International Tax

What is an Advanced Pricing Agreement (APA)?

An Advanced Pricing Agreement (APA) is a written contract that is binding between the taxpayer, the IRS and in the case of a bilateral APA, a foreign tax authority.  An APA provides transfer-pricing methodology to apportion or allocate income, deductions, credits, or allowances between the parties.  The aim of an APA is to achieve prospective agreement between the taxpayer and the relevant taxing authorities on three issues:

1. The factual nature of the intercompany transactions to which the APA applies;
2. An appropriate transfer pricing methodology (TPM); and
3. The expected range of results from applying the TPM to the transactions.

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