Welcome to our lesson on advance pricing arrangements in finance. An advance pricing arrangement is a pre-determined set of guidelines that determine the transfer pricing for controlled transactions. These guidelines include factors such as the method used, comparable transactions, and necessary adjustments, as well as critical assumptions about future events. This arrangement is agreed upon in advance and covers a fixed period of time. A taxpayer can enter into a unilateral arrangement with one tax administration, or a multilateral arrangement with multiple tax administrations. These arrangements are an important tool in ensuring fair and accurate transfer pricing.
