Advance Pricing Agreements

Transfer pricing (the pricing of cross-border intra-firm transactions between related parties) is now the
top international tax issue faced by multinational enterprises. In an international taxation environment
characterized by rigorous enforcement of transfer pricing documentation, disclosure, and audit
processes, a need has arisen for multinationals to be cognizant of the impact of their 'tax risk appetite'
on their relationship with taxation authorities and to be aware of how best to manage their transfer
pricing arrangements. The most promising development has been the growing commitment to Advance
Pricing Agreements (APAs) - arrangements made prospectively between a multinational taxpayer and
one or more revenue authorities, agreeing on an appropriate set of criteria for the determination of the
transfer pricing of the covered transactions over a period of time.