Japan Tax Bulletin
Pillar One Amount B released by OECD
July 2024
On February 19, 2024, the Organization for Economic
Cooperation and Development (OECD) published its final reporton Pillar 1 Amount B to simplify and streamline the application of
the arm's length principle to baseline marketing and sales activities,
with a focus on the needs of countries or regions with low tax
enforcement capacity.
The Amount B approach, unlike the other BEPS 2.0 approaches,
does not have a set of sales thresholds and is expected to be
applicable to many multinational enterprises. Each jurisdiction canchoose to apply the Amount B approach for fiscal years
commencing on or after 1st January 2025.
1. Covered qualified transactions
 Buy-sell or distribution transactions in which goods arepurchased from one or more related parties for wholesale
distributions to unrelated parties
 Sales agent and commissionaire transactions in which one ormore related parties contribute to wholesale distributions ofgoods to unrelated parties.

Application of the most appropriate method
The Transactional Net Margin Method (TNMM) is considered
the most appropriate method under the simplified and streamlinedapproach. Meanwhile, the use of the Comparable Uncontrolled
Prices Method (CUP) is also allowed on an exceptional basis wheninternal comparable transactions are available for which the arm’s
length price of a qualifying transaction can be reliably determined.
Determining the return under the simplified and streamlined
approach
The calculation of the profit return level using the Amount B
approach consists of the following three steps.
2. Pricing matrix
A relevant ROS (return on sales: EBIT to net revenues) isidentified with reference to OAS, OES and industry groupingsunder the pricing matrix.

【The Pricing Matrix】
Factor intensity

Industry
Grouping
1

Industry
Grouping
2

Industry
Grouping
3[A]
High OAS ≧ 45%
Any OES

3.50%(±0.5%)

5.00%(±0.5%)

5.50%(±0.5%)[B]
Med/High OAS
30-44.99%
Any OES

3.00%(±0.5%)

3.75%(±0.5%)

4.50%(±0.5%)[C]
Med/Low OAS
15~29.99%
Any OES

2.50%(±0.5%)

3.00%(±0.5%)

4.50%(±0.5%)[D]
Low OAS<15%
Non-low OES≧10%

1.75%(±0.5%)

2.00%(±0.5%)

3.00%(±0.5%)[E]
Low OAS<15%
Low OES<10%1.50%(±0.5%)

1.75%(±0.5%)

2.25%(±0.5%)

However, the following cases are excluded from the Amount B
approach.
 Distributions or marketing activities of non-tangible goods
and services, including digital goods and services
 Transactions for marketing, trading, or sale of commodity
products
 Non-sales activities such as manufacturing activities andresearch and development activities are conducted
Furthermore, even among qualified transactions, the following
two requirements must be met.
 The tested party in the qualifying transactions must not book
operating expenses less than 3 % of the tested party’s annualnet revenues. In addition, the tested parties annual operating
expense upper limit must be between 20 % and 30 % of thetested party’s annual net revenues.
 If the distributors engage in wholesale and retail sales, net
retail sales must be less than or equal to 20 % of total net sales
on a three-year weighted average basis.

* OAS (Net Operating Asset Intensity)= Net Operating Asset/Sales

4. Data availability for qualifying jurisdictions
In addition, the final report provides for an adjustmentmechanism in cases where there is no data or insufficient data in
the global dataset for a particular qualifying tested party jurisdiction.

* OES (Operating Expense Intensity)= Operating Expense/Sales
Industry group Group 1; perishable food, grocery, household consumables,
construction materials and supplies, plumbing supplies andmetal Group 2; IT hardware and components, electrical components
and consumables, animal feeds, agricultural supplies, alcoholand tobacco, pet foods, clothing footwear and other apparel,
plastics and chemicals, lubricants, dyes, pharmaceuticals,
cosmetics, health and wellbeing products, home appliances,consumer electronics, furniture, home and office supplies,
printed matter, paper and packaging, jewelry, textiles, hides
and furs, new and used domestic vehicles, vehicle parts andsupplies, mixed products and products and components notlisted in Group 1 or Group 3
 Group 3; medical machinery, industrial machinery including
industrial and agricultural vehicles, industrial tools, industrial
components and miscellaneous supplies
3. Operating expense cross check
If an operating expense to EBIT ratio that is outside of the capand collar, the ROS is adjusted accordingly. The EBIT will beadjusted with the nearest edge of the range. EBIT is (a tested
party’s operating expense) x (pre-defined operating expense caprate).
The cap-and-collar rates are as follows.
Factorintensity

Default
CapRates

AlternativeCap Rates for
Qualifying
Jurisdictions

High OAS [A]

70%80%

Medium OAS
[B+C]

60%

70%

Low
[D+E]

40%

45%

OAS

CollarRate

With respect to the Pricing Matrix and the cap-and-collar rates, the following
points should be noted(1) ROS of the tested companies is considered acceptable if it
is within 0.5% of the value determined by the pricing matrix(2) The pricing matrix and the operating expense cap-and-collar
rates will be updated every five years.
(3) OAS and OES of the tested companies are calculated basedon the weighted average of the last three years.
5. Documentation obligation
In order to utilize the simplified and streamlined approach of theabove pricing matrix, it is assumed that the transfer pricing
documentation (the so-called local file) includes the following
contents. However, this does not apply if there have been materialchanges in business or if the subject transactions no longer exist.
 Description of qualifying transactions and Background of thequalifying transactions, Contracts related to qualifying transactions, Supporting documents and data related to qualifying
transactions when taxpayers decide the amount of sales,expenses, asset allocations, and others,
 Information on financial data used in the application of the
Simplified and Rationalized Approach and the Transfer
Pricing Methodology,
 The company agrees to apply the simplified approach for atleast three years consecutively.
6. Future development

10%

The adoption of the Amount B approach is optional in each tax
jurisdiction. Countries and regions that will adopt Amount B
approach are going to be announced by the OECD in near future.
In addition, each country will be encouraged to develop legislation
to enable the optional application of this approach from the fiscal
year beginning on or after January 1, 2025.

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