ARTICLE 9 — U.S. Income Tax Treaty

Associated Enterprises

This Article complements section 482 of the Code and confirms the right of the United States to allocate items of income, deduction, credit, or allowance in certain cases. Under paragraph 1, if conditions are made or imposed between related enterprises in their commercial or financial relations which differ from those that would be made between independent enterprises, any profits that would, but for these conditions, have accrued to one of the enterprises, but by reason of those conditions have not so accrued may be included in the profits of that enterprise and taxed accordingly. Enterprises are related for purposes of the Convention where an enterprise of a Contracting State participates directly or indirectly in the management, control, or capital of an enterprise of the other Contracting State, or the same persons participate directly or indirectly in the management, control, or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State.

Paragraph 2 describes the consequences of an adjustment made by a Contracting State in accordance with paragraph 1. The other Contracting State will make an appropriate adjustment to the amount of tax which it charged to the related enterprise, and in determining the amount of such adjustment, the other provisions of the Treaty shall be taken into account. Thus, if as a result of the adjustment one enterprise is treated as having made a distribution of profits to the other, the provisions of Article 10 (Dividends) may apply to the deemed distribution. If necessary, the competent authorities are authorized to consult to resolve any differences in the application of these provisions, such as a disagreement over the appropriateness of an adjustment.

Paragraph 3 provides that the provisions of paragraph 1 shall not limit the application of any internal law provisions in either Contracting State designed to place transactions between related enterprises on an arm's-length basis. Thus, this Article does not limit the right of the United States to apply section 482 of the Code, even when such application extends beyond the provisions of Article 9.