In the second of a two-part article, the author considers how the arm’s length principle could be enhanced to meet the substance and value alignment requirements of the OECD BEPS initiative. The boundaries and concepts of the arm’s length principle are explored, taking into account the analysis in the Part I of the article, published previously, and insights from economics. Guidance from the OECD and the case law of various jurisdictions are included in this study. Recommendations are presented to amend the Commentary on Article 9 of the OECD Model and the guidance in the OECD Guidelines.