Whether APAs are a long-term solution to transfer pricing disputes

Transfer pricing is an area of major concern for tax administrations. The growth of multinational enterprises and an increase in cross border transactions has highlighted the significance of a regulated transfer pricing system. However, this regulated system imposes high penalties for improper transfer pricing. To reduce the risk of high transfer pricing penalties, multinational enterprises have resorted to advance pricing agreements with tax administrations. These agreements, though, are not a simple solution to reduce the risk of penalties. The process of executing these agreements carries with it the major drawback of information disclosure.; Given this drawback, the APA programs in the United States and Canada, as they stand today, are not long term solutions to transfer pricing disputes which arise out of improper transfer pricing or improper adoption of transfer price determination methods.