21Arm’s length conditions

21  Arm’s length conditions  (1) The arm’s length conditions, in relation to the conditions that operate between an entity and another entity, are the conditions that might be expected to operate between independent entities dealing wholly independently with one another in comparable circumstances. Most appropriate and reliable method to be used  (2) In identifying the arm’s length conditions, use the method, or the combination of methods, that is the most appropriate and reliable, having regard to all relevant factors, including the following:  (a) the respective strengths and weaknesses of the possible methods in their application to the actual conditions;  (b) the circumstances, including the functions performed, assets used and risks borne by the entities;  (c) the availability of reliable information required to apply a particular method;  (d) the degree of comparability between the actual circumstances and the comparable circumstances, including the reliability of any adjustments to eliminate the effect of material differences between those circumstances. Comparability of circumstances  (3) In identifying comparable circumstances for the purpose of this section, have regard to all relevant factors, including the following:  (a) the functions performed, assets used and risks borne by the entities;  (b) the characteristics of any property or services transferred;  (c) the terms of any relevant contracts between the entities;  (d) the economic circumstances;  (e) the business strategies of the entities.  (4) For the purposes of this section, circumstances are comparable to actual circumstances if, to the extent (if any) that the circumstances differ from the actual circumstances:  (a) the difference does not materially affect a condition that is relevant to the method; or  (b) a reasonably accurate adjustment can be made to eliminate the effect of the difference on a condition that is relevant to the method. Form and substance  (5) In identifying the arm’s length conditions, have regard to both the form and substance of the relations between the entities. However, disregard the form of those relations to the extent (if any) that it is inconsistent with the substance of those relations. Guidance  (6) Identify arm’s length conditions so as to best achieve consistency with the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as approved by the Council of the Organisation for Economic Cooperation and Development and last amended on 7 January 2022. Note: The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations could in 2024 be viewed on the Organisation for Economic Co‑operation and Development’s website (https://oecd.org/).