- Formation of contract — Interpretation of contract — Payment of price — Modes of payment — Time for payment
This introductory chapter takes a look at the so-called arm's length principle (ALP), which forms the core of traditional transfer pricing policy and thought. It attempts to evaluate the ALP according to contentions over whether or not the ALP approach is a viable one. Hence, to assess the system of ALP-based transfer pricing rules, the chapter argues that the nature of the ALP must be clarified, its derivation and evolution examined, and its operation in practice considered. To that end, the chapter first discusses the ALP and its functions in brief. It then offers some preliminary considerations on whether or not the ALP is a viable approach, and to that effect introduces five factors for assessment: the ALP's ease of administration, economic efficiency, robustness to abuse, overall systemic stability, and fairness.
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