Article IX (Related Persons) deals with transfer pricing and other adjustments of income or taxes or taxes arising under the domestic laws of the Contracting States in connections with transactions or arrangements between related persons.
In the first part of Articles IX(1) and (2), the Treaty affirms that each Contracting State may adjust, in accordance with the arm’s length principle imbedded in its domestic tax laws, the amount of the income, loss or tax payable by a taxpayer as a result of a cross-border transaction or arrangement between related persons in each Contracting State.
The scope of Article IX(1) is effectively limited to transactions and arrangements within multinational enterprises with taxable presence both in the U.S. and Canada.
Article IX(3) to (5) comprise the second part of Article IX, which provides limited relief in respect of transfer pricing or other adjustments dealt with under Article IX(1).
References:
Advisor’s Guide to Canada – U.S. Tax Treaty
By: Vitaly Timokhov, Raymond Montero, David Kerzner
Published by: Thomson Carswell