Legal Definitions - bilateral advance pricing agreement

A bilateral advance pricing agreement is a binding arrangement made between a multinational company and one or more national tax authorities. The purpose of this agreement is to determine the method that the company will use to calculate transfer prices, with the aim of reducing or eliminating double taxation.

For example, if a company has operations in two countries, it may enter into a bilateral advance pricing agreement with the tax authorities in both countries. This agreement would specify the transfer pricing method that the company will use when moving goods or services between the two countries. By doing so, the company can avoid being taxed twice on the same income.

It is important to note that a bilateral advance pricing agreement only applies to the tax authorities that are party to the agreement. If a company has operations in multiple countries, it may need to enter into separate agreements with each country's tax authority to avoid double taxation.