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Simple English definitions for legal terms
multilateral advance pricing agreement
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A quick definition of multilateral advance pricing agreement:
A multilateral advance pricing agreement is a binding arrangement made between a multinational company and one or more national tax authorities. The purpose of this agreement is to determine the method the company will use to calculate transfer prices, which helps to reduce or eliminate double taxation. This agreement can involve multiple tax authorities, and it is different from a bilateral or unilateral advance pricing agreement, which involves only two or one tax authorities respectively. However, it is important to note that a tax authority that is not a party to the agreement is not bound by the transfer-pricing method specified in the agreement.
A more thorough explanation:
A multilateral advance pricing agreement is a binding arrangement made between a multinational company and two or more national tax authorities. The purpose of this agreement is to determine the method that the company will use to calculate transfer prices, with the goal of reducing or eliminating double taxation.
For example, if a company operates in multiple countries and sells goods or services between its subsidiaries, it may be subject to taxation in each country. Without an advance pricing agreement, each country may use a different method to calculate the transfer prices, resulting in double taxation for the company. By entering into a multilateral advance pricing agreement, the company can agree on a consistent transfer pricing method with all relevant tax authorities, reducing the risk of double taxation.
It's important to note that a tax authority that is not a party to the agreement is not bound by the transfer pricing method specified in the agreement. Additionally, there are other types of advance pricing agreements, including bilateral and unilateral agreements.