The Arm's Length Principle is a guideline used in taxation and international business to ensure that transactions between related parties are conducted as if they were between unrelated parties. This means that the prices and terms of these transactions should reflect market conditions, preventing companies from manipulating profits to reduce tax liabilities. This principle is particularly important for multinational corporations, as it helps maintain fairness in the allocation of income and expenses across different jurisdictions. By adhering to the Arm's Length Principle, companies can avoid tax avoidance schemes and ensure compliance with regulations set by authorities like the OECD and various national tax agencies.