USCIB and the USCIB Taxation Committee appeared prominently in the tax press this week—Tax Notes International and Bloomberg Tax—with coverage of a USCIB letter filed with the U.S. Treasury Department on April 25. According to USCIB Vice President and International Tax Counsel Rick Minor, this was a unilateral consultation and not a letter related to a public consultation that USCIB’s Tax Committee is currently working on.
Bloomberg Tax quoted Minor and excerpts of USCIB’s letter in its article, Amount B Could Involve Routine Function List, Treasury Told. “Our members consider Amount B to be, as it has been described in the 2020 Pillar One blueprint, one of the key benefits of a Pillar One solution,” he said. “The concept is directly related to one of the fundamental goals of Pillar One, improved tax certainty.”
Click here for the Tax Notes International story. Below is the Bloomberg Tax coverage with quotes from Minor and excerpts from the USCIB letter to the Treasury Department.
Bloomberg Tax: Amount B Could Involve Routine Function List, Treasury Told
By Natalie Olivo · Apr 26, 2022, 8:01 PM EDT · Listen to article
An approach for determining Amount B — the routine portion of profits subject to allocation under a global corporate tax plan — could include an agreed list of functions related to these earnings, a U.S. business association told the U.S. Treasury Department.
The U.S. Council for International Business sent Treasury a letter Monday that listed marketing and distribution functions that relate to normal, or routine, returns that fall under Amount B of a tax agreement reached in October by an inclusive framework of nearly 140 jurisdictions. Amount B would simplify and streamline the application of the arm’s-length principle to in-country baseline marketing and distribution activities, according to the Paris-based Organization for Economic Cooperation and Development, which led negotiations on the tax rewrite.
Amount B falls under the overhaul’s first pillar alongside Amount A — a separate provision that involves a narrow departure from traditional arm’s-length transfer pricing rules, which divide intercompany profits based on how unrelated parties would behave. Under Amount A, large companies would reallocate a portion of their above-normal returns to market jurisdictions where they have customers but not a physical presence.
The USCIB told Treasury in its letter that Amount B must be anchored in the arm’s-length principle. The group included a list of entrepreneurial functions — which commonly generate residual returns that would fall under Amount A — and a list of routine marketing and distribution functions that would relate to normal returns under Amount B.
“These two categories cover a significant volume of the transfer pricing controversies of our members which we understand Pillar One is intended to largely eliminate,” the USCIB wrote.
The group’s list of entrepreneurial functions included final decision-making on large discounts and nonstandard contracts and setting global or regional branding, marketing, pricing and promotional strategies. As for routine marketing and distribution functions, the group’s list included bearing limited market and business risks, as the profits of routine distributors are fixed, in addition to not owning any high-value intangible property.
These lists were compiled by the USCIB’s members from company transfer pricing files, meaning they represent “functions that are audit tested and generally represent clear distinctions between entrepreneurial and routine functions,” according to the group’s letter.
Rick Minor, vice president and international tax counsel at the USCIB, told Law360 on Tuesday that his group wanted to be helpful in the absence of a formal consultation to offer timely guidance on Amount B to delegates of the inclusive framework.
“Our members consider Amount B to be, as it has been described in the 2020 Pillar One blueprint, one of the key benefits of a Pillar One solution,” he said. “The concept is directly related to one of the fundamental goals of Pillar One, improved tax certainty.”
So far, the OECD has only released draft rules aimed at helping countries implement Amount A in addition to the overhaul’s second pillar, which involves minimum tax rules. The organization has also released public feedback on its Amount A draft rules, including calls for guidance that would let multinational corporations seek advance certainty on how tax administrations would apply the new rules, including a proposed anti-abuse provision.
Meanwhile, KPMG issued a proposal for Amount A that was released Tuesday by Treasury’s Office of Tax Policy. According to the firm, the proposal involves identifying entities to fund Amount A and determining the share of Amount A that would be allocated to each payer entity.
This proposal would use a formulaic approach that approximates a “market-connection” test without the need to look at transfer pricing documentation or make factual judgment calls, according to KPMG.
Treasury didn’t immediately respond to a request for comment.