What is Business-to-Business Transactions?
Business-to-business transactions are commercial transactions in which the buyer and seller act independently without the influence of one party on the other. These types of sales claim that both parties act for their own benefit and are not under pressure from the other. In addition, it guarantees to others that there is no collusion between the buyer and the seller. To be fair, both parties usually have equal access to information related to the transaction.
- The parties involved in business-to-business transactions usually do not have an existing relationship with each other.
- These types of transactions in real estate help ensure that real estate is priced at a fair market price.
- Business-to-business transactions with family members or related shareholders are not considered business-to-business transactions.
Understand business-to-business transactions
Business-to-business transactions are commonly used in real estate transactions. This is because the sale affects not only those who are directly involved in the transaction, but also other parties, including the lender.
If two strangers are involved in buying or selling a home, the final agreed price may be close to the fair market price, assuming they both have equal bargaining power and equivalent information about real estate. there is. Sellers want the highest possible price, and buyers want the lowest possible price. Otherwise, the agreed price may not differ from the actual fair market price of the property.
Whether a party engages in an independent business transaction in a real estate transaction can not only directly affect bank financing and local or local taxes, but can also affect the transaction’s setting of comparable prices in the market. There is sex.
Business-to-business and non-independent business-to-business transactions
In general, companies with family members or related shareholders do not engage in business-to-business transactions. Rather, the transactions between them are non-independent business-to-business transactions. Non-independent business-to-business transactions, also known as business-to-business transactions, are commerce in which the buyer and seller have an identity of interest. In short, buyers and sellers have an existing relationship, whether business-related or personal.
For example, a transaction involving a father and son is unlikely to have the same consequences as a stranger human transaction, as the father may choose to give the son a discount.
Tax laws around the world are designed to treat the outcome of a transaction differently, depending on whether the parties are trading arm-length or not.
For example, if the sale of a house between a father and son is taxable, the tax authorities will ask the seller to pay taxes on the profits that would have been realized if the seller had sold to a neutral third party. You may request it. They will ignore the actual price paid by their son.
Similarly, you need to make business-to-business transactions using business-to-business prices, such as two subsidiaries of the same parent company. This practice, known as transfer pricing, ensures that countries collect appropriate taxes on their transactions.
What is Business-to-Business Transactions?
The term “business-to-business transaction” refers to a transaction between parties that act independently of each other and are not related to each other outside the transaction in question. In contrast, a transaction is not a “business-to-business” transaction if the buyer and seller have a personal relationship, such as a family member or personal friend. Transactions between related businesses, such as transactions between a parent company and its subsidiaries, are also not business-to-business transactions.
Why is business-to-business trading so important?
The question of whether a transaction is a business-to-business transaction is important because it can have legal and tax implications. For example, if a multinational company trades with affiliates around the world, they need to ensure that the transactions are conducted at fair market prices so that the correct taxes are paid in each jurisdiction. Similarly, conglomerates and holding companies may face legal and regulatory challenges if companies within the organization do not engage in business-to-business transactions. Ultimately, business-to-business transactions are aimed at encouraging fair and rational business practices and protecting the general public.
Here are some examples of non-independent business-to-business transactions.
For the sake of explanation, consider the case of a mother who wants to sell her car to her son. She may choose to give her son a car discount, even if she could get a higher price by selling the car to an arm-length buyer. In this scenario, the transaction is not a business-to-business transaction because the buyer and seller are already associated as part of the family. This example is benign, but other examples can be more harmful. For example, if the founder of a listed company engages in nepotism by appointing one of his family members to an important position within the company, even if there are other more qualified candidates, this decision is a shareholder of the company. May harm your family.