- Arm's length principle
The arm's length principle (ALP) is the condition or the fact that the parties to a transaction are independent and on an equal footing. Such a transaction is known as an "arm's-length transaction". It is used specifically in
contract lawto arrange an equitable 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).
A simple example is the sale of
real propertyfrom parents to children. The parents might wish to sell the property to their children at a price below market value, but such a transaction might later be classified by a court as a gift rather than a bona fidesale, which could have tax and other legal consequences. To avoid such a classification, the parties need to show that the transaction was conducted no differently than it would have been for an arbitrary third party. This can be done, for example, by hiring a disinterested third party such as an appraiser or broker, who can offer a professional opinion that the sale price is appropriate and reflects the true value of the property.
The principle is often invoked to avoid undue government influence over other bodies, such as the
legal system, the press, or the arts. For example, in the United Kingdom Arts Councils operate "at arms length" in allocating the funds they receive from the government[ [http://www.culture.gov.uk/arts/policy_for_arts/arms_length_principle.htm Department for Culture Media and Sport - Sorry, an error has occurred ] ] .
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 valuebasis. 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 taxcountries, 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 profitsto any other country(whether it has low or high tax rates). It provides the legal framework for governmentsto have their fair share of taxes, and for enterprises to avoid double taxationon their profits.
The use of "arm's length principle" is extended as a new concept in
tortlaw. A person should keep an "arm's length" distance from another to avoid offensive or harmful contact, otherwise a battery or assaultmay result if one person goes too close to another without consent. To keep an "arm's length" from another person is respect to his/her bounds of dignity.
In the workplace,
supervisors and managers deal with employee discipline and termination of employmentat arm's length through the human resourcesdepartment, if the company has one. In such cases, terminations and discipline must be rendered by staff who have the training and certification to do so legally. This is intended to protect the employer from legal recoursethat employees may otherwise have in the event that it can be demonstrated that such discipline or terminations were not handled in accordance with the latest labour laws. For employees in unionised environments, 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.
* [http://www.culturaleconomics.atfreeweb.com/arm's.htm THE ARM'S LENGTH PRINCIPLE AND THE ARTS: AN INTERNATIONAL PERSPECTIVE — PAST, PRESENT AND FUTURE]
* [http://www.oecdobserver.org/news/fullstory.php/aid/670/Transfer_pricing:_Keeping_it_at_arms_length.html Transfer pricing: Keeping it at arm’s length]
* [http://www.ustransferpricing.com/arms_length_principle.html Definition of the Arm's Length Principle under U.S. law from U.S. transfer pricing portal site]
Wikimedia Foundation. 2010.
Look at other dictionaries:
Arm´s Length — Der Fremdvergleichsgrundsatz (engl. arm s length principle ) betrifft insbesondere Verrechnungspreise für Warenlieferungen, Miet und Pachtzinsen oder Finanztransaktionen (u.a. Cash Pooling ) im Rahmen des Leistungsaustauschs innerhalb von… … Deutsch Wikipedia
Arm's Length Market — A financial market consisting of parties that have no relationship or contact with one another aside from the transaction at hand. In the United States, the majority of exchanges are considered to be arm s length, where buyers and sellers are… … Investment dictionary
Balanced arm lamps — A balanced arm lamp is a lamp with an adjustable folding arm which is constructed so that the force due to gravity is always counteracted, regardless of the position of the arms of the lamp. Many lamp brands (such as the Anglepoise and Luxo L 1… … Wikipedia
small arm — small armed, adj. Usually, small arms. a firearm designed to be held in one or both hands while being fired: in the U.S. the term is applied to weapons of a caliber of up to one in. (2.5 cm). [1680 90] * * * ▪ military technology Introduction… … Universalium
Tremolo arm — A tremolo arm or tremolo bar (also called a whammy bar or wang bar ) is a lever attached to the bridge and/or the tailpiece of an electric guitar or archtop guitar to enable the player to quickly vary the tension and sometimes the length of the… … Wikipedia
Orders of magnitude (length) — Contents 1 Detailed list 1.1 Subatomic 1.2 Atomic to cellular 1.3 Human scale 1.4 … Wikipedia
Transfer pricing — refers to the pricing of contributions (assets, tangible and intangible, services, and funds) transferred within an organization. For example, goods from the production division may be sold to the marketing division, or goods from a parent… … Wikipedia
Verrechnungspreis — Als Verrechnungspreis (auch Transferpreis oder Konzernverrechnungspreis) wird in der Kosten und Leistungsrechnung derjenige Preis bezeichnet, der zwischen verschiedenen Bereichen eines Unternehmens oder zwischen verschiedenen Gesellschaften eines … Deutsch Wikipedia
Transfer Pricing — Als Verrechnungspreis (bzw. Transferpreis oder Konzernverrechnungspreis) wird in der Kosten und Leistungsrechnung derjenige Preis bezeichnet, der zwischen verschiedenen Bereichen eines Unternehmens oder zwischen verschiedenen Gesellschaften eines … Deutsch Wikipedia
Transferpreis — Als Verrechnungspreis (bzw. Transferpreis oder Konzernverrechnungspreis) wird in der Kosten und Leistungsrechnung derjenige Preis bezeichnet, der zwischen verschiedenen Bereichen eines Unternehmens oder zwischen verschiedenen Gesellschaften eines … Deutsch Wikipedia