{"id":1901,"date":"2023-10-01T10:55:29","date_gmt":"2023-10-01T10:55:29","guid":{"rendered":"https:\/\/hcat.co\/?p=1901"},"modified":"2023-10-01T10:55:37","modified_gmt":"2023-10-01T10:55:37","slug":"oecd-proposed-profit-rates-for-marketing-and-distribution-income","status":"publish","type":"post","link":"https:\/\/hcat.co\/oecd-proposed-profit-rates-for-marketing-and-distribution-income\/","title":{"rendered":"OECD proposed profit rates for marketing and distribution income"},"content":{"rendered":"
The OECD has quietly issued a far-reaching Public Consultation Document on streamlining the taxation of intercompany \u201cbaseline marketing and distribution activities\u201d within multinational groups.<\/p>\n
Because there is apparently no size limit, these proposals, if adopted, could shake up Israeli and international routine trade and tax across the 143 countries signed up to the OECD\/G20 alliance (known as the Inclusive Framework). Israel is a member of the OECD.<\/p>\n
The Consultation Document has the vague title \u201cPillar One \u2013 Amount B\u201d.<\/p>\n
The Consultation Document was open to public comment in the period July 17 \u2013 September 1, 2023. We submitted a version of this article to the OECD.<\/p>\n
Main proposals<\/strong><\/p>\n The OECD proposes that the taxable net profit\/return from\u00a0 baseline marketing and distribution activities may be assumed to range from 1% to 6% of sales depending on industry grouping and the ratios of operating assets and expenses to sales.<\/p>\n This would be the deemed arm\u2019s length profit percentage under the transaction net margin method (TNMM) method of transfer pricing.<\/p>\n This may be good news for some multinationals, but only if they meet a number of conditions (\u201cfilters\u201d) needed to be eligible (\u201cin scope\u201d). There are two alternatives, A and B. Conditions common to A and B include:<\/p>\n In addition, under Alternative B, a \u201cqualitative\u201d condition must also be met: no non-baseline contribution to transactions. That means no customizing or modification of products distributed, and nothing that enables market access (e.g. getting regulatory approval) or creates barriers to market entry (e.g. know-how). But \u201cfunctions that merely inform, support or facilitate the process in achieving regulatory approval\u201d (Para.28) or \u201cproviding more limited market research\u201d (Para 31) would be okay.<\/p>\n Countries will be allowed to issue their own assumed rates of return on sales.<\/p>\n Comments:<\/strong><\/p>\n The OECD should using a UK-based criterion: \u201cexpenses incurred wholly and exclusively in the ordinary course of the business activity concerned\u201d.<\/p>\n If you are involved in international marketing or distribution, check out these proposals.<\/p>\n They are not fully baked but they could be in the next year or so. Would the deemed profit percentages lower your tax bill? Will Israeli and tax authorities honor them? Watch this space.<\/p>\n Next Steps:<\/strong><\/p>\n Please contact us to discuss any of the above matters further, or any other matter.<\/p>\n As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.<\/p>\n leon@hcat.co<\/p>\n (c) Leon Harris 6.9.23<\/p>\n\n
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