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Ragna Flækøy Skjåkødegård |
In January 2013, Norway and the US entered into a competent authority agreement, clarifying in which cases fiscally transparent entities are entitled to benefits under the Convention between the US and Norway for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Property (the treaty). The treaty's Paragraph 1 (a)(ii) of Article 3, on fiscal residence, states that the term "resident of Norway" means a partnership, estate or trust only to the extent that the income derived by such person is subject to Norwegian tax as the income of a resident. The corresponding paragraph regarding the US, Paragraph 1 (b)(ii) of Article 3, states that the term "resident of the United States" means a partnership, estate or trust only to the extent that such income is subject to tax as the income of a resident.
The competent authority agreement states that when applying the above mentioned paragraphs of Article 3, income from sources within Norway or the US, received by an entity, wherever organised, that is treated as fiscally transparent under the laws of either Norway or the US, will be treated as income derived by a resident of the other contracting state to the extent that such income is subject to tax as the income of a resident of that other contracting state.
The agreement provides the following example: If a resident of the US is a partner in a partnership or a member of a limited liability company (LLC) organised in the US, and the entity is treated for US federal tax purposes as a partnership, the resident of the US would be entitled to benefits of the treaty on the income that the resident derives from Norway through the partnership to the extent of the US resident's distributive share of that income.
The agreement states that for an entity to be fiscally transparent, the income subject to tax in the hands of the resident must have the same source and character as if the income were received directly by the resident. It is not relevant for the application of the agreement whether the entity is fiscally transparent for tax purposes in the other contracting state, or in any third jurisdiction in which the entity is organised.
Ragna Flækøy Skjåkødegård (rskjakodegard@deloitte.no)
Deloitte, Oslo
Tel: +47 23 27 96 00
Website: www.deloitte.no
