OECD/G20 Inclusive Framework Introduces Model Competent Authority Agreement

| Image Credits: OECD Headquarters in Paris, France by OECD

The OECD/G20 Inclusive Framework on BEPS released a  Model Competent Authority Agreement (MCAA) to support the implementation of the political commitment to Amount B of Pillar One. This initiative aims to assist jurisdictions, particularly those with limited resources and data, in adopting a simplified and streamlined pricing approach for baseline marketing and distribution activities.

KEY POINTS:

PURPOSE OF THE MCAA:

• The MCAA provides a practical and standardized tool to help jurisdictions implement Amount B efficiently.

• It is designed to benefit jurisdictions with limited resources by simplifying the application of the arm’s length principle to in-country marketing and distribution activities.

BENEFITS OF AMOUNT B:

• Offers a simplified approach to reduce transfer pricing disputes.

• Lowers compliance costs for tax administrations and taxpayers.

• Enhances tax certainty, particularly for low-capacity jurisdictions that face challenges with complex transfer pricing rules.

COMMITMENT TO MITIGATE DOUBLE TAXATION:

• Inclusive Framework members have committed to take all reasonable steps to alleviate potential double taxation that could arise from the application of Amount B.

• This commitment is especially relevant where bilateral tax treaties are in effect, ensuring the approach is fair and consistent.

GUIDANCE AND DEFINITIONS:

• Additional guidance published in June 2024 clarifies the definition of a covered jurisdiction under the Inclusive Framework’s commitment to Amount B.

• This guidance enables jurisdictions to begin implementing the streamlined approach.

FLEXIBILITY IN IMPLEMENTATION:

• While jurisdictions have flexibility in how they adopt Amount B, the MCAA provides a standard option that supports consistent and efficient implementation across member states.

ONGOING EFFORTS:

• Work continues on refining the Pillar One package, including enhancements to the Amount B framework.

• The Inclusive Framework remains dedicated to improving global tax certainty and reducing compliance burdens for all stakeholders, reaffirmed in the Statement from the Co-Chairs of the Inclusive Framework on May 30, 2024.

SOURCE/RECOMMENDED READ: 

• OECD/G20 Inclusive Framework on BEPS takes a further step on the implementation of the Amount B of Pillar One 

• Model Competent Authority Agreement on the Application of the Simplified and Streamlined Approach - Pillar One - Amount B (oecd.org)