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    Question

    What is the primary objective of an Advance Pricing

    Agreement (APA)? 
    A To eliminate double taxation on domestic transactions Correct Answer Incorrect Answer
    B To ensure arm’s length pricing in international related-party transactions Correct Answer Incorrect Answer
    C To regulate capital inflows from foreign investors Correct Answer Incorrect Answer
    D To fix domestic market prices for monopolistic firms Correct Answer Incorrect Answer

    Solution

    Advance Pricing Agreements (APAs) are primarily designed to establish the pricing methodology for international transactions between related parties (e.g., subsidiaries of a multinational corporation) before these transactions occur. The core principle behind APAs is to ensure that these transactions are conducted at an arm’s length price. This means the price should be the same as if the transactions were between independent entities.

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