Arm's length - sustany/dvg GitHub Wiki

�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. In transactions �at arm�s length�, the parties involved should have equal bargaining power and symmetric information, leading the parties to agree upon fair market terms. In contrast, a transaction not conducted �at arm�s length� may happen between parties that may have a personal or close relationship; for example, transactions between family members, personal friends, or the parent company and its subsidiaries. In one case, it was held that �an �arm's-length� transaction refers to dealings between two parties who are not related and not in a confidential relationship, and who are presumed to have roughly equal bargaining power. Additionally, an �arm's-length� transaction generally must be voluntary (without compulsion or duress), take place on the open market, and the parties must act in their own self-interest.��

In another case, it was held that �an arm's-length transaction is a transaction between unrelated parties who are not involved in a confidential relationship and who have roughly equal bargaining power. An arm's-length transaction is "characterized by three elements: [(1)] it is voluntary, i.e., without compulsion or duress; [(2)] it generally takes place in an open market; and [(3)] the parties act in their own self-interest."

Whether a transaction is done at �arm�s length� matters because it may have legal and tax implications. In many countries, tax laws require holding companies or corporations to engage in business transactions with their subsidiaries at �arm�s length�. The �arm�s length� principle seeks to guarantee fair market conditions and that taxes are correctly allocated in those transactions in which potential conflicts of interest may arise.