They appear to be higher than what independent companies negotiating on market terms would have agreed between themselves in accordance with the arm's length principle. In particular, a preliminary analysis of the companies' activities found that: Nike European Operations Netherlands BV and Converse Netherlands BV have more than 1,000 employees and are involved in the development, management and exploitation of the intellectual property.
Given the magnitude of related-party trade and the desire to minimize disagreement about what the proper transfer prices should be, at least in the tax world, most developed countries have agreed to a common standard, the "arm's length principle." The arm's length principle is found in Article 9 of the OECD Model Tax Convention.
This aim could be achieved by setting aside domestic rules and using the new Article 7 of the OECD Model Convention as a paradigm to establish an international consensus for the capital structure of both permanent establishments and subsidiaries in line with the arm's length principle. The main consequence would be that those two entities would be treated alike and would therefore have an appropriate amount of "free" capital in order to support the functions they perform and the assets and risks attributed to them.”
Under such circumstances the arm's length principle is preferred (Sekulic Grgic, 2005), according to which efforts are being made to determine a price agreed between independent subjects within a same or comparable transaction.