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B4.130 Summary of OECD guidelines on arm's length principle

The basic transfer pricing rule as detailed in B4.121 requires the adjustment of profit or losses where a transaction or series of transactions between affected persons does not follow arm's length standards. The internationally agreed authoritative statement of the arm's length principle is found in the OECD Model Tax Convention on Income and on Capital Article 9 para 1, which states:

'[Where] conditions are made or imposed between … two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed