![]() Where any provision is qualified or phrased by reference to an arm’s length basis or principle such qualification or reference shall mean: ![]() To refer to the arm’s length principle, a synopsis of the OECD-principles on transfer pricing may inspire the contract drafter. Alternatively, the seller may be able to negotiate a covenant by virtue of which all inter-company relationships terminate on completion date, with the exception only of certain identified, agreed contracts. If the warranty appears to be incorrect, the purchaser or acquired company should be entitled to damages, being the difference between market prices and the transfer prices possibly subject to an ebit- or ebida-multiplier. This is usually reflected in a warranty of the seller, stating that all transactions are at an arm’s length basis. For example, a purchaser of a company that will continue business with the seller’s group would like to ascertain that the company it acquires, conducts such business on terms and conditions that are perfectly sound. The arm’s length principle is also required in the context of transactions that might not be fully and fairly negotiated. Many national laws require that inter-company supplies are reflected in writing. For an outsider this is sometimes surprisingly tough. In many multinationals, the business people from the business groups or business units involved in such intra-company arrangement will indeed be tough in their negotiations. In inter-company relations it may be attractive to apply transfer pricing structures resulting in a tax-optimised corporate structure that is most beneficial for the shareholders of the ultimate parent. It refers to the test applied by national tax authorities to satisfy that the taxable entity does not avoid tax. The arm’s length principle expresses that a business relationship between two parties is entered into against perfectly normal market prices and commonly negotiated terms and conditions. ![]()
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