← 1. The associated enterprise that engages the sales agent or commissionaire, and which is the counterparty to the sales agent or commissionaire in the potentially qualifying transaction, must sell the goods directly to unrelated parties, i.e. without either it or the sales agent or commissionaire engaging other related parties as intermediaries between it and the unrelated party customers.
← 2. Refer also to paragraph 1.34 of these Guidelines, which should be taken into account when applying the simplified and streamlined approach.
← 3. See 2.4, 2.65, 2.66, 2.126, 3.18 and 3.19. Moreover, see Chapter II, Part III, Section B for a discussion regarding the set of economically relevant circumstances under which the transactional net margin method is the most appropriate method. Section 4 of this guidance provides additional discussion on this issue in the context of determination of arm’s length returns under the simplified and streamlined approach.
← 4. Where the commissionaire or sales agent is not the entity making the sale, the sales of the counterparty of the commissionaire or sales agent (i.e., whichever entity makes the sale to the third-party customer) will be utilised to compute the ratio of operating expenses to sales; however, the net operating expenses of the commissionaire or sales agent are always the sole item included in the numerator of the ratios.
← 5. Jurisdictions that choose to implement the simplified and streamlined approach will specify the upper bound to apply to this scoping criterion when it is originally implemented, which will be not lower than 20% and not higher than 30%.
← 6. See paragraphs 3.9 - 3.12 of these Guidelines.
← 7. Where a tested party in a qualifying transaction carries out non-distribution activities such that scoping criterion 14.b is required to be evaluated, the calculation of any ratios required either to determine whether that qualifying transaction is in scope, or any other ratios that are necessary in the context of the evaluation of the qualifying transaction in this guidance, should be undertaken with regard to the revenues, expenses or assets relevant to the qualifying transaction only.
← 8. See Glossary, and paragraphs 2.126, 2.130, and 2.131-2.132. This criterion specifically applies to any situation where the contributions of the distributor to the qualifying transaction are unique and valuable.
← 9. The examples in 6.56 are, for the purposes of the simplified and streamlined approach, of an illustrative nature, and any conclusion that such contributions are unique and valuable should be based on the accurate delineation of the qualifying transaction. Based on the examples provided in 6.56, contributions that may be unique and valuable in the context of qualifying transactions may include the design and control of marketing programmes, the direction of and establishing priorities for creative undertakings relating to the marketing of the products distributed, the control over strategic decisions regarding development programmes for marketing intangibles, or the management and control of associated budgets. Other relevant contributions may also include important decisions regarding the defence and protection of marketing intangibles, such as trademarks or trade names, and important decisions regarding ongoing quality control over functions performed by independent or associated enterprises that may have a material effect on the value of the marketing intangible under consideration.
← 10. Quantitative scoping filters are used in the context of the simplified and streamlined approach as a simplification measure and do not provide any definitive indication of what functions are performed or the characterisation for distributors that fall out of scope or in general. Where a distributor falls out of scope, this should not be taken as implying any arm’s length price for the controlled transaction, regardless of the scoping criteria used. For the avoidance of doubt, a determination of arm’s length prices in such circumstances should follow the principles articulated in the remainder of these Guidelines. The quantitative filters applied to determine whether a qualifying transaction is within the scope of the simplified and streamlined approach are only used for that purpose, and not, for example, replicated in the pricing methodology used to establish returns for in-scope distributors.
← 11. When a distributor performs non-distribution activities, and where that distributor remains in scope after applying scoping criterion 14.b, then the ratios described under 13.b should be calculated based on the relevant allocation or apportionment of revenues and operating expenses to the distribution activity only.
← 12. In calculating each ratio, it is important to determine what are the appropriate operating expenses and what are the appropriate net revenues that should be accounted for. This determination should be made based on an accurate delineation of the transaction and by applying the principles articulated in Chapter II of these Guidelines. Paragraphs 2.99 and 2.100 of these Guidelines may provide some relevant input to making the determination of the appropriate treatment of operating expenses. Moreover, paragraphs 2.96 and 2.97 of these Guidelines provide some relevant input to making the determination of the appropriate treatment of revenues, rebates, and discounts. The treatment of pass-through expenses should be evaluated in calculating the ratio. Under an accurate delineation of the transaction, there may be circumstances where pass-through costs are delineated and should not be taken into account when calculating the ratio. Such a determination should be made in light of the general principles articulated elsewhere in these Guidelines and the facts and circumstances. Moreover, it should be noted that reference to paragraphs 2.96, 2.97, 2.99 and 2.100 of these Guidelines should not be interpreted as modifying existing guidance concerning the most appropriate methods that may be appropriate to evaluate arm’s length remuneration of distributors.
← 13. Per Section D.8 of Chapter I, and paragraph 1.179, of these Guidelines, MNE group synergies may arise in the context of controlled transactions, for which specific compensation at arm’s length may be justified. These principles are also relevant to consider in this simplified and streamlined approach. For example, where a distributor makes contributions to create such MNE group synergies, or where a non-distribution economic activity undertaken within the same MNE as the distributor leads to similar contributions being made that benefit the distributor, this may lead to challenges in the adequate separate evaluation of the qualifying transaction, on the basis that compensation may need to be imputed with respect to the creation of the synergy.
