Research On Advance Pricing Arrangements Of Multinational Enterprise-Base On Game Theory

As the fast development of global economy, the multinational enterprises are playing moreand more important part in the economy world. Transfer pricing has been one of the key tools forthe multinational enterprises to reduce costs and to increase profits. However, the traditionaltransfer pricing methods in practice do not achieve the expected results, which not only waste theresources of tax authorities, but also push the multinational enterprises into some risks.Advance Pricing Arrangement (APA) has been adopted by multinational enterprises in moreand more countries such as America and Japan for transfer the government regulation on transferpricing from post-modification mode to pre-agreement mode, which avoids the limitation ofpost-modification and reduces effectively the transaction costs of tax collection.However, Advance Pricing Arrangement could take some risks to the multinationalenterprises at the same time. For example, the critical information could be disclosed whichwould cause great losses. This paper considers APA be the result of the game between taxauthority and multinational enterprises. This paper distinguishes Unilateral APA from BilateralAPA when building game models. It establishes three game models between tax authority andmultinational enterprises respectively in the process of making Unilateral APA to analyze thefactors that the multinational enterprises should take into consideration. Bilateral APA becomesmore and more popular for can overcome the risk of double taxation and reflect the spirit ofinternational tax cooperation. This paper builds game model among multinational enterprises andtax authorities of the home country and the host country in order to explain its advantages aboveand to analyze the factors that the multinational enterprises should take into consideration.