Arm's length principle

Source: Wikipedia, the free encyclopedia.
"Arm's length" redirects here. For the physical measurement of arms, see Arm span. For the band, see Arm's Length.

Contract law
Formation
Defences
Interpretation
Dispute resolution
Rights of third parties
Breach of contract
Remedies
Quasi-contractual obligations
Duties of parties
Related areas of law
By jurisdiction
Other law areas
Notes
  • 1 Specific to common law jurisdictions
  • 2 Specific to civil and mixed law jurisdictions
  • 3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions
  • 4 Specific to the German
    pandectist
    tradition
  • 5 Explicitly rejected by the UNIDROIT Principles of International Commercial Contracts
  • 6 Specific to Canadian contract law both in Québec and in the country's common law provinces
  • 7 Specific to civil law jurisdictions, the American Uniform Commercial Code, and Canadian jurisprudence in both Québec and the common law provinces pertaining to contractual and pre-contractual negotiation

The arm's length principle (ALP) is the condition or the fact that the parties of a transaction are independent and on an equal footing.

contract law to arrange an agreement that will stand up to legal scrutiny, even though the parties may have shared interests (e.g., employer-employee) or are too closely related to be seen as completely independent (e.g., the parties have familial
ties).

An arm's length relationship is distinguished from a

G20.[2]

Examples in contract law

A simple example of not at arm's length is the sale of

which?] operate "at arm's length" in allocating the funds they receive from the government.[3]

In the workplace,

shop stewards can represent the employee, whereas the HR department represents the company, so that both sides are on a more equal footing and can resolve matters outside of court, using informal negotiations or a grievance
, saving both sides time and money. The arm's length dealings in this case, mean that both an employee and a supervisor each have a qualified advocate.

International tax law

The

Organisation for Economic Co-operation and Development (OECD) has adopted the principle in Article 9 of the OECD Model Tax Convention, to ensure that transfer prices between companies of multinational enterprises are established on a market value basis. In this context, the principle means that prices should be the same as they would have been, had the parties to the transaction not been related to each other. This is often seen as being aimed at preventing profits being systematically deviated to lowest tax countries, although most countries are also concerned about prices that fail to meet the arm's length test due to inattention rather than by design and that shifts profits to any other country
(whether it has low or high tax rates).

The OECD Model Tax Convention provides the legal framework for

taxes, and for enterprises to avoid double taxation on their profits. The arm's length standard is instrumental to determine how much of the profits should be attributed to one entity and, consequently, the extent of a country's tax claim on such entity. The OECD has developed thorough guidelines on how the arm's length principle should be applied in this context.[4]
Under this approach, a price is considered appropriate if it is within a range of prices that would be charged by independent parties dealing at arm's length. This is generally defined as a price that an independent buyer would pay an independent seller for an identical item under identical terms and conditions, where neither is under any compulsion to act.

Transfer pricing became a highly controversial topic in the 2010s,[5] which contributed to the development of the Base Erosion and Profit Shifting (BEPS) project by the OECD and with the endorsement of the G20.[2] The World Customs Organization (WCO) and World Trade Organization (WTO) have also adopted, in effect, the arm's length principle in Customs valuations. The Agreement on Implementation of Article VII (known as the WTO Agreement on Customs Valuation or the “Valuation Agreement”) ensures that determinations of the customs value for the application of duty rates to imported goods are conducted in a neutral and uniform manner, precluding the use of arbitrary or fictitious customs values.[6][7]

See also

References

  1. ^ Arintass (October 22, 2021). "Arm's Length Principle in Transfer Pricing". Arintass - en. Retrieved July 26, 2023.
  2. ^ a b "OECD BEPS Project".
  3. doi:10.1080/10286639709358066
    .
  4. ^ "OECD Transfer Pricing Guidelines".
  5. ^ "Tax Justice Network on Transfer Pricing". April 27, 2015.
  6. ^ United States Trade Representative - Customs Valuation, http://www.ustr.gov/trade-agreements/wto-multilateral-affairs/wto-issues/customs-issues/customs-valuation
  7. ^ "WCO: Overview on the WTO Valuation Agreement".

External links

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