An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Anja De Waegenaere
Tilburg University

Richard Sansing
Dartmouth College & Tilburg University

Jacco Wielhouwer
Tilburg University

Abstract: We investigate the use of bilateral advance pricing agreements (BAPAs) to resolve transfer pricing disputes between a taxpayer and two tax authorities. BAPAs are designed to protect firms from double taxation while reducing expected compliance costs. We identify settings in which we expect BAPAs to arise and investigate the effect of the program on compliance costs. We show that agreements are more likely to arise when the amount of income potentially subject to double taxation is low and the difference in tax rates between the two countries is high. We also show that the BAPA program can increase compliance costs.

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