On Advance Pricing Arrangements Of Multinational Enterprise

Transfer Pricing of multinational enterprises and the relevant government regulation are hot issues in economic globalization. In view of that, this paper makes an extensive research on these issues, as well as the Advance Pricing Arrangements, which seems to be the trend of Transfer Pricing regulation.Transfer Pricing of multinational enterprises can be viewed as a process of dynamic game played by multiple agents of different interest. It is essential for multinational enterprises to optimize the distribution of resources through transfer pricing to reduce transaction costs. Meanwhile, the differences in taxation and market conditions between the home country and host countries can benefit multinational enterprises potentially through transferring pricing management.However, transfer pricing abuse can impair the interest of the home country and/or host countries. Henceforth, government regulations on transfer pricing are initiated. Advance Pricing Arrangements transfers the government regulation on transfer pricing from post-modification mode to pre-agreement mode, which avoids the limitation of post-modification and reduces effectively the transaction costs of tax collection.Advance Pricing Arrangements practice brings about a series of theoretical issues. After intensive analysis of the definition, the taxation theoretical basis, the principals, the principles and the legal basis of Advance Pricing Arrangements, this paper focuses on the mechanism of Transfer Pricing under Advance Pricing Arrangements and proposes two differently constrained mathematical pricing models of Advance Pricing Arrangements.To draw on the experience of foreign countries, this paper makes detailed comparison of practices of Advance Pricing Arrangements worldwide and comes up with a few salutary lessons and practical implications. Furthermore, this paper examines the drawbacks of Transfer Pricing regulation system in China and stresses the necessity and feasibility to implement Advance Pricing Arrangement in China, and finally, countermeasures are suggested for the difficulties currently confronted.