Article 9: Associated Enterprises
Learning Objectives: You should
Have a sense of the application of the associated enterprise article
Understand the concept of transfer pricing, the notion that profits are allocated in the way they would be between independent enterprises, and the OECD’s arm’s length principle
Relationships and Administration
Associated Enterprises
When are enterprises associated?
What are the consequences of association
United Nations Model Double Taxation Convention between Developed and Developing Countries (2017 Update)
Article 9
Associated Enterprises
- Where:
(a) 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
(b) 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,
and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those 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.
2 Where a Contracting State includes in the profits of an enterprise of that State — and taxes accordingly — profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of the Convention and the competent authorities of the Contracting States shall, if necessary, consult each other.
3 The provisions of paragraph 2 shall not apply where judicial, administrative or other legal proceedings have resulted in a final ruling that by actions giving rise to an adjustment of profits under paragraph 1, one of the enterprises concerned is liable to penalty with respect to fraud, gross negligence or wilful default.
OECD Model Tax Convention on Income and on Capital (2017 Update)
Article 9
Associated Enterprises
- Where
a) 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
b) 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,
and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those 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.
2 Where a Contracting State includes in the profits of an enterprise of that State -- and taxes accordingly -- profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.
Article 9 Bibliography
Arnold, Brian J. “Canada: McKesson Canada Corporation vs. The Queen – Judges are Human” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 213 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Baistrocchi, Eduardo and Ian Roxan (eds), Resolving Transfer Pricing Disputes: a Global Analysis (Cambridge University Press 2012).
Brauner, Yariv. “USA: Xilinx Inc Et al v. Commissioner” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 233 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Bullen, Andreas, Arm’s Length Transaction Structures – Recognizing and Restructuring Controlled Transaction in Transfer Pricing (IBFD 2011) <https://www.ibfd.org/sites/ibfd.org/files/content/pdf/14_034_arms_length_transactions_final_web.pdf>
Cooper, Graeme. “Australia: Transfer Pricing” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law around the Globe 2012 (Vienna: Linde, 2013) 115 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2012>
Duff, David G. “Canada: Judicial Review of Taxpayer’s Request for Competent Authority Assistance under Canada-United States Tax Treaty” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 85 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Duff, David G. “Canada: Limitation Period for Secondary Transfer Pricing Adjustments” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 375 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Dwarkasing, Ramon SJ. “The Concept of Associated Enterprises” (2013) 41:8/9 Intertax 412 <https://www.kluwerlawonline.com/abstract.php?area=Journals&id=TAXI2013038>
Eriksson, Magnus & Fredrik Richter. “Thin Capitalisation: A Comparison of the Application of Article 9.1 of the OECD Model Tax Convention and the Swedish Adjustment Rule to Thin Capitalisation” (Thesis, 2006) [unpublished].
Hamaekers, Hubert. “Arm’s Length: How Long?” in Kees van Raad, ed, International and Comparative Taxation,Essays in Honour of Klaus Vogel (London, UK: Kluwer Law International, 2002) 29, online: <http://www.worldcat.org/title/international-and-comparative-taxation-essays-in-honour-of-klaus-vogel/oclc/45791440/viewport>
Hansen, Søren Friis. “Denmark: ‘Arm’s Length’ under Article 9(1) of the Denmark-Czech Republic Tax Treaty” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 95 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Helminen, Marjaana. “Finland: Determining the Arm’s Length Interest Rate of an Intra-Group Loan” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 215 <https://www.ibfd.org/IBFD-Products/Journal-Articles/European-Taxation/collections/et/html/et_2011_04_fi_1.html>
Helminen, Marjaana. “Finland: KHO 2014/2117 (119) – Does Article 9 Allow Reclassification of Hybrid Debt as Equity in Finland” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 221 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
J. Hagelin; S. Muto, "Japan - The OECD/G20 Base Erosion and Profit Shifting Initiative and the 2019 Tax Reform in Japan: Revisions to the Earnings Stripping Rules and the Introduction of Hard-to-Value Intangibles into Transfer Pricing" (2019) 73:5 Bulletin for International Taxation https://www.ibfd.org/IBFD-Products/Journal-Articles/Bulletin-for-International-Taxation/collections/bit/html/bit_2019_05_jp_1.html
Joseph Bankman, Mitchell A. Kane, and Alan Skyes , "Collecting the Rents: The Global Battle to Capture MNE Profits", NYU Centre for Law, Economics and Organization, Law and Economics Research Paper Series, Working Paper No. 18-38.
Kemmeren, Eric CCM. “Netherlands: Thin Capitalization Rules are not Inconsistent with DTCs and EU Law” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2013 (Vienna: Linde, 2014) 129 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2013>
Kobetsky, Michael "The Transfer-Pricing Profit-Split Method After BEPS: Back to the Future" (2019) 67:4 Canadian Tax Journal https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3510267&dgcid=ejournal_htmlemail_tax:law:international:comparative:tax:ejournal_abstractlink
Krever, Richard & Jiaying Zhang. “Australia: Resolving the Application of Competing Treaty and Domestic Law Transfer Pricing Rules” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 197 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Kristina I. Novak, Mark P. Thomas and Cym H. Lowell, “United States: Treatment of Intangibles under New US Tax Regime” (July/August 2018) Vol.25, No.4 International Transfer Pricing Journal 257-66
Li, Jinyan. “Soft Law, Hard Realities and Pragmatic Suggestions: Critiquing the OECD Transfer Pricing Guidelines” in Wolfgang Schon & Kai A Konrad, eds, Fundamentals of International Transfer Pricing in Law and Economics (Berlin: Springer, 2012) 71 <https://link.springer.com/content/pdf/10.1007%2F978-3-642-25980-7_5.pdf>
MacPherson, Darcy L et al. “Should the CRA be able to Pull the Rug Out from Under Multinational Transfer Pricing Choices?: A Domestic Contractual Analysis” (2014) 14 Asper Rev Intl Bus & Trade L 67 <http://asperchairwp.bryan-schwartz.com/wp-content/uploads/2017/04/14AsperRevIntlBusTradeL67-2-55.pdf>1077-1105
Maisto, Guglielmo. “OECD Revision of Chapters I-III and IX of the Transfer Pricing Guidelines: Some Comments on Hierarchy of Methods and Re-characterization of Actual Transactions Undertaken” in Dennis Weber & Stef van Weeghel, eds, The 2010 OECD Updates: Model Tax Convention & Transfer Pricing Guidelines: A Critical Review (Alphen on the Rhine: Kluwer Law International, 2011) 173 <https://lrus.wolterskluwer.com/store/product/the-2010-oecd-updates-model-tax-convention-and-transfer-pricing-guidelines-a-critical-review/>
Nerudová, Danuše. “Czech Republic: Thin Capitalization Rules and Associated Enterprises” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 101 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
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Richard S. Collier & Joseph L. Andrus, "Transfer Pricing and the Arm's Length Principle after BEPS" (Oxford University Press, 2017)
Russo, Antonio. “Chapters I and III of the 2010 OECD Guidelines: Capita Selecta” in Dennis Weber & Stef van Weeghel, eds, The 2010 OECD Updates: Model Tax Convention & Transfer Pricing Guidelines: A Critical Review (Alphen on the Rhine: Kluwer Law International, 2011) 161 <https://lrus.wolterskluwer.com/store/product/the-2010-oecd-updates-model-tax-convention-and-transfer-pricing-guidelines-a-critical-review/>
Rust, Alexander. “Germany: Hidden Profit Distributions under the German-Netherlands Tax Treaty and Transfer Pricing” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 79 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
S. Huibregtse; P. Ottoni; S.C. Muñoz Rodríguez, "OECD - How Technology Is Changing Taxation in Latin America" (2019) 73:3 Bulletin for International Taxation https://www.ibfd.org/IBFD-Products/Journal-Articles/Bulletin-for-International-Taxation/collections/bit/html/bit_2019_03_o2_2.html
Schoen, Wolfgang. “Transfer Pricing, the Arm’s Length Standard and European Union Law” (2011) Max Planck Institute for Tax Law and Public Finance Working Paper 2011-08, online: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1930237>
Sengputa, DP. “India: Whether Transactions between two Resident Companies are within the Scope of India’s Transfer Pricing Regulation: The Case of Vodafone (India) Services Pvt Ltd” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 229 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Silberztein, Caroline. “The 2010 Update to the OECD Transfer Pricing Guidelines” in Dennis Weber & Stef van Weeghel, eds, The 2010 OECD Updates: Model Tax Convention & Transfer Pricing Guidelines: A Critical Review (Alphen on the Rhine: Kluwer Law International, 2011) 147 <https://lrus.wolterskluwer.com/store/product/the-2010-oecd-updates-model-tax-convention-and-transfer-pricing-guidelines-a-critical-review/>
Teixeira, Renata R. “Tax Treaty Consequences of Secondary Transfer Pricing Adjustments” (2009) 37:8/9 Intertax 449 <https://www.kluwerlawonline.com/abstract.php?area=Journals&id=TAXI2009046>
Variychuk, Elena. “Russia: Can Intra-Group Service Arrangements and Cost-Contribution Agreements Work in Russia?” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 223 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Wittendorff, Jens, ‘Aggregation of Transactions in Transfer Pricing: Glaxo and Other Cases’ (2013) 69 Tax Notes Int 183.
Article 9 Cases
Alberta Printed Circuits Ltd v Her Majesty the Queen, 29 April 2010, 2011 TCC 232.
AMP of Canada Ltd v R, [1987] 1 CTC 256 (FCTD).
Arbitration Appeals Court, 15 December 2010, No A56-94331/2009 (Russia).
Bundesfinanzhof [Federal Tax Court], 11 October 2012, No I R 75/11, IStR (2013).
Bundesfinanzhof (Federal Fiscal Court), I R 6/09, 8 September 2010, Entscheidungen der Finanzgerichte, 2009, 509 (Germany).
Canada (National Revenue) v Sifto Canada Corp, 2014 FCA 140.
Ciba-Geigy Corporation v Commissioner of Internal Revenue, 1 August 1985, 85 TC 172 (1985) (United States).
Commissioners for Her Majesty’s Revenue and Customs, PKR 421 (Kuala Lumpur), 10 August 1987, (1988) 1 MSTC 160 (Malaysia).
Commissioner of Taxation v SNF (Australia) Pty Ltd, [2011] FCAFC 74 (Australia).
Conseil d’Etat (Supreme Administrative Court), 34,430-36,880, 14 March 1984, Droit Fiscal 1984, 36m 45, 1352 (France).
Conseil d’État (Supreme Administrative Court), 55,543, 2 November 1987, Revue de Jurisprudence Fiscale 1988, 1, 22 (France).
Corte Suprema di Cassazione (Supreme Court), 22023, 22 June 2006 (Italy).
DHL Corporation and Subsidiaries v Commissioner of Internal Revenue, 30 December 1998, 76 TCM (CCH) 1122 (United States).
Gerechtshof Den Haaf (Court of Appeal, the Hague), 87/84 M III, 13 June 1984, Beslissingen in Belastingzaken, 1986, 13 (Netherlands).
Hoge Raad der Nederlanden [Supreme Court of the Netherlands], 21 May 2011, No 10/05268 (Netherlands).
Hoge Raad der Nederlanden (Supreme Court of the Netherlands), 36.446, 28 June 2002, Beslissingen in Belastingzaken, 2002, 343c* (Netherlands).
GlaxoSmithKline Inc v Her Majesty the Queen, 18 October 2012, 2012 SCC 52
Højesteret [Supreme Court], 28 June 2013, No SKM2013.699.HR (Denmark).
Korkein Hallinto-Oikeus[Supreme Administrative Court of Finland], 3 November 2010, No 2010/3092 (73) (Finland).
Korkein Hallinto-Oikeus [Supreme Administrative Court of Finland], 3 July 2014, No 2014/2117 (119) (Finland).
McKesson Canada Corporation v The Queen, 2014 TCC 266.
Nejvyssi Spravni Soud (Supreme Administrative Court), 1 Afs 99/2012-52, 13 March 2013 (Czech Republic).
Nejvyssi Spravni Soud (Supreme Administrative Court), 2 Afs 42/2008-62, 30 April, 2009 (Czech Republic).
Nejvyssi Spravni Soud (Supreme Administrative Court), 2 Afs 108/2004-106, 10 February 2005 (Czech Republic).
Regreingsratten (Supreme Administrative Court), 117-1989, 22 October 1991, Regeringsrattens arsbok, 1991, 107 (Sweden).
Roche Products Pty Ltd v Commissioner of Taxation, 22 July 2008, [2008] AATA 639 (Australia).
SNF (Australia) Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia, (2010) 79 ATR 193 (Australia).
Specialty Manufacturing Ltd v Canada, [1999] 3 CTC 82 (FCA).
Sundog Distributing Inc v The Queen, 2010 TCC 392.
Supreme Administrative Court, No 2 Afs 71/2012-87 (Czech Republic).
Teletech Canada Inc v Minister of National Revenue, 2013 FC 572.
Tribunal Fiscal de la Nacion (Federal Tax Court), 20.972-I, 15 August 2007, Revista de la Asociacion Argentina de Estudios Fiscales, 2009, 27/5/2009 (Argentina).
Vodafone India Services Pvt Ltd v Assistant Commissioner of Income Tax, [2014-TII-296-ITAT-KUM-TP] (SC India).
Xilinx Inc et al v Commissioner, 598 F (3d) 1191 (9th Cir Cal 2010).