Article 9. ASSOCIATED ENTERPRISES

This Article incorporates into the Convention the general principles of section 482 of the Code. It provides that when associated enterprises 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 enterprises to reflect what the income or tax of these enterprises with respect to such transactions would have been had an arm's-length relationship existed.

Paragraph 1 deals with circumstances where an enterprise of a Contracting State is related to an enterprise of the other Contracting State and those related enterprises make arrangements or impose conditions between themselves in their commercial or financial relations that differ from those that would be made between independent persons. Under those circumstances, the Contracting States may adjust the income (or loss) of the enter­ prises to reflect the income that would have been taken into

account in the absence of such a relationship. The paragraph

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specifies the meaning of the term "related enterprises" in this
context. An enterprise of one Contracting State is related to an
enterprise of the other Contracting State if either enterprise
participates, directly or indirectly, in the management, control,
or capital of the other enterprise. The enterprises are also
related if the same persons participate, directly or indirectly,
in the management, control, or capital of both enterprises. The
term "control" includes any kind of control, whether or not

legally enforceable and however exercised or exercisable. Paragraph 1 contains additional language that clarifies that

cost-sharing or general services agreements between associated
enterprises are not necessarily to be included among the condi­
tions "made or imposed between two enterprises" referred to in
the first sentence of paragraph **1.** Thus, the mere presence of a
cost-sharing, or similar, agreement between two related parties

does not by itself indicate that the two parties have entered into a non-arm's length transaction giving rise to an adjustment

under paragraph **1.** However, any such arrangement may be examined
to determine whether,. in fact, it does constitute such a transac­

tion. Paragraph 2 provides that where a contracting State has made

an adjustment consistent with the provisions of paragraph **1** and

the other Contracting State agrees that the adjustment was appropriate, that other Contracting State must make a corre­ sponding adjustment to the tax liability of the related person in

that other Contracting State. Where relevant, the Contracting

State making such an adjustment will take the other provisions of

the Convention into account. For example, if the effect of a

corresponding adjustment is to treat an Austrian corporation as

having made a distribution of profits to its **U.S.** parent
corporation the provisions of Article **10** (Dividends) will apply,

and Austria may impose a 5 percent withholding tax on the

dividend. The competent authorities are authorized to consult,
if necessary, to resolve any differences in the application of

these provisions.

**If** a corresponding adjustment is made under paragraph 2, it
is to be implemented, pursuant to paragraph 2 of Article 24

(Mutual Agreement Procedure), notwithstanding any time limits or other procedural limitations in the law of the Contracting State making the adjustment. The saving clause of paragraph 4 of Article 1 (Personal Scope) does not apply to paragraph 2 of Article 9 (see the exceptions to the saving clause in subpara­

graphs 5(a) of Article **1).** Thus, even if the statute of limita­

tions has run, or there is a closing agreement between the Internal Revenue Service and the taxpayer, a refund of tax can be

made for purposes of implementing a corresponding adjustment.

Statutory or procedural limitations, however, cannot be overrid­

den to impose additional tax, because, under subparagraph 2(a) of

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