Abstract
Advance pricing agreements (APAs) are long-term contracts between multinational taxpayers and tax authority(ies), according to which the taxpayer consents to use the agreed upon transfer price for its related transactions for a fixed period of time. We argue that for such an agreement to be based on the principle of arm's length, the specified transfer price(s) should include a premium that captures the risk transferred from one entity to another. When this risk is not accounted for, the long-term transfer pricing policy specified in the agreement (although supported by tax authorities) is not arm's length. We present a pricing model that can be easily applied to value such risk by incorporating it to the transfer price determined by the APA.
Original language | English |
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Pages (from-to) | 203-211 |
Number of pages | 9 |
Journal | Journal of Accounting, Auditing and Finance |
Volume | 31 |
Issue number | 2 |
DOIs | |
State | Published - 1 Apr 2016 |
Keywords
- Advance pricing agreement
- Intercompany transaction
- Multinational enterprise
- Risk valuation
- Transfer pricing
ASJC Scopus subject areas
- Accounting
- Finance
- Economics, Econometrics and Finance (miscellaneous)