Article 13 provides rules for source and residence country

taxation of gains from the alienation of property.

Paragraph 1 preserves the situs country right to tax gains derived from the alienation of real property situated in the situs state (the "source State"). Thus, paragraph 1 permits gains derived by a resident of one State from the alienation of real property located in the other State to be taxed by such other State. However, paragraph 1 does not grant the situs State an exclusive right to tax these gains. The residence State may also tax these gains from real property, subject to the rules of Article 23 (Relief from double taxation).

Paragraph 2 defines the term "real property situated in the other Contracting State." Where the United States is the source State, the term includes real property referred to in Article 6 (Income from real property) and certain indirect interests in such property. Such indirect interests include a United States real property interest in the United States, as that term is defined in the Code on the date of signature of the Convention, and as amended. In addition, the treaty clarifies that an interest in a partnership, trust, or estate, to the extent that the assets of such entity consist of United States real property interests situated in the United States, are included in this definition. Thus, the United States preserves its right to collect the tax imposed by section 897 of the Code on gains derived by foreign persons from the disposition of United States real property interests, including gains arising from indirect dispositions described in section 897(g). For this purpose, the source rules of section 861(a)(5) of the Code shall determine whether a United States real property interest is situated in the United States.

Where Sweden is the source state, the term "real property situated in the other Contracting State" includes property that is real property under the laws of Sweden that is situated in Sweden. This encompasses real property referred to in Article 6 and shares or similar rights in a company the assets of which consist, directly or indirectly, mainly of such real property.

The definition of "real property situated in the other State" applies solely for purposes of Article 13. Therefore, this definition has no effect on the right to tax income covered in other articles of the Convention, such as Article 6 (Income from real property).

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Paragraph 3 preserves the source country right to tax gains from the disposition of movable property in certain circumstances. Paragraph 3 provides that gains from the disposition of movable property which are attributable to a permanent establishment which an enterprise of a State has in the other State or which are attributable to a fixed base available to a resident of a State for the purpose of performing independent personal services, and gains from the disposition of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base, may be taxed in the other State. This provision permits gains from the alienation by a resident of a State of an interest in a partnership, trust or estate that has a permanent establishment situated in the other State to be taxed as gains attributable to such permanent establishment under paragraph 3. Thus, for example, the United States may tax gains derived from the disposition of an interest in a partnership that has a permanent establishment in the United States, whether or not the assets of such partnership consist of movable property.

The rule in paragraph 9 of Article 7 (Business profits) dealing with deferred income and expenses of a permanent establishment or fixed base applies to paragraph 3 of this Article. Thus, gains from the disposition of movable property which are attributable to a permanent establishment or fixed base, but are deferred until after the permanent establishment or fixed base no longer exists, may nevertheless be taxed by the State in which the permanent establishment or fixed base was located.

Paragraph 4 provides a further exception from the rule set forth in paragraph 3. Paragraph 4 provides that profits derived from the disposition of ships and aircraft operated by an enterprise in international traffic and from movable property (such as containers) attributable to the operation of such ships and aircraft are taxable only in the State in which the enterprise is resident. This paragraph applies to gains derived by the air transport consortium Scandinavian Airlines System ("SAS"), but only to the gains that correspond to the participation held in that consortium by AB Aerotransport ("ABA"), the Swedish partner of SAS. (The special status of SAS is discussed in connection with Article 8 (Shipping and air transport).)

Even though the issue is addressed in the first sentence of the paragraph, the second sentence of paragraph 4 explicitly clarifies that gains from the disposition of containers used in international traffic by an enterprise of a Contracting State shall be taxable only in that State. For this purpose, containers are deemed to include trailers, barges, and related equipment used for the transport of containers.

Paragraph 5 provides that gains described in Article 12 (Royalties) shall be taxable in accordance with the provisions of Article 12. This paragraph applies to gains derived from the

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alienation of rights to intangible property if the amount of the gain is contingent on the productivity, use or disposition thereof, which are described in paragraph 2 of Article 12. Treatment of gains attributable to intangible property that are not described in paragraph 2 of Article 12 is governed by paragraphs 3 or 6 of Article 13.

Subject to the special rule of paragraph 7, paragraph 6 grants to the residence State the exclusive right to tax gains from the disposition of property other than those specifically referred to in the preceding paragraphs of Article 13.

Paragraph 7 provides a special rule for an individual who had been a . resident of Sweden and who has become a resident of the United States. With respect to such an individual, Sweden will have the right to tax gains referred to in paragraph 6 from any property derived by such individual at any time during the ten years following the date on which the individual ceased to be a resident of Sweden. Although this Article is not reciprocal, pursuant to paragraph 4 of Article 4 (Residence) the United States retains the right to tax its former citizens where their loss of citizenship had as one of its principal purposes the avoidance of tax.

Notwithstanding the foregoing limitations on source country taxation of certain gains, the saving clause of paragraph 4 of Article 1 (Personal scope) permits the United States to tax gains realized by its residents and citizens, subject to the special foreign tax credit rules of Article 23 (Relief from double taxation), as if the Convention had not come into effect.

As with any benefit of this Convention, a resident of one of the States claiming the benefit of this Article must be entitled to the benefit under the provisions of Article 17 (Limitation on benefits).