Part 1 - AL-Tax

Chapter 6AbstractThis chapter elaborates on the emergence of so-called Advance Pricing Agreements (APA) ininternational taxation and corresponding APA programs in individual countries. It refers tohow globalizing business processes trigger governance change at the nation state levelregarding the identification and allocation of the tax base of multinational companies. Theintroduction of APA programs and the generation of APAs are considered to be an exampleof such governance change. On the basis of a governance choice model, the chapter seeks toidentify factors which might explain variation in the evolution of national APA programsand the implementation of individual APAs between the multinational corporate taxpayerand the national tax authorities. Differences in institutions, economic conditions, and theactors involved appear to be factors explaining variation across countries.6.1 IntroductionTaxing multinational companies has become a fuzzy enterprise for both the taxpayerand the tax collector. While the globalization of international business structureshas developed at an impressive speed and scope, the international institutions,regimes, and organizations regulating such cross-border businesses still seem to bein their infancy. International taxation appears to lack governance structureswhich correspond to expanding global business activities, especially withrespect to transfer pricing and cross-border income allocation of multinationalgroup companies.Although the OECD tries to play the role of a standard setter by developing acertain degree of international standards and regimes (OECD, 1995a, b), internationaltaxation governance still appears to be in need of an administrative shiftfrom domestic to global governance in terms of regulation and procedure. However,nowadays it seems obvious that globalization lacks global institutions andcoordination (Garcia, 2005, p. 12; Cf. also Tanzi and Zee, 2000; Roin, 2002),including enforceable governance for both the taxpayer and the tax authority. Alarge volume of pending litigations on international tax issues demonstrates thislack of global institutions. 1A recent development for avoiding disputes ex-ante in many industrializedcountries and individual Advance Pricing Agreements (APAs) between multinationalcorporate taxpayers and tax authorities are the advance ruling systems andso-called APA programs. APAs are mostly used in the field of transfer pricing toresolve international tax controversies. 2 They can be labeled as a sort of negotiationmechanism between sovereign states and between the multinational taxpayer withtaxing state(s) to resolve tax transfer pricing disputes (Waegenaere et al., 2005).113