Article 12. CAPITAL GAINS — U.S. Income Tax Treaty

The proposed Convention provides that gains derived in one State from the sale or exchange of stock, securi ties, commodities, or other capital as sets by a resident of the other State shall be exempt from tax by the State of source. However, the exemption does not apply if (1) the gain derived by a resident of one State arises out of the sale or exchange of property de scribed in Article 11 (Income from Real Property) which is situated within the other State, (2) the recipi ent of the gain has a permanent estab lishment in that other State and the property giving rise to the gain is effectively connected with such per manent establishment, or (3) the re cipient of the gain, being an individ ual resident of a State, either is pres ent in the other State for a period or periods aggregating more than 183 days in the taxable year or maintains, for a period or periods aggregating

183 days or more during the taxable year, a fixed base in the other State with which the property giving rise to such gain is effectively connected.

Notwithstanding the provisions of Article 5 (Business Profits) and the

first paragraph of this article, gains derived by a resident of one of the Contracting States from the sale, ex change, or other disposition of ships or aircraft which are operated in inter national traffic are exempt from tax by the other Contracting State. In ad dition, Norway retains the right, not withstanding the provisions of para graph (1) of this article, to tax gains derived by an individual from the sale or exchange of stock consisting of at least a 25-percent interest in a Nor wegian corporation if such individual was a national and a resident of Nor way at any time during the 5-year pe riod immediately preceding such sale or exchange. Gains arising from prop erty which is effectively connected with a permanent establishment may be taxed as industrial or commercial profits under Article 5 (Business Prof its). Gains on real property are sub ject to the provisions of Article 11

(Income from Real Property) which permits taxation of such gains by the

State in which the real property is sit uated.