Tipi Tips #3: What is the arm's length principle?

The topic of this Tipi Tip is: what is the arm’s length principle?

As a small recap, transfer pricing is the setting of prices between two parties that know each other. So the next question is: what price should we set. The main rule that we use for this is actually the most important concept in transfer pricing. We want to price a transaction between two related parties as if they were not related. In other words, the price a random person would be willing to pay for this good or service in a similar situation.

That is the arm’s length principle.

However, this principle still sounds kind of vague, and does not point you straight to the correct answer. That is why to apply this principle, there are at least 5 so called transfer pricing methods that we can use. We will explain each of these separately in the upcoming Tipi Tips.

Transfer pricing made easy

Tipi's mission is to explain the field of transfer pricing to you in a transparent and simple manner. We deliver on this mission with expertise, experience and our unique approach. We expose all transfer pricing concepts (and secrets) in our database. Here you can learn the basics of transfer pricing for your business, and get an idea of the work we do to help you navigate the transfer pricing field.

Our transfer pricing services can be divided into three phases in which we can help:

Advance advice

Practical and clear advice based on our three pillars

Build your tax image

Tax Transparency Report: improve your company's tax image

Accountability

Clear and simple documentation afterwards

Let us inform you about the possibilities

Transfer pricing is the future of international taxation. Let us discuss how we can future-proof your business.

Vincent Maessen

Founder Tipi Consultancy