APA (Advance Pricing Agreement)

An Advance Pricing Agreement (APA) is a tax agreement between a company and tax authorities that determines how to set prices for transactions between related businesses (like different branches of the same company). This helps prevent disputes over taxes owed in different countries. By agreeing in advance on how to calculate these prices, both the company and tax authorities can ensure fairness and compliance with tax laws. This is particularly important for multinational companies, as it provides clarity on tax obligations and reduces the risk of audits or penalties.