Article 1. TAXES COVERED

This article designates the taxes of the respective States which are the subject of the proposed Convention. With respect to the United States, the taxes included are the United States Federal income tax imposed by the Internal Revenue Code. This includes, for example, the surtax and would also include such taxes as the tempo­ rary surcharge which was in force from 1968 to 1970. However, the pro­ posed Convention is not intended to apply to taxes which are in the nature of a penalty such as the taxes imposed under section 531 (accumulated earn­ ings tax) and section 541 (personal holding companies tax) of the Inter­ nal Revenue Code.

With respect to Norway, the taxes included are (1) the national and mu­ nicipal taxes on income (including contributions to the tax equalization fund) and capital; (2) the national dues on the salaries of nonresident artists; (3) the special tax in aid of developing countries; (4) the munici­ pal tax on real property; and (5) the seamen’s tax. See Article 16 and the discussion of that Article below for a statement of which of these taxes are covered by the United States foreign tax credit.

Individuals domiciled or perma­ nently resident in Norway are nor­ mally liable for the national and mu­ nicipal taxes on income from all

1 It is the practice of the Treasury Department to

prepare for the use of the Senate and other interested

persons a Technical Explanation of the tax conven­

tions which are submitted to the Senate for its ad­

vice and consent to ratification.

A new Income Tax Convention with Norway was

signed December 3, 1971. and submitted by the Presi­

dent to the Senate on February 3, 1972. The Senate

Committee on Foreign Relations held hearings on

August 2, 1972, and this Technical Explanation was

submitted on August 11, 1972. The Senate voted its

advice and consent on August 11, 1972, and instru­

ments of ratification were exchanged on September

29, 1972, the convention thereby entering into force

two months thereafter on November 29, 1972.

2 Page 669; Senate Executive Report No. 92-30, page 682.

which is imposing the tax. However, in a situation where a term has a dif­ ferent meaning under the laws of Norway and the United States or where the meaning under the laws of one or both of the States is not clear,

the competent authorities may agree on a uniform definition. This is made clear in paragraph (2) of this article. While treaties in the past did not specify the power of the competent authorities to resolve such differences in definitions, this power is neverthe­ less inherent in the authority set forth in the mutual agreement article of these treaties to resolve “difficulties and doubts.”

This article defines geographical U.S. and geographical Norway to in­ clude their respective continental shelves. The addition of a definition of the continental shelf is intended to clarify what the Contracting States consider to be included within their respective jurisdictions to tax. The definition follows section 638 of the Internal Revenue Code and defines the United States continental shelf as the seabed and subsoil of the adjacent submarine areas over which the

United States exercises exclusive rights in accordance with international law for the purpose of exploration and ex­ ploitation of the natural resources of such area, but only to the extent that the person, property, or activity to which the proposed Convention is to be applied is connected with such ex­ ploration or exploitation. For example, the income earned by a ship and its crew engaged in taking seismograph soundings on the United States con­ tinental shelf will be treated for tax purposes the same as the income from a comparable activity on the land of one of the States of the United States. A comparable definition is used in the case of Norway. The definition of the continental shelf in the case of the United States only includes the conti­ nental shelf surrounding the 50 States. Thus, for example, the continental shelf surrounding Puerto Rico is not included. If the treaty were extended

well as foreign companies or organiza­

tions which engage or participate in business or other commercial activity which is carried on or managed in Norway) are liable to taxation at both

the national and municipal levels. The national tax on income is levied at the rate of 26.5 percent on the undistrib­ uted profits of Norwegian companies,

distributed profits being subject to the national income tax only in the hands of the recipients. Companies are liable for the municipal income tax at the same flat percentage rate applied by municipalities on the income of indi­ viduals (usually the maximum rate of 20 percent). The tax is levied on the total profits of the company with no deduction for distributions (share­ holders, however, are not taxed at the municipal level on dividend income).

For purposes of the national income tax on companies, the profits which must be retained to pay municipal taxes are treated as undistributed profits and are therefore subject to the national income tax. The result is that a company can never distribute all of its profits and is thus always subject to some national income tax liability.

In addition to the national and mu­ nicipal income taxes, companies, like individuals, are subject to a flat 3 per­ cent income tax for the tax equaliza­ tion fund.

Companies and resident individuals are also liable for a special tax in aid of developing countries which is levied at a flat rate of 1.1 percent on income and profits.

Individuals are also liable for a mu­ nicipal capital (net worth) tax appli­ cable at a flat rate of from 0.4 to 1.0 percent of net worth, but the munici­ palities apply the maximum rate. In­ dividuals, with the exception of non­ residents, are entitled to an exemption in the amount of Kr. 40, 000 when determining their net worth tax liabil­ ity. There is presently no national capital tax although the treaty in­ cludes a provision which would cover any such tax if introduced at a later date. Companies are not liable for the

capital tax liability at the municipal level (and as indicated there is no na­ tional capital tax at present).