Arm’s-length price

Updated: Aug 20, 2021

The price that two unrelated parties would agree for a transaction conducted in the absence of duress. If the good involved in the transaction is traded on a competitive market then the equilibrium price is the arm’s-length price. If the good is not traded, such as an intermediate good transferred between two subsidiaries of a single firm, then the arm’s-length price is intended to reflect the equilibrium price that would emerge if it were traded. The concept of arm’s-length price is used by tax authorities to determine the allocation of taxable liability for a multinational firm operating in two or more countries.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.