The reform included the mandate that ministers of the Supreme Court, as well as magistrates and judges of various courts and tribunals, will be elected by direct popular vote. The change is already leading to further delays and even temporary stoppages in the issuance of rulings, a situation that may be extended because of the structural changes that the direct election of magistrates and judges implies, and the potential loss of experienced judicial professionals. In this context, the Mexican government should be an advocate of simplified, well-developed measures to reduce tax controversy, such as pillar one’s amount B, to free up time for the tax authority and tax courts.
Mexico’s adoption options and practical considerations
As per the OECD’s recommendation, jurisdictions that choose to adopt the amount B framework have the option to make it elective, in the form of a safe harbour, or mandatory for taxpayers with in-scope distribution activities. Regardless of the chosen approach, it is not binding on the counterparty jurisdiction, even though the OECD members have committed to respecting the outcome of amount B, subject to several conditions and exceptions.
It seems unlikely that Mexico will choose the election option in the event of adopting amount B. While there is some provision in the Mexican Income Tax Law (MITL) for safe harbours for other transactions, an elective nature may diminish the simplification advantages of the framework.
Meanwhile, it is possible that the Mexican tax authority will use the amount B framework as a reference for its traditional transfer pricing analyses while using its inspection powers on distribution activities, so it is important to consider the framework in the case of transfer pricing audits. As an immediate action, it is advisable that multinational groups conduct a tax impact assessment on the potential differences between the current transfer pricing set-up and the amount B framework for in-scope distribution transactions. If amount B requires a significantly higher return, an additional point of relevance is assessing the potential impact of tariffs if underlying products are subject to them or likely to be subject to them in the near future.
Mexico has an important local market, with reasonable macroeconomic conditions and strong international trade relationships, which has repeatedly attracted many multinational groups to incorporate Mexican distribution entities to cater for the local demand and frequently as a hub to serve Latin American markets. These economic circumstances and the tax enforcement challenges depicted above make the amount B framework a likely relevant option for the Mexican government. As a result, multinational groups operating in Mexico and Mexican conglomerates should act now to be prepared for possible local implementation.
Non-binding criterion on non-deductibility of payments for services
On October 11 2024, non-binding Criterion 44/ISR/NV was published in the Mexico official gazette as Appendix 3 of the Omnibus Bill. This criterion specifies that expenses related to the provision of services are not deductible unless it can be demonstrated that the service is actually rendered. Issued by the Mexican tax authority under Article 33 of the Federal Tax Code, non-binding criteria are designed to assist taxpayers in understanding tax laws. Although these criteria are not mandatory, they represent the perspective of the Mexican tax authority.
The Mexican tax authority grounded Criterion 44/ISR/NV primarily on Article 27 of the MITL, which outlines the requirements that authorised tax deductions must meet. These include being strictly indispensable for the taxpayer’s business activities and being properly recorded in accounting books. It has been argued that the requirement of strict indispensability can only be verified for transactions that actually occur, allowing confirmation that these transactions were essential for the taxpayer’s business activities. Additionally, it has been claimed that if an expense is unrelated to the taxpayer’s corporate purpose, it should not be considered strictly indispensable, and therefore be non-deductible for tax purposes.
The Mexican tax authority has identified several instances where taxpayers have claimed tax deductions for expenses allegedly related to the provision of services and although receipts were available to ostensibly support these services, other essential elements to prove that the services were actually provided were lacking. Consequently, it is deemed an improper tax practice to deduct expenses for the provision of a service for income tax purposes without evidence that the service was actually received, regardless of the presence of a tax receipt to support the transaction.
New scrutiny on service deductions for tax purposes
Criterion 44/ISR/NV is distinctive in that it explicitly states its applicability to services provided by any person, whether residing in Mexico or abroad, and is not limited to intercompany transactions. The closest precedents in Mexican laws concerning the non-deductibility of services for similar reasons generally pertain to services rendered by foreign related parties. Given that the criterion lacks explicit guidance on how taxpayers should demonstrate that services are actually received, it is relevant to consider available transfer pricing guidance and leverage experience in the field in addressing the analogous situations that the criterion establishes.
Omnibus tax rule 3.3.1.27 provides a relevant precedent as it allows Mexican taxpayers to deduct shared expenses incurred on a pro rata basis with non-residents, despite a prohibition on such deductions in the MITL, provided certain requirements are met. Such requirements include producing documentation to demonstrate that:
Under the same conditions, an unrelated party would have been willing to pay for the services or perform the services itself;
The expenses are incurred by the related party providing the services solely due to its interest in one or more related parties (shareholder activities);
The services contracted involve the duplication of a service performed by another related party or a third party; and
The services contracted are duplicative to other costs, expenses, or investments of the taxpayer.
On the other hand, Chapter VII of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations addresses special considerations for intragroup services. The provisions in this chapter also serve as a valuable reference for understanding the documentation requirements necessary to support service payments and avoid non-deductibility issues under Criterion 44/ISR/NV. Some of the relevant provisions included in the chapter include recommendations related to demonstrating:
That the services provided generate an economic or a commercial benefit;
That there is no unnecessary duplication of services within the group; and
That appropriate methods are used to value the services.
The current TP landscape in Central America: enforcement, reforms, and new obligations
Central America has experienced a significant evolution in the application and control of transfer pricing, in line with the international commitments assumed by its countries before the OECD and other organisations. From intensive auditing in Guatemala and Panama, to new obligations such as the submission of a country-by-country report (CbCR) in Honduras and regulatory challenges in Costa Rica, taxpayers face an increasingly complex and demanding environment in terms of tax compliance.
Below is a summary of what is happening in Central American countries with regard to transfer pricing.
Guatemala: Intensification of oversight and reforms on the way
Guatemala’s Superintendence of Tax Administration (SAT) has increased its rigour in the control of transfer pricing, generating adjustments that exceeded $800 million for fiscal year 2024. This strengthening has been based on the implementation of sectoral risk models, which allow the detection of taxpayers whose performance is below the average of their industry.
The main warning signs that activate an audit include unusually low effective ISR rates, recurring losses, and operations between entities subject to different tax regimes. Although there is no formal regulation governing local transactions between related parties, the SAT has already begun to audit them with an approach based on economic substance and the detection of structures that may erode the tax base.
Faced with this scenario, the tax authority has set forth possible reforms:
An expansion of the scope of application to include local transactions;
A redefinition of the concept of related parties; and
A greater limitation on the deductibility of royalties.
Therefore, it is recommended that Guatemalan companies review their transfer pricing policies, properly document their intercompany operations, and align themselves with the arm’s-length principle to mitigate tax risks.
Panama: TP compliance
In Panama, the issue of transfer pricing took an important turn with Decision TAT 062-20, which established a precedent on how transactions between related parties should be evaluated. In this case, the Directorate General of Revenue made substantial adjustments to a study submitted by a taxpayer and cited multiple deficiencies, such as:
The use of inappropriate methods;
The selection of unadjusted comparables;
Below-market returns; and
Accounting discrepancies between key documents (the income tax return, Form 930, and the technical study).
The legal basis for these adjustments was the Panamanian Tax Code, Executive Decree No. 390 of 2016, and the OECD guidelines, all of which require that transactions between related parties reflect arm’s-length conditions. The case also addressed the controversial topic of the use of foreign versus local comparables, highlighting that although the use of foreign comparables is permitted in the absence of local options, rigorous adjustments must be applied to ensure comparability.
The lessons of this decision are clear: companies must have:
Robust methodologies;
Consistent information across all their tax reports;
Solid technical documentation; and
A clear economic justification for transactions.
Proactive and well-documented compliance is essential to avoid adjustments by the Panamanian tax authority.
Honduras: A new country-by-country reporting obligation
Honduras is moving towards fiscal transparency with the implementation of a CbCR requirement, established in Agreement SAR-653-2023. As of January 1 2025, ultimate parent companies domiciled in Honduras, or local entities of multinational groups, will have to submit this report if the group’s consolidated revenues exceed €750 million (or HNL19 billion).
A particularity of the Honduran case is that the country is not part of the Multilateral Competent Authority Agreement on the Exchange of GloBE Information, nor does it have bilateral agreements that endorse the automatic exchange of CbCRs. Consequently, a local entity could be forced to file a CbCR in Honduras even if it has already been delivered in the jurisdiction of the parent.
In addition, companies must send a notification to the tax administration explaining whether they act as the ultimate parent company, an integrating entity, an informant, or a subrogated parent company. Given that the technical mechanisms for compliance with this obligation have not yet been defined, it is recommended that taxpayers are attentive to the communications of the Revenue Administration Service to avoid penalties and ensure the timely filing of the report.
Costa Rica: Intersection between trade regulation and TP
In Costa Rica, transfer pricing faces a new challenge derived from the commercial regulation of the pharmaceutical sector. Resolution No. 44863-MEIC, which has been in force since January 2025, imposes maximum marketing margins for all registered medicines, in order to control prices and facilitate the population’s access to medical treatments.
This regulation is in direct conflict with the principles of free competition established in international transfer pricing standards, generating legal and operational tensions for multinational companies in the sector. Companies will need to review their inter-party pricing policies to ensure that declared securities remain defensible to tax authorities, both local and foreign.
The fiscal implications could be significant: a lack of alignment between regulated domestic prices and market prices could lead to tax adjustments and penalties. In addition, the administrative burden increases, as companies must document in greater detail the economic logic behind their pricing structures. This situation also represents an opportunity to re-evaluate supply chains, optimise costs, and explore business restructurings that strengthen operational sustainability within the new regulated environment.
On the other hand, on February 12 2025, the General Directorate of Taxation (DGT) of Costa Rica announced on the official website of the Ministry of Finance the launch of a public consultation and discussions on a resolution that would establish the requirements for the filing of informative transfer pricing returns. The draft resolution sets out the main requirements that would apply and provides a draft model and instructions for the preparation of the declaration, which would become another formal compliance obligation. The new obligation would be in line with the existing one to carry out a transfer pricing study.
The resolution would apply to:
Taxpayers that carry out transactions with related parties (national or international);
“Large” national taxpayers or companies under the free zone regime; and
Entities whose transactions with related parties exceed 1,000 annual base salaries (CRC462.2 million for 2024).
The filing deadline is three months after the fiscal closing. For the 2024 period, six months will be given after the entry into force of the resolution.
Presentation will be made via the TRIBU-CR system, the activation of which will be announced by the DGT. The model and instructions are in the annexes of the project.
Total or partial omission will be sanctioned in accordance with Article 150 of the Tax Code and Article 268 bis of the Tax Procedure Regulations.
Until now, this obligation had been suspended since a previous resolution in 2016.
