Advance Pricing Arrangements as a Tax Strategy Tool for Related Entities

Karolina Kuropka

doi:10.18267/j.efaj.240

Abstract

The article presents the procedure of concluding an advance pricing agreement between the taxpayer and the tax authority as a tool of tax strategy of large international groups. It was pointed out that the advance pricing agreement may be a key tool to protect affiliates operating in different tax jurisdictions from the questioning of market conditions in their transactions by tax administrations. The essence and stages of concluding this agreement are presented on the basis of the tax practice applied in Poland. In addition, special attention was paid to issues concerning properly implemented tax strategy in large international capital groups. The content of the article indicates certain benefits of establishing an advance pricing arrangement and its impact on the tax strategy in a capital group.

Highlights

While carrying out a variety of transactions, economic entities repeatedly take decisions, both nationally and internationally, in uncertain economic circumstances
The purpose of this article is to present the pricing arrangement as a tool of tax strategy of related entities operating within an international capital group
Further questions related to the use of preferences resulting from double taxation treaties indicated that 60% of the surveyed companies use this type of preferences and 55% of the surveyed business entities indicated that the decision on the geographical location of the company's registered office has an impact on the amount of established transfer prices in the capital group

Summary

Introduction

While carrying out a variety of transactions, economic entities repeatedly take decisions, both nationally and internationally, in uncertain economic circumstances. A common practice supporting this objective is the use of a network of connections of entities, in particular capital, personal or organisational connections Implementation of these activities is often of a strategic nature, affecting the entire capital group. Transactions concluded between related parties are often associated with the necessity to prepare transfer pricing tax documentation In this respect, related parties may use certain tools to protect them against negative tax consequences. The purpose of this article is to present the pricing arrangement as a tool of tax strategy of related entities operating within an international capital group. The article results in a piece of research indicating the awareness of internationally operating economic entities of the benefits to be obtained following an implementation of the advance pricing arrangement for a given transaction. The article uses research methods of literature studies, analysis of accounting documentation, and a survey conducted with the personnel of analysed companies who get involved in the development of tax strategy in the analysed companies

The Essence of the Advance Pricing Arrangement

Corporate Tax Strategy

APA multilateral Total

Findings

Conclusions