The concept of an arm's length transaction assures that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. This valuation principle is commonly applied to commercial and financial transactions between related companies. This Chapter provides a background discussion of the arm's length principle, which The Chapter discusses the arm's length principle, reaffirms its status as the.


Author: Osbaldo Goodwin
Country: Vanuatu
Language: English
Genre: Education
Published: 14 January 2017
Pages: 588
PDF File Size: 48.37 Mb
ePub File Size: 43.60 Mb
ISBN: 925-5-39768-816-5
Downloads: 18729
Price: Free
Uploader: Osbaldo Goodwin

Download Now

Arm's Length Transaction

For commodities, determining the arm's-length price can sometimes be as simple a matter as looking up comparable pricing from non-related party transactions, but when dealing with proprietary goods and services or intangibles, arriving at an arm's length price can be a much more complicated matter.

US transfer pricing law requires that the best method rule be used to determine which transfer pricing methodology is most appropriate for determining the arm's-length price of a given transaction. The official definition of the arm s length principle length standard as it applies in the United States can be found in Section b of the transfer pricing regulations: In determining the true taxable income of arm s length principle controlled taxpayer, the standard to be applied in every case is that of a taxpayer dealing at arm's length with an uncontrolled taxpayer.

The arm's length principle can help.

Not arm s length principle ago, transfer pricing was a subject for tax administrators and one or two other specialists.

But recently, politicians, economists and businesspeople, as well as NGOs, have been waking up to the importance of who pays tax on what in international business transactions between different arms of the same corporation.

Globalisation is one reason for this interest, the rise of the multinational corporation is another.

  • Arm's Length Transaction Definition | Investopedia
  • The Global Responsible Tax Project
  • Arm's length principle
  • Arm's-Length Principle
  • Arm's-length principle

Transfer pricing refers to the allocation of profits for tax and other purposes between parts of a multinational corporate group.

If the parent pays below normal local market prices, the Korean unit may appear to be in financial difficulty, even if the group as a whole shows a decent profit margin when the completed computer is sold. UK tax arm s length principle might not grumble as the profit will be reported at their end, but their Korean counterparts will be disappointed not to have much profit to tax on their side of the operation.

This problem only arises inside corporations with subsidiaries in more than one arm s length principle if the UK company bought its microchips from an independent company in Korea it would pay the market price, and the supplier would pay taxes on its own profits in the normal way.

Arm's length principle - Wikipedia

It is the fact that the various parts of the organisation are under some form of common control that is important for the tax authority as this may mean that transfers are not subject to the full play of market forces. Using the same example as above, if the sale of the house between father and son is taxable, tax authorities may well force the seller to pay taxes on the gain he would have realized had he been selling to a neutral third party and disregard the actual price paid by the son.

In the same way, international sales between non-arm's length companies, such as two subsidiaries of the same parent company, must be made for arm's length prices.

The principle is often invoked to avoid any undue government influence over other bodies, such as the legal systemarm s length principle press, or the arm s length principle. For example, in the United Kingdom Arts Councils [ which?

In such cases, terminations and discipline must be rendered by staff who have the training and certification to do so legally.


This is intended to protect the employer from legal recourse that employees may otherwise have in the event that it can be demonstrated that such discipline or terminations were not handled in accordance with the latest labor laws.

Related Posts: