Question

Explain to me the difference between transfer pricing and arm's length Transactions ? please explain how they can be different and relate to each other

Answer 1

TRANSFER PRICE .. This is the price of goods or services that exists between two units of an organization or a company or any business entity

ARM'S LENGTH TRANSACTION..This is the price of goods or services that lies between two unknown parties I.e two different entities or companies etc

Difference

Transfer price	Arm's length TRANSACTION
1. There is influence among buyer and seller	There is no influence between buyer and seller
2. It takes place between two related parties	It takes place between two unrelated parties

3. Example .. two different departments of an organization	Example . individual seller and individual buyer
4. There may be no profit element or some times less margin	There must be a profit element in the transaction
5. Calculated by using cost plus method	Caluclated by cost plus adjusted gross profit mark up

When two different entities trade with each other , then that price is regulated by free market force's, where the seller wats to sell at maximum possible highest price and buyer wants to buy at minimum lowest price

But when it takes place between two know departments or entities etc there is some influence on one entity to fix a certain price . If they are also profit making entities then then both are related to each other.