The Economics of Advance Pricing Agreements

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Title: The Economics of Advance Pricing Agreements
Authors: Becker, Johannes
Davies, Ronald B.
Jakobs, Gitte
Permanent link: http://hdl.handle.net/10197/6151
Date: Nov-2014
Abstract: Advance pricing agreements (APAs) determine transfer prices for intra-firm transactions in advance. This paper interprets these contracts as a means to overcome a hold-up problem that occurs because governments cannot commit to non-excessive future tax rates. In addition, with private information, just as in practice, our APAs will be complex and require lengthy negotiations. Never- theless, implemented APAs lead to a Pareto improvement even when all agents are risk neutral. However, not all efficient APAs are concluded in equilibrium. International agreements to avoid double taxation will likely reduce the number of realized APAs.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Copyright (published version): 2014 the authors
Keywords: Advance pricing agreementsCorporate taxationMultinational firmsTransfer pricing
Other versions: http://www.ucd.ie/t4cms/WP14_19.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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