OECD Pillar One: Amount A, Amount B, and the Reallocation of MNE Profits

Pillar One: The Objective

The OECD's Two-Pillar Solution addresses two distinct problems in international taxation. Pillar Two, covered in a separate article, addresses the low-tax problem — ensuring large MNEs pay at least 15% effective tax wherever they operate. Pillar One addresses the allocation problem: the question of which countries have taxing rights over the profits of large digital and consumer-facing businesses that generate significant revenues in countries where they have no physical presence.

The traditional international tax framework allocates taxing rights based on physical presence — factories, offices, employees. A digital platform that generates €2 billion of revenue in France from French users but has no French employees and no French office pays no French corporate tax (only VAT on its supplies). Pillar One attempts to correct this by creating a new right for "market jurisdictions" — the countries where customers are located — to tax a portion of the profits of the world's largest consumer-facing businesses.

Amount A: The Core Reallocation Mechanism

Amount A is the mechanism for reallocating "residual profits" of in-scope MNEs to market jurisdictions. The key parameters:

In-Scope MNEs

Pillar One (Amount A) applies only to MNEs meeting two cumulative thresholds:

• Annual consolidated group revenue exceeding €20 billion (with a possible future reduction to €10 billion)
• Profitability above 10% of revenue (residual profit only — routine profit is not reallocated)

This threshold is far higher than the Pillar Two €750 million threshold. Amount A applies to only approximately 100 of the world's largest MNEs.

The Reallocation Formula

The reallocation works in three steps:

1. Identify residual profit: Revenue multiplied by the group's profit margin, minus a 10% "routine profit" carve-out (representing the deemed return on standard business activities)

2. Calculate the reallocation amount: 25% of the residual profit is the "Amount A" to be reallocated

3. Allocate to market jurisdictions: The Amount A is allocated among market jurisdictions based on each jurisdiction's share of the MNE's revenue (using revenue sourcing rules tailored to different revenue types)

For an MNE with €25 billion revenue and a 15% profit margin:

• Total profit: €3.75 billion
• Routine profit (10% × €25 billion): €2.5 billion
• Residual profit: €1.25 billion
• Amount A (25%): €312.5 million to be reallocated globally

Revenue Sourcing Rules

Amount A uses specific rules for sourcing revenue to market jurisdictions by revenue type:

• Digital services: Sourced to the jurisdiction where the user of the digital service is located
• Consumer goods: Sourced to the jurisdiction of the end consumer
• B2B services: Sourced to the jurisdiction where the customer is located
• Royalties and licensing: Sourced to the jurisdiction where the licensee uses the IP

These revenue sourcing rules require MNEs to track user and customer locations at a level of granularity that most do not currently maintain for tax purposes.

Amount B: Simplification for Baseline Distribution

Amount B applies separately and is designed to simplify the transfer pricing treatment of "baseline" distribution and marketing activities — the routine work performed by group distributors in market jurisdictions.

Under the current global transfer pricing framework, each market jurisdiction's distribution subsidiary negotiates (or has scrutinised) its transfer pricing annually. The process is expensive and creates disputes between multinationals and tax authorities in developing countries that lack transfer pricing expertise.

Amount B proposes to replace this individualised analysis with a standardised "fixed return" for qualifying distribution activities — a fixed gross margin or net margin that would apply automatically to qualifying in-scope distributors, without requiring bespoke transfer pricing analysis.

Conditions for Amount B qualifying activities:

• The entity must perform distribution of goods (not services) without assuming significant economic risk
• The entity must not hold significant valuable intangibles
• The entity must not perform non-distribution activities that make up more than 10% of its costs

The Amount B fixed return: The OECD finalised the Amount B methodology in February 2024 as part of an update to the Transfer Pricing Guidelines. Implementation is now at the discretion of individual countries — some countries (particularly developing countries) have adopted it; others (including the US) have not.

Feature	Amount A	Amount B
Applies to	MNEs with >€20B revenue and >10% margin	Any MNE with in-country distribution
Mechanism	Reallocates 25% of residual profit to market	Sets fixed TP return for baseline distribution
Implementation status	Delayed — Multilateral Convention not signed	Optional — country-by-country adoption
Primary beneficiaries	Market jurisdictions (developing countries)	Developing countries lacking TP capacity

Industries Excluded from Amount A

Several industries are explicitly excluded from the Amount A reallocation:

• Extractive industries: Oil and gas, mining — profits already sourced to the jurisdiction of the resource
• Financial services regulated in the jurisdiction of supply: Banks, insurers providing services subject to local prudential regulation
• International shipping, aviation, and railroad transport (partially)

Consumer-facing technology (social media platforms, app stores, digital advertising), luxury goods brands, and other high-margin global consumer businesses with revenues above €20 billion are the primary in-scope sectors.

Digital Services Taxes: The Interaction

Over 20 countries introduced unilateral digital services taxes (DSTs) in the 2018-2022 period, frustrated by the slow progress of multilateral solutions. France (3% on French digital revenue), UK (2% on UK digital revenue), Italy (3%), Spain (3%), and others have DSTs in force.

A core element of the Pillar One agreement is that countries would withdraw existing DSTs once Amount A is implemented. The US has repeatedly threatened trade countermeasures against European countries that maintain DSTs. This political pressure has accelerated (or threatened to accelerate) the DST withdrawal commitment — but the conditionality means DSTs will remain until Amount A is in force.

The US's failure to ratify the Multilateral Convention implementing Amount A (requiring Senate ratification as a treaty, politically challenging) is the primary reason for implementation delays. As of early 2026, Amount A has not entered into force.

Practical Impact on Offshore Group Structures

For the very limited group of MNEs within Amount A scope (€20 billion revenue threshold), the reallocation will affect groups that currently have profits concentrated in low-tax jurisdictions — holding IP in Ireland, Luxembourg, or Netherlands and receiving royalties from market jurisdictions.

The Amount A allocation to market jurisdictions is "above the line" — it takes precedence over existing treaty allocation of taxing rights. Implementation requires a new Multilateral Convention (separate from the MLI) that creates this override. Until the Convention is in force, the existing treaty network (which generally does not give market jurisdictions taxing rights over residual profits) prevails.

HPT Group monitors Pillar One developments for in-scope clients and advises on the potential impact of Amount A implementation on existing IP and profit concentration structures. For groups approaching the €20 billion threshold — or considering whether Amount A affects their current structure — a Pillar One readiness assessment is a worthwhile forward planning exercise. Contact our international tax team or apply for a consultation.