Article 4 sets forth rules — U.S. Income Tax Treaty

a resident of the United States or Sweden for purposes of the Convention. As a general matter only residents of the Contracting States may claim the benefits of the Convention. The definition of


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resident in the Convention is to be used only for purposes of the Convention. The prior Convention contains no comprehensive definition of a resident.

In general, a person will be considered a resident of a

Contracting State if he is subject to tax in that State under its internal law by reason of his residence, domicile, or other similar criterion. A person who, under this rule, is a resident of one State and not of the other will (subject to an exception described below) be treated for purposes of the Convention as a resident of the State in which he is resident under internal law. If, however, a person is resident in both Contracting States under their respective taxation laws, the Article assigns a single State of residence to such a person for purposes of the Convention through the use of tie-breaker rules or competent authority agreement.

Paragraph 1 defines the term "resident of a Contracting

State." In general, this definition incorporates the definitions of residence in U.S. and Swedish law. A resident of a Contracting State is a person who, under the laws of that State, is subject to tax there by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature. Nontaxable entities are considered residents of their state of organization because they are subject to the taxation laws of that state. Residents of the United States include aliens who are considered U.S. residents under Code section 7701(b). Unlike certain other U.S. treaties, "citizenship" is not included among the explicit criteria of residence in the Convention. However, it is understood to be a "criterion of a similar nature" under paragraph 1. An exception to this general rule for certain individuals is described below.

Subparagraph 1(a) specifies that a person liable to tax in a State only in respect of income from sources within that state will not be treated as a resident of that State for purposes of the Convention. For example, a Swedish consular official stationed in the United States, who may be subject to U.S. tax on his U.S. source investment income, but is not taxable in the United States on his salary and non-U.S. source income, by operation both of Article 20 (Government service) and Code section 893, would not be considered a resident of the United States for purposes of the Convention. Similarly, a Swedish enterprise with a permanent establishment in the United States is not, by virtue of that permanent establishment, a resident of the United States. The enterprise is subject to U.S. tax only with respect to its income attributable to the U.S. permanent establishment, not with respect to its world-wide income, as is a U.S. resident.

Subparagraph 1(b) makes clear that a partnership, estate or trust will be treated as a resident of a Contracting State for purposes of the Convention only to the extent that the income derived by such person is subject to tax in that State as the


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income of a resident, either in the hands of the person deriving the income or in the hands of its beneficiaries. Under U.S. law, a partnership, estate or trust is often not itself a taxable entity. Thus, for U.S. tax purposes, the question of whether income received by such an entity is received by a resident will be determined by the residence for taxation purposes of the person subject to tax on such income, which may be the partner, grantor, the beneficiaries or the partnership, estate or trust itself, depending on the circumstances. This rule regarding the residence of estates or trusts is applied to determine the extent to which that person is entitled to treaty benefits with respect to income that it receives from the other Contracting State.

As noted above, paragraph 1 contains an exception for certain individuals to the general rule that residence under internal law also determines residence under the Convention. It is not always sufficient for an individual to be a resident under the laws of the United States (or a citizen of the United States) to be treated as a United States resident under the Convention. A United States citizen or an alien lawfully admitted for permanent residence (a "green card holder") who does not have a substantial presence, permanent home, or habitual abode in the United States and who is not a resident of Sweden under paragraph 1, will not be treated as a resident of the United States for purposes of the Convention. Thus, a U.S. citizen or green card holder who is resident in a third country and who has a substantial presence, permanent home or habitual abode in the United States will be entitled to most benefits under the Convention. If such a person is also considered a resident of Sweden under Swedish internal law, and therefore under paragraph 1, the individual will be considered a resident of both States. Such person's status will be determined under the tie-breaker rules of paragraph 2 (described below).

If an individual is considered a resident of each State under its laws, a single State of residence is determined by application of the tie-breaker rules of paragraph 2. Paragraph 2(a) provides that such an individual will be resident in the State in which the individual has a permanent home. If the individual has a permanent home available to him in both States, he will be considered to be a resident of the Contracting State to which his personal and economic relations are closest, i.e., the location of his "center of vital interests." Under paragraph 2(b), if he has no center of vital interests or if he does not have a permanent home available to him in either State, he will be treated as a resident of the Contracting State in which he maintains an habitual abode. Under paragraph 2(c), if he has an habitual abode in both States or in neither of them, he will be treated as a resident of the State of which he is a citizen. If he is a citizen of both States or of neither, paragraph 2(d) provides that the competent authorities will, by mutual agreement, assign a single State of residence.


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Paragraph 3 addresses companies that are treated by each

State, under its laws, as a resident of that State. Paragraph 3 provides that if a company is considered under paragraph 1 to be a resident of both States, then if it is created under the laws of either the United States or Sweden it will be considered to be a resident of the state in which it is created.

Paragraph 4 addresses dual-residence issues for persons other

than individuals or companies that are considered residents of both States under paragraph 1. Under this paragraph, the competent authorities are instructed to determine a single State of residence by mutual agreement.