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.