Arm’s length principle
Financial Dictionary — Taxation
Definition
Transactions between related parties must be priced as if they were independent.
Common Uses
- Used when computing taxes, preparing returns, and documenting tax positions.
- Used to evaluate transaction tax impact and ensure compliance (VAT/GST/Corporate Tax).
- Used to evaluate transaction tax impact and ensure compliance (VAT/GST/Corporate Tax).
Practical Example
- Example: The tax team applies **Arm’s length principle** to determine the correct tax treatment and to support the filing.
Why This Term Matters
- Why it matters: Reduces compliance risk, helps avoid penalties, and supports consistent tax reporting and defensible positions.