Risk transfer valuation in advance pricing agreements between multinational enterprises and tax authorities

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

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 languageEnglish
Pages (from-to)203-211
Number of pages9
JournalJournal of Accounting, Auditing and Finance
Volume31
Issue number2
DOIs
StatePublished - 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)

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