Article 3. FISCAL RESIDENCE

This article sets forth rules for de­ termining the “fiscal residence” of in­ dividuals, corporations, and other per­ sons for purposes of the proposed Convention. Residence is important because, in general, only a resident of one of the Contracting States may qualify for the benefits of the Conven­ tion. This article is patterned gener­ ally after the fiscal domicile article of the OECD Model Convention.

The term “resident of Norway” means a Norwegian corporation as de­ fined in Article 2 (General Defini­ tions) and any person (other than a corporation or any entity treated under Norwegian law as a corpora­ tion) who is a resident of Norway for purposes of its tax. The term “resident of the United States” means a United States corporation as defined in Arti­ cle 2 and any person (except a corpo­ ration or any other entity treated as a corporation for United States tax pur­ poses) resident in the United States

for purposes of its tax. The parenthet­ ical language in the definitions of a resident is intended to make clear that a foreign corporation, or other entity treated as a foreign corporation for purposes of the tax law of one of the Contracting States, which is a resident of that Contracting State for certain purposes of its income tax law (see section 861 of the U.S. Internal Rev­ enue Code) is not a resident of such Contracting State for purposes of the Convention.

The proposed Convention provides that a partnership, estate, or trust is treated as a resident of one of the Contracting States only to the extent that the income derived by such per­ son is subject to tax in such Contract­ ing State as the income of a resident. This language is similar to that found with respect to the United States in the Income Tax Convention between the United States and Belgium, signed July 9, 1970, 1973-8 I.R.B. 26. For example, under United States law a partnership is never, and an estate or trust is often not, taxed as such.

Under the proposed Convention, in the case of the United States, income received by a partnership, estate, or trust will not qualify for the benefits of the Convention unless such income is subject to tax in the United States. Thus, in effect, the status of income which is subject to tax only in the hands of the partners or beneficiaries, will be determined by the residence of such partners or beneficiaries. With respect to income taxed in the hands of the estate or trust, the residence of the estate or trust is determinative.

An individual who is a resident of both Contracting States under the rules of domestic law employed by such States for determining residence will be deemed a resident of the State in which he has his permanent home, his center of vital interests (closest economic and personal relations), his habitual abode, or his citizenship, in the order listed. If the issue is not settled by these tests, the competent authorities will decide by mutual agreement the one State of which he will be considered to be a resident. For purposes of paragraph (2) of this article, a permanent home is the place where an individual dwells with his family. An individual who is deemed to be a resident of one Contracting State and not a resident of the other Contracting State by reason of the provisions of paragraph (2) of this ar­ ticle shall be deemed to be a resident only of the first-mentioned Contract­ ing State for all purposes of the pro­ posed Convention, including Article

22 (General Rules of Taxation). For example, even if an individual treated as a resident of Norway under the proposed Convention is also consid­ ered to be a resident of the United States under the laws of the United States, such individual would continue to receive the exemptions and special benefits available only to Norwegian residents.