why are arm s length transactions important 
the question of whether or not a transaction is arm s length matters because it can have legal and tax implications for example when a multinational corporation engages in transactions with its affiliated companies throughout the world it must ensure that those transactions are made at fair market values to ensure that the correct taxes are paid in each jurisdiction similarly conglomerates and holding companies can potentially run into legal and regulatory challenges if the companies within their organization do not transact with one another at arm s length ultimately arm s length transactions are intended to encourage fair and reasonable business practices and to protect the public at large 