Part 1 - AL-Tax

International Taxation Handbookthe OECD Transfer Pricing Guidelines (OECD, 1995b) and internationalregimes, including the guidelines on APAs (OECD, 1999). Other stateschoose not to use the guidelines, or they take only part of the information.In the case of the USA, the OECD guidelines on APAs are heavily influencedby the US IRS system of APA processes, which suggests that theexistence of an APA program may not necessarily follow the relativeinfluence the OECD has on each country, given that the OECD has not hadan effective influence over US policies (rather, it is the other way round).It seems that whether a certain nation is a member of the OECD or notdoes not fully explain the relative influence the OECD can have on nationalAPA programs and individual APAs. Also, other international institutions,such as the WTO, IMF, or UN, do not seem to have a major influence onnational decisions regarding APAs.6.4 ConclusionThe deployment of APAs and the evolution of corresponding national APA programsis an interesting example of a shift in international tax policy. This chapteranalyzes taxing multinational companies (MNCs) to illustrate how global businessprocesses may force governance change in international income tax base allocation.The underlying question is: How can we explain changes in the interaction of thesovereign state and the MNC taxpayer regarding the allocation of the tax base relatedto cross-border income? As globalization and the integration of global businessprocesses within the boundaries of multinationals continue to grow in number andvolume, we expect that the question on shifts in international governance of tax baseallocation will also substantiate.The analysis on governance change is illustrated by APAs, a new form offormalized negotiation and cooperation between the main parties involved in transferpricing and tax base allocation. An APA is featured as a cooperative arrangementbetween the tax administration and the MNC taxpayer and, if bi/multilateral,between other states’ tax administration and the MNC affiliates present in this state.The agreement determines, ideally in advance of controlled related-party transactionswithin the boundaries of an MNC, an appropriate set of criteria for the determinationof transfer pricing for these transactions over a fixed period of time. As therole of transfer pricing between related-party corporations of a multinational groupdramatically increases in the globalizing business world, the taxpayer and the taxauthorities face complex problems of tax base allocation (OECD, 2001a; EuropeanCommission, 2001; Ernst & Young, 2003).140