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Simple English definitions for legal terms
unilateral advance pricing agreement
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A quick definition of unilateral advance pricing agreement:
A unilateral advance pricing agreement is a binding arrangement between a multinational company and one national tax authority. 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. However, 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.
A more thorough explanation:
A unilateral advance pricing agreement (APA) is a binding arrangement made between a multinational company and one national tax authority. The purpose of the agreement is to determine the method the company will use to calculate transfer prices, which can help reduce or eliminate double taxation.
For example, if a US-based company has a subsidiary in France, the US company may enter into a unilateral APA with the French tax authority to determine how transfer prices will be calculated between the two entities. This can help avoid double taxation on the same income in both countries.
It's important to note that a unilateral APA does not necessarily allow a company to avoid double taxation altogether. If another tax authority is not a party to the agreement, they are not bound by the transfer-pricing method specified in the agreement.