Arm's length relationship

“Arm's length” is an expression which is commonly used to refer to transactions in which two or more unrelated and unaffiliated parties agree to do business, acting independently and in their self-interest.

1. What is an example of arm's length transaction?
2. What is an arm's length person?
3. What is the arm's length principle?

What is an example of arm's length transaction?

If Colin sells the house to the stranger, it would be an arm's length transaction because both parties are independent and acting in their own self-interest.

What is an arm's length person?

Two people, or entities, are said to be dealing at arm's length with each other if they are independent, and one does not have undue influence over the other.

What is the arm's length principle?

The basis of transfer pricing is the Arm's Length Principle, as it is known internationally. This principle states that the price agreed in a transaction between two related parties must be the same as the price agreed in a comparable transaction between two unrelated parties.