A deal between two interrelated or enterprise associates parties. That is behavior as if they were not related, so that there is no query of a disagreement of attention. In simple way we can describe this as “a deal between two unconnected or associate parties”.
The concept of an arm's length deal is to make sure that both associates in the transaction are behave in their self attention and are not issue to any force or pressure from the other associate.
OECD introduce the transfer pricing guidelines for multinational enterprises and tax administrations in 1995. OECD guidelines are appreciated globally. In the transfer pricing system, the transfer pricing has to be resolute on the basis of the arm’s length principle so price determined is the Arm’s Length Price (ALP). According to the ALP there are two type of transfer pricing methods
Traditional Transaction Methods
Transactional profit methods or Non Transactional Methods