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Treaty between US and Norway – IRS releases competent authority agreement regarding fiscally transparent entities

13 February 2013

Report from Wooje Choi, IBFD North America

The US Internal Revenue Service (IRS) has released the official text of the recent competent authority agreement between the United States and Norway regarding the eligibility of fiscally transparent entities to benefit under the 1971 US-Norway Income Tax Treaty (the Treaty), as amended by the protocol of 19 September 1980.

The agreement clarifies:

-   the cases in which entities that are treated as fiscally transparent under the laws of either the United States or Norway are eligible to claim benefits under the Treaty; and
-   the procedure for claiming treaty benefits from Norway for entities that are fiscally transparent for US tax purposes.

Paragraph 1(a)(ii) of article 3 of the Treaty provides, in relevant part, that the term "resident of Norway" means a partnership, estate, or trust only to the extent that the income derived by such person is subject to Norwegian tax as the income of a resident.

Paragraph 1(b)(ii) of article 3 of the Treaty provides, in relevant part, that the term "resident of the United States" means a partnership, estate, or trust only to the extent that the income derived by such person is subject to US tax as the income of a resident.

According to the competent authority agreement, the following understandings have been reached:

-   In applying paragraphs 1(a)(ii) and 1(b)(ii) of article 3, income from sources within one of the contracting states received by an entity, wherever organized, that is treated as fiscally transparent under the laws of either contracting state will be treated as income derived by a resident of the other contracting state to the extent that such income is subject to tax as the income of a resident of the other contracting state.
-   An entity, wherever organized, that is treated as fiscally transparent for US federal tax purposes and that has a US resident member, partner, or owner may claim treaty benefits from Norway on behalf of the US resident by providing the Norwegian withholding agent with a US residency certification that identifies the names of the fiscally transparent entity and the US resident. Such entity may obtain a US residency certification on IRS Form 6166 by submitting IRS Form 8802 (Application for US Residency Certification) to the IRS.

The competent authority agreement was entered into under article 27(2) (Mutual Agreement Procedure) of the Treaty.

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