- MNCs may shift profits to low-tax countries (Base Erosion and Profit Shifting - BEPS).
- This is done by charging convenient prices for intra-group transactions.
- APAs pre-set the price charged for different components between related parties.
- This price must follow the “arm’s length principle” (market-based).
- By agreeing on the pricing method in advance, disputes are avoided.
- It provides certainty for both the corporation and the tax authority.