Article 9 of the Convention does not contain a counterpart

to the paragraph 3 found in many other U.S. income tax treaties. That paragraph is intended to clarify that the rights of the Contracting States to apply internal law provisions relating to adjustments between related parties are fully preserved. Its absence does not signal any change in U.S. law or in the U.S. treaty position. Such adjustments -- the distribution, apportionment, or allocation of income, deductions, credits or

allowances, or the characterization of income under thin capital­

ization rules -- are permitted even if they differ from, or go

beyond, those authorized by paragraph 1 of the Article, as long
as they accord with the general principles of paragraph 1, ie.,
that the adjustments reflect what would have transpired had the

related parties been acting at arm's length. Thus, the absence of paragraph 3 does not limit either State's right to implement

its own statutory rules related to adjustments intended to

reflect transactions between unrelated parties. This conclusion

derives from the fact that paragraph 1 is to be interpreted in a

permissive, rather than exclusive, manner. For example, while paragraph 1 explicitly allows adjustments to deductions in

computing taxable income, it does not preclude adjustments to tax

credits if such adjustments can be made under internal law,
despite the lack of express authority in Article 9 to make such
adjustments.

It is also understood that Article 9 does not limit the rights of the Contracting States to allocate income between

related persons in cases where the relationship differs from that

described in paragraph 1. This position conforms with the Commentary to the OECD Model, which explicitly states that

further adjustments may be needed in circumstances outside of

paragraph 1. This rule would apply, for example, if a commercial or contractual relationship allows one party to exercise a

controlling influence over another. Any adjustments made pursu­

ant to this provision must accord with the general principles of

paragraph 1 of Article 9. The paragraph in the Memorandum of Understanding relating to Article 16 (Limitation on Benefits) and

the anti-abuse concepts of the treaty is also relevant for

Article 9. The paragraph makes clear that both Contracting States agree that the explicit anti-abuse provisions of the Convention do not limit the applicability of statutory anti-abuse provisions of the Contracting States.

              Article 10. DIVIDENDS