Arm’s length transaction Definition

GLOSSARY

Published by a ��Ӱ�� Pensions expert

What does Arm’s length transaction mean?

A normal commercial transaction between two or more persons.

View the related practice notes about Arm’s length transaction

Authorised and unauthorised payments

Authorised payments v unauthorised paymentsA pension scheme that has registered with HMRC benefits from favourable UK tax treatment. Broadly, this means that any income and gains arising in the hands of the UK registered pension scheme on its investment activities is exempt from UK taxation. For members, a registered pension scheme represents a tax efficient investment vehicle to provide for an income in retirement, subject to the existence of various pensions allowances (eg the annual allowance) which place limits on the tax-efficiency of pensions. For further information, see: Pensions allowances—overview.A UK registered pension scheme must satisfy certain conditions. Among other things, on registration, the scheme administrator must confirm that the pension scheme meets all the criteria to be registered as a pension scheme under the Finance Act 2004 (FA 2004). Importantly, as part of this, the scheme must confirm that the ‘instruments or agreements’ by which the pension scheme is established do not entitle any person to unauthorised payments. For information on the registration requirements, see Practice Note: Registration of...

Transfer pricing—key concepts and principles

Transfer pricing—key concepts and principles FORTHCOMING CHANGE relating to UK transfer pricing legislation: At Autumn Budget 2024, and following a consultation on updating UK transfer pricing legislation (as well as legislation relating to the diverted profits tax and to permanent establishments), the government announced that it will be publishing a second-round consultation on reforms to modernise and simplify those rules in spring 2025. The government confirmed that this will include the potential removal of UK-to-UK transfer pricing to reduce the UK compliance burden. Consultations will also be launched in spring 2025 on further changes to the UK transfer pricing rules, including around lowering the existing thresholds for medium-sized businesses and introducing a new filing obligation for in-scope multinationals. The government will also be reviewing the transfer pricing treatment of cost contribution arrangements, where the costs and benefits of developing intellectual property are shared by group companies, and rectifying a current gap in the legislation relating to Advance Thin Capitalisation Agreements (for which legislation has been included in Finance Bill...

Discover our 28 Practice Notes on Arm’s length transaction

Copyright licence—pro-licensor

Copyright licence—pro-licensor This Agreement is made on [insert date] Parties 1 [insert licensor name] a company incorporated in [England and Wales] whose registered number is [insert company number] and whose registered office is at [insert registered office] (Licensor); and 2 [insert licensee name] a company incorporated in [England and Wales] whose registered number is [insert company number] and whose registered office is at [insert registered office] (Licensee) (each of the Licensor and the Licensee being a party and together the Licensor and the Licensee are the parties). Background (A) The Licensor is the[ author and] [ exclusive] proprietor of certain rights in works protected by copyright. (B) The Licensee is [insert description of Licensee’s background/background to licence or relevant transaction]. (C) The Licensor has agreed to grant a licence to the Licensee and the Licensee has agreed to take a licence on the terms of this Agreement. The parties agree: 1 Definitions and interpretation 1.1 In this Agreement: [Advance • means the sum of [insert];]...

Character merchandising agreement—pro-licensee

Character merchandising agreement—pro-licensee This Agreement is made on [insert date] Parties 1 [insert name], a company incorporated in England and Wales, whose registered number is [insert company number], whose registered office is at [insert address] (Licensor); and 2 [insert name], a company incorporated in England and Wales, whose registered number is [insert company number], whose registered office is at [insert address] (Licensee) (each of the Licensor and the Licensee being a party and together the Licensor and the Licensee are the parties). Background (A) The Licensor is the proprietor of certain trade marks[, copyright] [ and designs] relating to [insert character name] the famous fictional character[s] as featured in [insert details of relevant film, cartoon, comic book, computer game etc]. (B) The Licensee is [insert background to licence/relevant transaction]. (C) The Licensor has agreed to grant a licence to the Licensee to use the trade marks[, copyright] [ and designs] on the terms and conditions of this Agreement. Agreement: 1 Definitions and interpretation 1.1 In...

Dive into our 17 Precedents related to Arm’s length transaction

Where a deceased individual co-owned a property with a former spouse and the property has risen in value since the date of death, do the deceased’s personal representatives have to claim the 10% co-ownership discount for an undivided share of land for inheritance tax (IHT) purposes even if it is not beneficial as there is no IHT liability arising on death and the preference would be to have a higher base cost for capital gains tax (CGT) purposes?

Where a deceased individual co-owned a property with a former spouse and the property has risen in value since the date of death, do the deceased’s personal representatives have to claim the 10% co-ownership discount for an undivided share of land for inheritance tax (IHT) purposes even if it is not beneficial as there is no IHT liability arising on death and the preference would be to have a higher base cost for capital gains tax (CGT) purposes? Where an asset value has been agreed with HMRC for IHT purposes on death, the value ascertained is also automatically taken to be the market value of that asset as at the date of death for CGT purposes, providing the relevant beneficiary with their ‘acquisition cost’. However, as noted in Practice Note: CGT—valuation principles, in particular section: ‘Interaction with IHT valuation principles’, if the value given in an IHT return on death was not considered by HMRC, perhaps due to the estate being exempt from IHT, then...

If an LPA receiver is appointed after a borrower or proprietor has already exchanged contracts for the sale of the property, can the receiver rescind that contract and exchange contracts with another party (eg because the new party can proceed more quickly and or at a higher price)?

If an LPA receiver is appointed after a borrower or proprietor has already exchanged contracts for the sale of the property, can the receiver rescind that contract and exchange contracts with another party (eg because the new party can proceed more quickly and or at a higher price)? The appointment of a receiver will not generally terminate the contract, unless the terms of the contract itself provide that the contract automatically comes to an end on the appointment of a receiver and/or enters into an insolvency process. More commonly, the contract will provide that the other party (the purchaser here) has the opportunity to terminate. Although the receivers are generally free to cause the borrower to repudiate or ignore existing contractual obligations (but do not have a general power to disclaim onerous property), the debtor will incur liability if he is caused to breach the contract and a claim for damages could be brought against the borrower. If the debtor is insolvent, a claim for damages is...

See the 7 Q&As about Arm’s length transaction

AI In Dispute Resolution—can AI replace human judges, lawyers and experts?

Arbitration analysis: In the 2022 Australian Open tennis tournament, Rafael Nadal and Daniil Medvedev battled it out at the men’s finals. At one point in the match, the score read 6-2, 7-6, 3-2 and 40-0 in favor of Medvedev and an artificial intelligence (AI) model predicted he had a 96% chance of victory. At that stage of the match, such a prediction did not seem unreasonable. Nadal had recently recovered from COVID and surgery, and Medvedev was overwhelmingly in the lead. But in a surprise finish, Nadal then won the third, fourth and fifth sets, eventually winning his second Australian Open and 21st Grand Slam title. While some commentators lauded the victory of humans over AI, it was not so much a failure of AI as an illustration of its inherent limitations. AI simulates human intelligence and problem-solving capabilities—and most humans likely would, on the basis of the available evidence at that moment in time, have predicted a Medvedev victory. AI works by applying logic and probability to quantitative data....

Court of Appeal overturns UT decision on transfer pricing but upholds conclusion on unallowable purpose (BlackRock Holdco 5 LLC v HMRC)

Tax analysis: In BlackRock, the Court of Appeal found that interest payments on certain intra-group loans put in place as part of the funding structure for a commercial acquisition were not restricted by transfer pricing rules (reversing the decision of the Upper Tribunal (UT) on that issue), but were disallowed under the loan relationships unallowable purpose rule (upholding the conclusion of the UT on that issue).

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