Advance Pricing Agreements: A Step Forward in Transfer Pricing Dispute Resolution? A Story From Developing Countries

The study discusses advance pricing agreement (APA) implementation in several developing countries as a measure to reduce transfer pricing disputes. For developing countries, the issue of transfer pricing is critical and has not concerned merely an administrative obligation to document the price determination. The cost of transfer pricing audits through the settlement stage is quite high due to specific challenges such as lack of proper comparable data and lack of expertise on transfer pricing. Based on the review of APA implementation in several developing countries, the implementation has been relatively successful in reducing transfer pricing litigation. The number of APA applications has increased, specifically when each country has committed to adopt BEPS Action 14 into its domestic law. Furthermore, each tax administration has taken steps to promote APAs, considering that this way to comply with tax obligations is more efficient than engaging in drawn-out disputes with taxpayers.