Arm's-length Transaction

Arm's-length Transaction means:
a transaction among parties, each of whom acts in his or her own best interest. Transactions between the following parties would, in most cases, not be considered arm's length: a husband and wife, a father and son, a corporation and one of its subsidiaries. Former IRC (check if this IRC provision is current here) §§ 147(a)(2), 1313(c), 1504(a).

Example of Arm's-length Transaction:

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A multinational company must assign transfer prices to each real or notional transaction between its domestic and foreign affiliates. These transfer prices must be set as if the transactions occurred between related parties on an arm's length basis.