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 ?
The TP Bylaws state that the arm's length range is a range of acceptable results such as prices, margins or profit shares produced by applying the most appropriate transfer pricing method.
For the term "at arm's length" the glossary states the following:
These should cover guidelines in ensuring arm's length terms, management of conflicts of interest, materiality thresholds and limits, whistle blowing mechanisms, and restitution of losses and other remedies for irregular deals.
"We have to hold these arm's length companies to account."
To determine whether employees are not dealing at arm's length with their employers, the CRA considers the circumstances of their employment.
For these reasons, the use of hindsight by tax authorities in revaluing or re-pricing the terms of a contract is fundamentally at odds with the arm's length principle.
* Moreover, intra-firm exports are a complement to arm's length affiliate sales and hence likely to respond in the same way to cultural distance as such sales.
In international tax law, the arm's length principle states that multinational enterprises should carry out controlled transactions at arm's length prices, or prices which associated enterprises would have agreed to if they had made a comparable transaction on the open market rather than the controlled transaction that was in fact made in order that taxation may be levied in relation to the hypothetical "normal" transaction.
The court rejected the IRS's contention that the regulations effectively supplanted the role of independent comparisons by defining arm's length as including "all costs." Instead, the court concluded that the intent of the regulations is that the arm's-length standard applies in all cases, including cost-sharing agreements.
In addition, finder's fees may be payable to arm's length third parties upon the completion of the acquisition.
That resale price is reduced for gross margin and eventually corrected for the costs associated with the purchase of the product, thus the balance incurred is the arm's length price.
Light the firework at arm's length with a taper and stand well back.