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Norway Announces Activation of Interest and Royalties MFN Clause in Tax Treaty with Chile

On 25 February 2019, the Norwegian government published an English-language notice announcing the activation of the MFN clause included in paragraph 4 of the Protocol to 2001 income and capital tax treaty with Chile. The activation is a result of the entry into force of Chile's 2016 tax treaty with Japan, which is effective from 1 January 2017. The notice includes that the following withholding tax rates apply as from 1 January 2017 with respect to interest income:

  • The rate is 4% where the beneficial owner of the interest is:
    • A bank;
    • An insurance company;
    • An enterprise substantially deriving its gross income from the active and regular conduct of a lending or finance business involving transactions with unrelated persons, where the enterprise is unrelated to the payer of the interest (the term 'lending or finance business' includes the business of issuing letters of credit, providing guarantees, or providing credit card services);
    • An enterprise that sold machinery or equipment, where the interest is paid in connection with the sale on credit of such machinery or equipment; or
    • Any other enterprise, provided that in the three taxable years preceding the taxable year in which the interest is paid, the enterprise derives more than 50% of its liabilities from the issuance of bonds in financial markets or from taking deposits at interest, and more than 50% of the assets of the enterprise consist of debt-claims against unrelated persons;
  • The rate is 5% on interest derived from bonds or securities that are regularly and substantially traded on a recognized securities market; and
  • The rate is 15% in all other cases.

With respect to interest income eligible for the 4% rate indicated above, if the interest is paid as part of an arrangement involving back-to-back loans or similar arrangements, the rate will instead be 5% if paid to a bank or insurance company or as part of a sale on credit of machinery or equipment, otherwise the rate is 10%.

Further, with respect to royalty income, the following withholding tax rates apply as from 1 January 2017:

  • 2% on royalties paid for the use of, or the right to use, any industrial, commercial, or scientific equipment; and
  • 10% in all other cases.

Although not included in the English-language notice, a separate Norwegian-language notice includes that from 1 January 2019, the general 15% withholding tax rate on interest is reduced to 10% as per the 2016 Chile-Japan treaty.

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