Article 9. ASSOCIATED ENTERPRISES

This Article provides that when two related persons that are residents of the two Contracting States engage in transactions that are not at arm's length, the Contracting States may make appropriate adjustments to the taxable income and tax liability of such persons to reflect the income or tax with respect to such transactions that each would have had if the relationship between them had been at arm's length.

Paragraph 1 deals with the circumstance where a resident of a Contracting State participates, directly or indirectly, in the management, control, or capital of a resident of the other Contracting State, or when the same persons participate directly or indirectly in the management, control, or capital of a resident of one of the Contracting States and any other person. The term "control" includes any kind of control, whether or not legally enforceable and however exercised or exercisable. If in either case transactions are entered into that are not at arm's length, the competent authorities may adjust the income of their residents to reflect what it would have been if they had been

independent of each other.

Paragraph 2 provides that, where a Contracting State has made an adjustment that is consistent with the provisions of paragraph 1, the other Contracting State will make a corresponding adjustment to the tax liability of the related person in that other State. Paragraph 2 of Article 26 (Mutual Agreement Procedure) explains that the corresponding adjustment will not be prevented by a domestic statute of limitations. It is understood that the other Contracting State need adjust its tax only if it agrees that the initial adjustment is appropriate. The other provisions of the Convention, where relevant, are to be taken into account. The competent authorities will consult, as necessary, in applying these provisions.

Paragraph 3 simply confirms that this Article does not restrict the provisions of either Contracting State's domestic law relating to adjustments between related persons. The reference in paragraph 1 to "income," for example, does not imply that adjustments may not relate to deductions, exemptions, credits, or other elements affecting the tax liability.