Start with the arm's-length story
Explain the arm's-length principle as a business fact pattern, not a tax target.
The move: defend the bargain before defending the number. The arm's-length principle asks whether related parties dealt with each other as independent parties would have dealt. That does not mean every transaction needs a perfect market twin. It means the file must show the commercial conditions that explain the price: functions performed, assets used, risks controlled, contractual terms, market circumstances, and realistic alternatives. Price follows the fact pattern A price that looks reasonable for a routine distributor may be weak for an entrepreneur distributor. A royalty that looks normal for a brand license may be weak if the licensee actually…
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