Risk Transfer Valuation in Advance Pricing Agreements Between Multinational Enterprises and Tax Authorities

• Autores: Zvika Afik, Yaron Lahav
• Localización: Journal of Accounting Auditing and Finance, ISSN-e 2160-4061, ISSN 0148-558X, Vol. 31, Nº 2, 2016, págs. 203-211
• Idioma: inglés
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• Resumen

  • 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.