New transfer pricing approach for distribution businesses

17 May 2024

The simplified and streamlined approach (SSA) is a new, global, formulaic approach to determining an appropriate operating profit level for entities performing in-scope baseline distribution activities, coming out of the OECD’s ongoing Base Erosion and Profit Shifting (BEPS) project. 

The new approach will commence for many countries for accounting periods starting on or after 1 January 2025, which means there is still time for businesses to understand the impact of the SSA on their profit profile and effective tax rate. 


The OECD has not proposed any revenue or other thresholds to limit the application of the SSA. This means that all taxpayers that are within the scope of transfer pricing in a relevant jurisdiction may potentially be affected – not just those with global revenue in excess of €750m (the threshold that applies for related initiatives such as country-by-country reporting and the global minimum tax rate).

There are several qualifying criteria for a transaction to fall within the scope of the SSA, which include tests of the functional role and profile of the relevant entity. Only activities associated with the baseline distribution of tangible goods on a predominantly wholesale basis will be within the scope of the SSA.

What happens when the SSA applies?

Where activities do fall within the scope of the SSA, and both relevant tax jurisdictions have chosen to apply it, a margin-based approach will be used to establish an appropriate profit level for transfer pricing purposes.

The OECD has produced a pricing matrix to be used to identify an appropriate level of margin for benchmarking purposes, based on the industry and activities of the distributor. Businesses will need to identify and apply a relevant margin based on their specific facts.

What this means for businesses

This is a significant shift – moving away from the use of bespoke benchmarking searches, the SSA applies a formulaic method for determining acceptable operating profits for group entities involved in the wholesale distribution of tangible goods. 

While this may offer some businesses a valuable opportunity to simplify their transfer pricing compliance, the qualifying conditions and underlying calculations are complex. It will be up to each country to decide whether to apply the SSA and, if so, whether to do so on a mandatory basis or allow taxpayers to decide whether to opt-in, as well as determining whether the SSA should be applied on a strict basis or as an optional safe harbour. This creates the potential for a complex global adoption landscape. 

It is important for affected businesses that have distribution entities to monitor the decisions taken by individual countries regarding adoption of the SSA and to consider now how these new global rules could affect them.

For more information, please get in touch with Simon Taylor, Duncan Nott, Suze McDonald or your usual RSM contact.