Arm's Length Transaction

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Arm's Length Transaction

A transaction in which the buyer and the seller have no significant, prior relationship. In an arm's length transaction, neither party has an incentive to act against his/her own interest. That is, the seller seeks to make the price as high as he/she can, and likewise the buyer seeks to make it as low as he/she can. The negotiations for an arm's length transaction result in the arm's length price, which is almost always close to the market value of the asset being sold. The term is often used in real estate transactions because family members often sell property to each other at something other than the arm's length price.
References in periodicals archive ?
Goldenwest intends to continue buying diamonds from the Israeli firm at arm's length transactions. Furthermore, the US company noted that EZ Diamonds provided precisely sorted ideal melees and smalls that its other vendors did not supply.
Hospitals also must take a hard look at physician group leases that are not arm's length transactions, such as when the physicians themselves own the building and lease it to their group practice, says Marisa Manley, president of Healthcare Real Estate Advisors.
Considerable concern has been expressed about certain aspects of the new rules, including the authority accorded Revenue Canada to redetermine the nature of transactions out of step with typical arm's length transactions. Also attracting attention is the expectation that taxpayers be prepared to explain and justify -- even base -- their transfer pricing with reference to documented functional analysis and a record of how pricing was established with reference to relevant data, the application of transfer pricing methodology, and corporate strategies and policies.
The "quantum or nature" of affected amounts may be adjusted, in the first case with reference to the terms or conditions that arm's length parties would have adopted, and in the second by substituting, for this analysis, the appropriate arm's length transaction.
* At the time the transaction is entered into, and at the time of any renewal that requires the insurance company's consent, the terms of the transaction must be at least as favorable to the general account as the terms generally available in arm's length transactions between unrelated parties.
Another strategy, common to lenders in arm's length transactions, is to reduce the outstanding debt to a level jan can manage, stretch.
(47) Similarly, dispositions of property to an unrelated party within a reasonable period of time after such property is acquired from a related party are evidence of arm's length transactions. (48) CUP or MTM arguably applies in these cases, but because of the severe restrictions placed on those methods, we believe it important that the regulations address these fact patterns as safe harbors.