Article 24 of the proposed Convention

are to be applied.

The proposed Convention continues the general rule (also found in our new French, Finnish, and Trinidad and Tobago Conventions) that the Convention will not affect in any manner any exclusion, exemption, de­ duction credit, or other allowance now or hereafter accorded by the laws of a State in the determination of a tax imposed by that State, or by any other agreement between the Con­ tracting States. Even though the OECD Model Convention does not contain a comparable provision, this rule reflects the well-established prin­ ciple that a Convention will not have the effect of increasing the tax burden on residents of the signatory countries. This rule represents the position of the United States under all conventions to which it is a party except that, to the extent a convention specifically pro­ vides, it may be necessary to waive certain rights as a condition to claim­ ing more advantageous treaty benefits.

The proposed Convention also con­ tains the traditional savings clause under which the United States re­ serves the right to tax its citizen and residents as if the Convention had not come into effect. However, the savings clause does not apply in several cases in which its application would con­ travene policies reflected in the pro­ posed Convention. Thus, the savings clause does not affect the benefits re­ lating to social security payments, re­ lief from double taxation, nondiscrimi­ nation, diplomatic and consular of­ ficers, or mutual agreement proce­ dure. Moreover, the savings clause will not deny the benefits of the proposed Convention to teachers, researchers, students, trainees, or persons perform­ ing governmental functions unless, in the case of such benefits conferred by the United States, such individuals are citizens of the United States or have immigrant status in the United States. The OECD Model Convention does not contain a savings clause be­ cause it is oriented toward the resi­

tracting State and has a permanent establishment in a State other than a Contracting State in connection with which the indebtedness on which the interest is paid was incurred and the interest is borne by that permanent establishment. In those cases in which the aforementioned exceptions to the general rule apply, such interest will be deemed to be from sources within the State in which the permanent es­ tablishment is located. The general rule set forth above in the first sen­ tence corresponds generally to the In­ ternal Revenue Code provision deal­ ing with interest (other than interest on deposit with persons carrying on the banking business). The exceptions to this general rule, set forth above, are not contained in the Internal Rev­ enue Code but are substantially simi­

lar to the rules contained in the United States-Belgium Income Tax Con­ vention signed July 9, 1970, page 619, this Bulletin.

Royalties described in paragraph (2) of Article 10 will be treated as income from sources within a Con­ tracting State only if they arise within that Contracting State.

Income from real property includ­ ing royalties from the operation of mines, quarries; or other natural re­ sources and gains derived from the sale, exchange, or other disposition of such property or the right giving rise to such royalties, will be treated as income from sources within a State only if such property is located in that State.

Income from the rental of tangible personal property will be treated as income from sources only within the State in which such property is lo­ cated.

Compensation received by an indi­ vidual for his performance of labor or personal services in any capacity will be treated as income from sources

within a State only if such services are performed in that State. Compensa­

tion for labor or personal services per­ formed aboard ships or aircraft oper­

credit article thus permits a United States citizen or resident to use either the per-country limitation or the over­ all limitation under section 904 of the Internal Revenue Code of 1954. Ex­ cept for the special source rules pro­ vided by the proposed Convention, this provision does not add to the rights which a United States citizen or resident has under the Internal Rev­ enue Code now in effect to the for­ eign tax credit, but is for the purpose of giving treaty recognition to such rights. Paragraph (1) of this article also makes clear that all Norwegian taxes listed in Article 1 (1) (b) (Taxes Covered), other than national and municipal taxes on capital and real property, will be considered income taxes for purposes of the United States foreign tax credit.

In the case of Norway, paragraph (2) of this article generally provides an exemption from Norwegian tax for a Norwegian resident with respect to income or property which under the Convention may be taxed only by the United States (or which is exempt

from United States tax under Article

15 (Teachers) or Article 16 (Students and Trainees)). In addition Norway will allow a credit against Norwegian tax for any United States tax paid by Norwegian residents with respect to income which under the Convention may be taxed by both States. Thus, the credit will apply with respect to the United States withholding tax on dividends paid by U.S. corporations to Norwegian residents, the U.S. tax on wages or salaries paid to Norwegians for personal services performed as an employee in the United States, and any U.S. tax paid by United States citizens who are Norwegian residents. Also, a Norwegian corporation owning at least 10 percent of the voting power of a United States corporation from which it receives dividends in a taxable year will be allowed a credit for the appropriate amount of United States tax paid by the United States corporation paying such dividends with respect to the profits out of

which such dividends are paid. How­ ever, the deduction allowed the Nor­ wegian corporation for dividends paid out by it shall be reduced by the net amount of dividends received from the United States corporation.