Article 9: Associated Enterprises - Global Tax Treaty Commentaries

Abstract

The allocation norm regarding the profits of associated enterprises, now encapsulated in Article 9 of the OECD and UN Model Conventions, has been engaged in a creeping, spiral evolution since the beginning of the 20th century: from standards to rules, and then back to standards. The spiral trajectory of the allocation norm can be divided into 62 core stages representing, in turn, the rise, decline and fall of each of its three sequential eras (standards–rules–standards) over a period of 114 years running from 1908 to 2022. Two central driving forces may explain the spiral evolution of the allocation norm: first, a power shift from the UK to the US in the 1930s and then, an emerging power shift from the West to the East (particularly to China and India) beginning in the early 21st century; second, technological innovation impacting the dynamics of multinational enterprises, where the international trade of intangibles in North America and Europe since the 1960s is a case in point.

Keywords: international taxation, transfer pricing, intangibles, disputes