An empirical evaluation of the advance pricing agreement process in the UK

Avoseh, Oluwaseun Olanrewaju (2014) An empirical evaluation of the advance pricing agreement process in the UK. PhD thesis, University of Glasgow.

Abstract

Tax planning and compliance in transfer pricing are sensitive issues that potentially affect the
level of world trade. Advance pricing agreements (APAs) are intended to prevent disputes between fiscal authorities and multinational enterprises (MNEs) but to date the benefits and costs of applying for an APA are under-specified.

From a theoretical perspective, foreign direct investment FDI) theories tend to provide strong support for the view that MNEs utilize international transfer pricing (ITP) as a means of ensuring the exploitation of FDI market imperfections. MNEs, however, presently find it
difficult to achieve this objective given the need for them to demonstrate compliance with the arm’s length principle (ALP) in their transfer pricing operations. The APA serves as one obvious avenue to overcome this tension.

Normally, an APA is formally initiated by a
taxpayer and requires negotiations between the taxpayer, one or more related-party entities, and the tax administration(s) of one or more nation states. Given the critical need for MNEs to manage their transfer pricing risk in modern times, the APA programme should have been
popular with many MNE taxpayers. However, recent statistics showed that this is not the case,especially in the UK where Her Majesty’s Revenue & Customs (HMRC) have operated the
APA programme since 1999.

Some researchers have attempted to examine the reasons for the non-popularity of the APA programme. This study, however, goes beyond the traditional mono-method approach usually adopted by such authors. This study adopts a mixed-method methodological choice to examine the APA process. A sample of MNEs based in the UK was investigated and also their reasons for applying or not applying for an APA, particularly with HMRC in the UK.

Together with the uniqueness of the methodological approach adopted, the study provides a clearer lens through which the topic of APAs can be explored and understood better. The
study uncovers the confusion faced by MNEs in understanding the role being played by fiscal authorities in relation to the APA process. MNEs also face uncertainties in distinguishing between the benefits of an APA when compared with the cost of undergoing a transfer pricing audit as typically conducted by HMRC. The study concludes that three key themes (i.e., Cost and Benefit of an APA, Clarification of APA Guidelines and Generic APA Process) are critical to the MNEs’ decision on whether or not to apply for APAs.

There is a need to address these issues in order to improve the UK APA process in general.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Supervisor's Name: Kominis, Dr. Georgios and Emmanuel, Professor Clive
• Date of Award: 2014
• Depositing User: MR OLUWASEUN O AVOSEH
• Unique ID: glathesis:2014-5182
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 19 Jun 2014 09:09
• Last Modified: 19 Jun 2014 09:58
• URI: https://theses.gla.ac.uk/id/eprint/5182