Arm's Length Transaction

(redirected from arm's-length)
Also found in: Dictionary.

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 result of adding the mark-up to the above costs may he regarded as an arm's-length price of the original controlled transaction.
company, the PATA documentation package guidelines may be irrelevant or inapposite in establishing that the taxpayer has undertaken reasonable steps to comply with the arm's-length standard, maintained adequate documentation in support of the arm's-length nature of its controlled transactions, or whether a documentation penalty should apply.
The comments warn that to implement procedures under section 482 that are not fully consistent with the arm's-length standard could expose U.S.
1.482-3(a), the most commonly accepted methods for obtaining an arm's-length price are the: (1) comparable uncontrolled price (CUP) method; (2) resale price (RP) method; (3) cost plus (CP) method; (4) comparable profits method; and (5) profit split (PS) method.
Either this suggests that any secondment involving services of benefit to the subsidiary is covered and thus subject to the arm's-length standard or the Guidelines have simply skipped over the preliminary question of whether a service has been provided by someone other than the receiving company.
Because a company's intangible resources often are what separate it from the competition, it seems incomprehensible to remove from the balance sheet an item that results from an arm's-length transaction and must have some future value, or the acquiring company would be throwing away valuable resources.
The transfer-pricing legislation itself provides precious little guidance about the documentation that taxpayers are expected to create and maintain in order to establish the arm's-length nature of their prices.
Although the terminology is different, the new rules continue the current regulations' arm's-length standard.
Topics include valuation discounts in family limited partnerships, the relevant regulatory framework for arriving at an arm's-length transfer price in intercompany transactions, the economic attributes and influences that create, destroy and transfer value in intellectual property and much more.
The principles of section 482 of the Internal Revenue Code should be relevant; if a debt instrument contains arm's-length terms, it should be deemed to be a debt under principles of economic reality.
Implicit in this definition is the concept of arm's-length exchange--that is, both parties are well-informed or well-advised and each is acting in what he considers his own best interest.