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COMMENTARY ON Article 9

CONCERNING THE TAXATION OF ASSOCIATED ENTERPRISES

1. This Article deals with adjustments to profits that may be made for tax purposes where transactions have been entered into between associated enterprises (parent and subsidiary companies and companies under common control) on other than arm’s length terms. The Committee has spent considerable time and effort (and continues to do so) examining the conditions for the application of this Article, its consequences and the various methodologies which may be applied to adjust profits where transactions have been entered into on other than arm’s length terms. Its conclusions are set out in the report entitled Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,[^30] which is periodically updated to reflect the progress of the work of the Committee in this area. That report represents internationally agreed principles and provides guidelines for the application of the arm’s length principle of which the Article is the authoritative statement.(Renumbered and amended on 23 October 1997 see History)

Paragraph 12. This paragraph provides that the taxation authorities of a Contracting State may, for the purpose of calculating tax liabilities of associated enterprises, re-write the accounts of the enterprises if, as a result of the special relations between the enterprises, the accounts do not show the true taxable profits arising in that State. It is evidently appropriate that adjustment should be sanctioned in such circumstances. The provisions of this paragraph apply only if special conditions have been made or imposed between the two enterprises. No re-writing of the accounts of associated enterprises is authorised if the transactions between such enterprises have taken place on normal open market commercial terms (on an arm’s length basis).(Renumbered and amended on 23 October 1997 see History)

3. As discussed in the Committee on Fiscal Affairs’ Report on “Thin Capitalisation”,[^31] there is an interplay between tax treaties and domestic rules on thin capitalisation relevant to the scope of the Article. The Committee considers that:the Article does not prevent the application of national rules on thin capitalisation insofar as their effect is to assimilate the profits of the borrower to an amount corresponding to the profits which would have accrued in an arm’s length situation;

the Article is relevant not only in determining whether the rate of interest provided for in a loan contract is an arm’s length rate, but also whether aprima facieloan can be regarded as a loan or should be regarded as some other kind of payment, in particular a contribution to equity capital;

the application of rules designed to deal with thin capitalisation should normally not have the effect of increasing the taxable profits of the relevant domestic enterprise to more than the arm’s length profit, and that this principle should be followed in applying existing tax treaties.

(Renumbered and amended on 23 October 1997 see History)

4. The question arises as to whether special procedural rules which some countries have adopted for dealing with transactions between related parties are consistent with the Convention. For instance, it may be asked whether the reversal of the burden of proof or presumptions of any kind which are sometimes found in domestic laws are consistent with the arm’s length principle. A number of countries interpret the Article in such a way that it by no means bars the adjustment of profits under national law under conditions that differ from those of the Article and that it has the function of raising the arm’s length principle at treaty level. Also, almost all member countries consider that additional information requirements which would be more stringent than the normal requirements, or even a reversal of the burden of proof, would not constitute discrimination within the meaning of Article 24. However, in some cases the application of the national law of some countries may result in adjustments to profits at variance with the principles of the Article. Contracting States are enabled by the Article to deal with such situations by means of corresponding adjustments (see below) and under mutual agreement procedures.(Replaced on 23 July 1992 see History)

Paragraph 25. The re-writing of transactions between associated enterprises in the situation envisaged in paragraph 1 may give rise to economic double taxation (taxation of the same income in the hands of different persons), insofar as an enterprise of State A whose profits are revised upwards will be liable to tax on an amount of profit which has already been taxed in the hands of its associated enterprise in State B. Paragraph 2 provides that in these circumstances, State B shall make an appropriate adjustment so as to relieve the double taxation.(Renumbered on 23 July 1992 see History)

6. It should be noted, however, that an adjustment is not automatically to be made in State B simply because the profits in State A have been increased; the adjustment is due only if State B considers that the figure of adjusted profits correctly reflects what the profits would have been if the transactions had been at arm’s length. In other words, the paragraph may not be invoked and should not be applied where the profits of one associated enterprise are increased to a level which exceeds what they would have been if they had been correctly computed on an arm’s length basis. State B is therefore committed to make an adjustment of the profits of the affiliated company only if it considers that the adjustment made in State A is justified both in principle and as regards the amount.(Renumbered and amended on 23 July 1992 see History)

7. The paragraph does not specify the method by which an adjustment is to be made. OECD member countries use different methods to provide relief in these circumstances and it is therefore left open for Contracting States to agree bilaterally on any specific rules which they wish to add to the Article. Some States, for example, would prefer the system under which, where the profits of enterprise X in State A are increased to what they would have been on an arm’s length basis, the adjustment would be made by re-opening the assessment on the associated enterprise Y in State B containing the doubly taxed profits in order to reduce the taxable profit by an appropriate amount. Some other States, on the other hand, would prefer to provide that, for the purposes of Article 23, the doubly taxed profits should be treated in the hands of enterprise Y of State B as if they may be taxed in State A; accordingly, the enterprise of State B is entitled to relief in State B, under Article 23, in respect of tax paid by its associate enterprise in State A.(Renumbered on 23 July 1992 see History)

8. It is not the purpose of the paragraph to deal with what might be called “secondary adjustments”. Suppose that an upward revision of taxable profits of enterprise X in State A has been made in accordance with the principle laid down in paragraph 1 and suppose also that an adjustment is made to the profits of enterprise Y in State B in accordance with the principle laid down in paragraph 2. The position has still not been restored exactly to what it would have been had the transactions taken place at arm’s length prices because, as a matter of fact, the money representing the profits which are the subject of the adjustment is found in the hands of enterprise Y instead of in those of enterprise X. It can be argued that if arm’s length pricing had operated and enterprise X had subsequently wished to transfer these profits to enterprise Y, it would have done so in the form of, for example, a dividend or a royalty (if enterprise Y were the parent of enterprise X) or in the form of, for example, a loan (if enterprise X were the parent of enterprise Y) and that in those circumstances there could have been other tax consequences (e.g.the operation of a withholding tax) depending upon the type of income concerned and the provisions of the Article dealing with such income.(Renumbered on 23 July 1992 see History)

9. These secondary adjustments, which would be required to establish the situation exactly as it would have been if transactions had been at arm’s length, depend on the facts of the individual case. It should be noted that nothing in paragraph 2 prevents such secondary adjustments from being made where they are permitted under the domestic laws of Contracting States.(Renumbered on 23 July 1992 see History)

10. The paragraph also leaves open the question whether there should be a period of time after the expiration of which State B would not be obliged to make an appropriate adjustment to the profits of enterprise Y following an upward revision of the profits of enterprise X in State A. Some States consider that State B’s commitment should be open-ended — in other words, that however many years State A goes back to revise assessments, enterprise Y should in equity be assured of an appropriate adjustment in State B. Other States consider that an open-ended commitment of this sort is unreasonable as a matter of practical administration. In the circumstances, therefore, this problem has not been dealt with in the text of the Article; but Contracting States are left free in bilateral conventions to include, if they wish, provisions dealing with the length of time during which State B is to be under obligation to make an appropriate adjustment (see on this point paragraphs 39, 40 and 41 of the Commentary on Article 25).(Amended on 17 July 2008 see History)

11. If there is a dispute between the parties concerned over the amount and character of the appropriate adjustment, the mutual agreement procedure provided for under Article 25 should be implemented; the Commentary on that Article contains a number of considerations applicable to adjustments of the profits of associated enterprises carried out on the basis of the present Article (following, in particular, adjustment of transfer prices) and to the corresponding adjustments which must then be made in pursuance of paragraph 2 thereof (see in particular paragraphs 10, 11, 12, 33, 34, 40 and 41 of the Commentary on Article 25).(Amended on 17 July 2008 see History)

Observation on the Commentary12. (Renumbered and amended on 31 March 1994 see History)

13. (Deleted on 31 March 1994 see History)

14. (Deleted on 22 July 2010 see History)

15. TheUnited Statesobserves that there may be reasonable ways to address cases of thin capitalisation other than changing the character of the financial instrument from debt to equity and the character of the payment from interest to a dividend. For instance, in appropriate cases, the character of the instrument (as debt) and the character of the payment (as interest) may be unchanged, but the taxing State may defer the deduction for interest paid that otherwise would be allowed in computing the borrower’s net income.(Added on 23 July 1992 see History)

Reservations on the Article16. TheCzech Republicreserves the right not to insert paragraph 2 in its conventions but is prepared in the course of negotiations to accept this paragraph and at the same time to add a third paragraph limiting the potential corresponding adjustment tobona fidecases.(Amended on 15 July 2014 see History)

17. (Deleted on 15 July 2014 see History)

17.1 Italyreserves the right to insert in its treaties a provision according to which it will make adjustments under paragraph 2 of Article 9 only in accordance with the procedure provided for by the mutual agreement article of the relevant treaty.(Added on 17 July 2008 see History)

18. Australiareserves the right to propose a provision to the effect that, if the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to an enterprise, the competent authority may apply to that enterprise for that purpose the provisions of the taxation law of that State, subject to the qualification that such law will be applied, as far as the information available to the competent authority permits, in accordance with the principles of this Article.(Amended on 29 April 2000 see History)

19. HungaryandSloveniareserve the right to specify in paragraph 2 that a correlative adjustment will be made only if they consider that the primary adjustment is justified.(Amended on 15 July 2014 see History)

Title: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the title read as follows:1 “COMMENTARY ON ARTICLE 9 ON THE TAXATION OF ASSOCIATED ENTERPRISES”

Paragraph 1Corresponds to paragraph 3 as it read before 23 October 1997. On that date paragraph 1 was amended and renumbered as paragraph 2 (see history of paragraph 2) and paragraph 3 was amended and renumbered as paragraph 1 by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. At the same time, the heading preceding paragraph 1 was moved with it. After 23 July 1992 and until 23 October 1997, paragraph 3 read as follows:“3. The Committee has also studied the transfer pricing of goods, technology, trade marks and services between associated enterprises and the methodologies which may be applied for determining correct prices where transfers have been made on other than arm’s length terms. Its conclusions, which are set out in the report entitled “Transfer Pricing and Multinational Enterprises”,1 represent internationally agreed principles and provide valid guidelines for the application of the arm’s length principle which underlies the Article.

[^32]

Paragraph 3 was replaced on 23 July 1992 when paragraph 3 of the 1977 Model Convention was amended and renumbered as paragraph 6 (see history of paragraph 6) and a new paragraph 3 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraphs 30 to 32 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 2Corresponds to paragraph 1 of the 1977 Model Convention as it read before 23 October 1997. On that date paragraph 2 was amended and renumbered as paragraph 3 (see history of paragraph 3), paragraph 1 of the 1977 Model Convention was amended and renumbered as paragraph 2 and the heading preceding paragraph 1 was moved with it by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. In the 1977 Model Convention and until 23 October 1997, paragraph 1 read as follows:“1. This Article deals with associated enterprises (parent and subsidiary companies and companies under common control) and its paragraph 1 provides that in such cases the taxation authorities of a Contracting State may for the purpose of calculating tax liabilities re-write the accounts of the enterprises if as a result of the special relations between the enterprises the accounts do not show the true taxable profits arising in that State. It is evidently appropriate that adjustment should be sanctioned in such circumstances, and this paragraph seems to call for very little comment. It should perhaps be mentioned that the provisions of this paragraph apply only if special conditions have been made or imposed between the two enterprises. No re-writing of the accounts of associated enterprises is authorised if the transactions between such enterprises have taken place on normal open market commercial terms (on an arm’s length basis).”

Paragraph 1 was amended and the heading preceding it was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:“1. This Article deals with associated enterprises (parent and subsidiary companies and companies under common control) and provides that in such cases the taxation authorities of a Contracting State may for the purpose of calculating tax liabilities re-write the accounts of the enterprises if as a result of the special relations between the enterprises the accounts do not show the true taxable profits arising in that country. It is evidently appropriate that rectification should be sanctioned in such circumstances, and the Article seems to call for very little comment. It should perhaps be mentioned that the provisions of the Article apply only if special conditions have been made or imposed between the two enterprises. No re-writing of the accounts of associated enterprises is authorised if the transactions between such enterprises have taken place on normal open market commercial terms.”

Paragraph 3Corresponds to paragraph 2 as it read before 23 October 1997. On that date paragraph 3 was amended and renumbered as paragraph 1 (see history of paragraph 1) and paragraph 2 was amended, by replacing the footnote thereto, and renumbered as paragraph 3 by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, the footnote to paragraph 2 read as follows:“1 Adopted by the Council of the OECD on 26 November 1986. Published in Thin Capitalisation — Taxation of Entertainers, Artistes and Sportsmen, in “Issues in International Taxation” No. 2, OECD, Paris, 1987.”

Paragraph 2 was replaced on 23 July 1992 when paragraph 2 of the 1977 Model Convention was renumbered as paragraph 5 (see history of paragraph 5) and a new paragraph 2 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraphs 48, 50 and 84 of a previous report entitled “Thin Capitalisation” (adopted by the OECD Council on 26 November 1986). At the same time, the heading preceding paragraph 2 was moved with it.

Paragraph 4Replaced on 23 July 1992 when paragraph 4 of the 1977 Model Convention was renumbered as paragraph 7 (see history of paragraph 7) and a new paragraph 4 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraphs 30 to 32 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 5Corresponds to paragraph 2 of the 1977 Model Convention as it read before 23 July 1992. On that date paragraph 5 of the 1977 Model Convention was renumbered as paragraph 8 (see history of paragraph 8) and paragraph 2 of the 1977 Model Convention was renumbered as paragraph 5 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 2 was moved with it.

Paragraph 2 and the heading preceding it were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 6Corresponds to paragraph 3 of the 1977 Model Convention as it read before 23 July 1992. On that date paragraph 6 of the 1977 Model Convention was renumbered as paragraph 9 (see history of paragraph 9) and paragraph 3 of the 1977 Model Convention was amended and renumbered as paragraph 6 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of a previous report entitled “Transfer Pricing, Corresponding Adjustments and the Mutual Agreement Procedure” (adopted by the OECD Council on 24 November 1982). In the 1977 Model Convention and until 23 July 1992, paragraph 3 read as follows:“3. It should be noted, however, that an adjustment is not automatically to be made in State B simply because the profits in State A have been increased; the adjustment is due only if State B considers that the figure of adjusted profits correctly reflects what the profits would have been if the transactions had been at arm’s length. In other words, the paragraph does not seek to avoid a double charge to tax which arises where the profits of one associated enterprise are increased to a level which exceeds what they would have been if they had been correctly computed on an arm’s length basis. State B is therefore committed to make an adjustment of the profits of the affiliated company only if it considers that the adjustment made in State A is justified both in principle and as regards the amount.”

Paragraph 3 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 7Corresponds to paragraph 4 of the 1977 Model Convention as it read before 23 July 1992. On that date paragraph 7 of the 1977 Model Convention was amended and renumbered as paragraph 10 (see history of paragraph 10) and paragraph 4 of the 1977 Model Convention was renumbered as paragraph 7 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 4 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 8Corresponds to paragraph 5 of the 1977 Model Convention as it read before 23 July 1992. On that date paragraph 8 of the 1977 Model Convention was amended and renumbered as paragraph 11 (see history of paragraph 11) and paragraph 5 of the 1977 Model Convention was renumbered as paragraph 8 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 5 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 9Corresponds to paragraph 6 of the 1977 Model Convention as it read before 23 July 1992. On that date paragraph 9 of the 1977 Model Convention was renumbered as paragraph 12 (see history of paragraph 18) and paragraph 6 was renumbered as paragraph 9 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 9 was moved with it.

Paragraph 6 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 10Amended on 17 July 2008, by replacing the cross-references to paragraphs “28, 29 and 30” of the Commentary on Article 25 with “39, 40 and 41” respectively, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “Improving the Resolution of Tax Treaty Disputes” (adopted by the OECD Committee on Fiscal Affairs on 30 January 2007). After 23 July 1992 and until 17 July 2008, paragraph 10 read as follows:“10. The paragraph also leaves open the question whether there should be a period of time after the expiration of which State B would not be obliged to make an appropriate adjustment to the profits of enterprise Y following an upward revision of the profits of enterprise X in State A. Some States consider that State B’s commitment should be open-ended — in other words, that however many years State A goes back to revise assessments, enterprise Y should in equity be assured of an appropriate adjustment in State B. Other States consider that an open-ended commitment of this sort is unreasonable as a matter of practical administration. In the circumstances, therefore, this problem has not been dealt with in the text of the Article; but Contracting States are left free in bilateral conventions to include, if they wish, provisions dealing with the length of time during which State B is to be under obligation to make an appropriate adjustment (see on this point paragraphs 28, 29 and 30 of the Commentary on Article 25).”

Paragraph 10 as it read after 23 July 1992 corresponded to paragraph 7 of the 1977 Model Convention. On 23 July 1992 paragraph 10 of the 1977 Model Convention was renumbered as paragraph 13 (see history of paragraph 13) and paragraph 7 of the 1977 Model Convention was renumbered as paragraph 10 and amended, by adding the reference to the Commentary on Article 25 at the end thereof, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 7 read as follows:“7. The paragraph also leaves open the question whether there should be a period of time after the expiration of which State B would not be obliged to make an appropriate adjustment to the profits of enterprise Y following an upward revision of the profits of enterprise X in State A. Some States consider that State B’s commitment should be open-ended — in other words, that however many years State A goes back to revise assessments, enterprise Y should in equity be assured of an appropriate adjustment in State B. Other States consider that an open-ended commitment of this sort is unreasonable as a matter of practical administration. In the circumstances, therefore, this problem has not been dealt with in the text of the Article; but Contracting States are left free in bilateral conventions to include, if they wish, provisions dealing with the length of time during which State B is to be under obligation to make an appropriate adjustment.”

Paragraph 7 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 11Amended on 17 July 2008 by replacing the cross-references to “9, 10, 22, 23, 29 and 30 of the Commentary on Article 25” with “10, 11, 12, 33, 34, 40 and 41” by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “Improving the Resolution of Tax Treaty Disputes” (adopted by the OECD Committee on Fiscal Affairs on 30 January 2007). After 23 July 1992 and until 17 July 2008, paragraph 11 read as follows:“11. If there is a dispute between the parties concerned over the amount and character of the appropriate adjustment, the mutual agreement procedure provided for under Article 25 should be implemented; the Commentary on that Article contains a number of considerations applicable to adjustments of the profits of associated enterprises carried out on the basis of the present Article (following, in particular, adjustment of transfer prices) and to the corresponding adjustments which must then be made in pursuance of paragraph 2 thereof (see in particular paragraphs 9, 10, 22, 23, 29 and 30 of the Commentary on Article 25).”

Paragraph 11 as it read after 23 July 1992 corresponded to paragraph 8 of the 1977 Model Convention. On 23 July 1992 paragraph 11 of the 1977 Model Convention was amended and renumbered as paragraph 16 (see history of paragraph 16), the heading preceding paragraph 11 was moved with it and paragraph 8 of the 1977 Model Convention was amended and renumbered as paragraph 11 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 8 read as follows:“8. If there is a dispute between the interested parties over the character and amount of the appropriate adjustment, the matter will be dealt with in the same way as any other question of fact; if necessary the competent authorities may consult each other.”

Paragraph 8 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 12Amended and renumbered as paragraph 18 (see history of paragraph 18) on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994.

Paragraph 13Deleted on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 13 read as follows:“13. Australiawould wish that, in this Article, there be provision that will permit resort to domestic law in relation to the taxation of the profits of an insurance enterprise.”

Paragraph 13 as it read after 23 July 1992 corresponded to paragraph 10 of the 1977 Model Convention. On 23 July 1992 paragraph 10 of the 1977 Model Convention was renumbered as paragraph 13 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 10 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 14Deleted on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 23 July 1992 and until 22 July 2010, paragraph 14 read as follows:“14. Germanydoes not agree with the use of the term “arm’s length profits” in paragraph 2 above.”

Paragraph 14 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 89 of a previous report entitled “Thin Capitalisation” (adopted by the OECD Council on 26 November 1986).

Paragraph 15Added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 16Amended on 15 July 2014, by deleting Hungary from the list of countries making the reservation, by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 15 July 2005 and until 15 July 2014, paragraph 16 read as follows:“16. TheCzech RepublicandHungaryreserve the right not to insert paragraph 2 in their conventions but are prepared in the course of negotiations to accept this paragraph and at the same time to add a third paragraph limiting the potential corresponding adjustment tobona fidecases.”

Paragraph 16 was previously amended on 15 July 2005, by deleting Finland, Mexico, Norway and Switzerland from the list of countries making the reservation, by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 29 April 2000 and until 15 July 2005, paragraph 16 read as follows:“16. TheCzech Republic,Finland,Hungary,Mexico,NorwayandSwitzerlandreserve the right not to insert paragraph 2 in their conventions. TheCzech Republic, however, is prepared in the course of negotiations to accept this paragraph and At the same time, to add a third paragraph limiting the potential corresponding adjustment to bona fide cases.”

Paragraph 16 was previously amended on 29 April 2000, by deleting Portugal from the list of countries making the reservation, by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 23 October 1997 and until 29 April 2000, paragraph 16 read as follows:“16. TheCzech Republic,Finland,Hungary,Mexico,Norway,PortugalandSwitzerlandreserve the right not to insert paragraph 2 in their conventions. TheCzech Republic, however, is prepared in the course of negotiations to accept this paragraph and At the same time, to add a third paragraph limiting the potential corresponding adjustment to bona fide cases.”

Paragraph 16 was previously amended on 23 October 1997, by changing the list of countries making the reservation to delete Belgium and add the Czech Republic and Hungary, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 21 September 1995 and until 23 October 1997, paragraph 16 read as follows:“16. Belgium,Finland,Mexico,Norway,PortugalandSwitzerlandreserve the right not to insert paragraph 2 in their conventions.”

Paragraph 16 was previously amended on 21 September 1995, by adding Mexico to the list of countries making the reservation, by the report entitled “The 1995 Update to the Model Tax Convention” adopted by the OECD Council on 21 September 1995.

Paragraph 16 as it read after 23 July 1992 corresponded to paragraph 11 of the 1977 Model Convention. On 23 July 1992 paragraph 11 of the 1977 Model Convention was amended and renumbered as paragraph 16 and the heading preceding paragraph 11 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 11 read as follows:“11. Belgium,Finland,Germany,Italy,Japan,PortugalandSwitzerlandreserve the right not to insert paragraph 2 in their conventions.”

Paragraph 11 and the heading preceding it were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 17Deleted on 15 July 2014 by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 17 July 2008 and until 15 July 2014, paragraph 17 read as follows:“17. Germanyreserves the right not to insert paragraph 2 in its conventions but is prepared in the course of negotiations to accept this paragraph based on Germany’s long-standing and unaltered understanding that the other Contracting State is only obliged to make an adjustment to the amount of tax to the extent that it agrees, unilaterally or in a mutual agreement procedure, with the adjustment of profits by the first-mentioned State.”

Paragraph 17 was added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 17 as it read before 15 July 2005 was deleted by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 29 April 2000 and until 15 July 2005, paragraph 17 read as follows:“17. With respect to paragraph 2,Belgium,France,Hungary,PolandandPortugalreserve the right to specify in their conventions that they will proceed to a correlative adjustment if they consider this adjustment to be justified.”

Paragraph 17 was amended on 29 April 2000, by adding Portugal to the list of countries making the reservation, by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 23 October 1997 and until 29 April 2000, paragraph 17 read as follows:“17. With respect to paragraph 2,Belgium,France,HungaryandPolandreserve the right to specify in their conventions that they will proceed to a correlative adjustment if they consider this adjustment to be justified.”

Paragraph 17 was previously amended on 23 October 1997, by adding Belgium, Hungary and Poland to the list of countries making the reservation, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, paragraph 17 read as follows:“17. With respect to paragraph 2,Francereserves the right to specify in its conventions that it will proceed to a correlative adjustment if it considers this adjustment to be justified.”

Paragraph 17 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 17.1Added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 18Amended on 29 April 2000, by deleting New Zealand from the list of countries making the reservation, by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 23 October 1997 and until 29 April 2000, paragraph 18 read as follows:“18. AustraliaandNew Zealandreserve the right to propose a provision to the effect that, if the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to an enterprise, the competent authority may apply to that enterprise for that purpose the provisions of the taxation law of that State, subject to the qualification that such law will be applied, as far as the information available to the competent authority permits, in accordance with the principles of this Article.”

Paragraph 18 was previously amended on 23 October 1997 by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 31 March 1994 and until 23 October 1997, paragraph 18 read as follows:“18. In negotiating conventions with other member countries,AustraliaandNew Zealandreserve the right to propose a provision to the effect that, if the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to an enterprise, the competent authority may apply to that enterprise for that purpose the provisions of the taxation law of that State, subject to the qualification that such law will be applied, as far as the information available to the competent authority permits, in accordance with the principles of this Article.”

Paragraph 18 as it read before 31 March 1994 corresponded to paragraph 12. On 31 March 1994 paragraph 12 was amended and renumbered as paragraph 18 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 12 read as follows:“12. In negotiating conventions with other member countries,AustraliaandNew Zealandwould wish to be free to propose a provision to the effect that, if the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to an enterprise, the competent authority may apply to that enterprise for that purpose the provisions of the taxation law of that State, subject to the qualification that such law will be applied, as far as the information available to the competent authority permits, in accordance with the principles of this Article.”

Paragraph 12 as it read after 23 July 1992 corresponded to paragraph 9 of the 1977 Model Convention. On 23 July 1992 paragraph 12 of the 1977 Model Convention was deleted, paragraph 9 of the 1977 Model Convention was renumbered as paragraph 12 and the heading preceding paragraph 9 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 9 of the 1977 Model Convention and the heading preceding it were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

In the 1977 Model Convention and until it was deleted on 23 July 1992, paragraph 12 read as follows:“12. TheUnited Statesbelieves that this Article should apply to all related persons, not just an enterprise of one Contracting State and a related enterprise of the other Contracting State, and that it should apply to “income, deductions, credits or allowances”, not just to “profits”.”

Paragraph 12 of the 1977 Model Convention was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 19Amended on 15 July 2014, by adding Hungary to the list of countries making the reservation, by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 22 July 2010 and until 15 July 2014, paragraph 19 read as follows:“19. Sloveniareserves the right to specify in paragraph 2 that a correlative adjustment will be made only if it considers that the primary adjustment is justified.”

Paragraph 19 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 19 as it read before 17 July 2008 was deleted by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 29 April 2000 and until 17 July 2008, paragraph 19 read as follows:“19. Canadareserves the right not to insert paragraph 2 in its conventions unless the commitment to make an adjustment is subject to certain time limitations and does not apply in the case of fraud, wilful default or neglect.”

Paragraph 19 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.