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Netherlands; Norway

27 June 2013

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Protocol to treaty between Netherlands and Norway – details

Details of the amending protocol to the Netherlands - Norway Income and Capital Tax Treaty (1990), signed on 23 April 2013, have become available. The treaty was concluded in the Dutch, English and Norwegian languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The protocol generally implements the 2005, 2008 and 2010 changes to the OECD Model.

The title and relevant provisions of the treaty will be amended as such that the treaty no longer applies to capital.

Article 10(3) of the treaty will be amended as a result of which the dividend withholding tax becomes 0% for (article X of the protocol):

-   a company which holds directly at least 10% of the capital of the company paying the dividends; and
-   pension funds.

Furthermore, the new article 10(4) of the treaty will provide that dividends derived and beneficially owned by a state, political subdivision or local authority are taxable only in the residence state (article X of the protocol).

Other important amendments include:

-   article 5 of the treaty (Permanent establishments) will be expanded as a result of which a PE is also deemed to exist where an enterprise of one of the states performs services in the other state (article V of the protocol):
(a)   through an individual who is present in that other state for a period or periods exceeding in the aggregate 183 days in any 12-month period, and more than 50% of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other state through that individual; or
(b)   for a period or periods exceeding in the aggregate 183 days in any 12-month period, and these services are performed for the same project or connected projects through one or more individuals who are present and performing such services in that other state the activities carried on in that other state in performing these services, unless these services are limited to those which, if performed through a fixed place of business, would not make this fixed place of business a permanent establishment. For the purposes of this paragraph, services performed by an individual on behalf of one enterprise will not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual;
-   article 7 of the treaty will be replaced by the new version the 2010 OECD Model (article VIII of the protocol);
-   the provision on independent services is deleted (article VI(1) of the protocol);
-   article 9 of the treaty will be expanded with a provision on corresponding adjustments (article IX(2) of the protocol);
-   article 18 of the treaty will be amended and provided that pensions, other similar remuneration, annuities and lump-sum payments received may be taxed in the source state (article XI of the protocol). The same rule applies to social security pensions (article XI of the protocol). However, article VIII of the protocol provides for a transitional regime under which the old article 18 remains applicable unless an individual receiving a pension, remuneration, annuity or social security payment opts for the application of the new provision. Such election must be notified to the tax administration of both states within 2 years after the protocol has become effective and the election is irrevocable (article XI(2) of the protocol);
-   article 26 of the treaty (Mutual agreement procedure) will be expanded to provide for arbitration (article XIV(2) of the protocol);
-   article 27 (Exchange of information) will be replaced by a provision which is in line with the 2005 version of the OECD Model (article XV of the protocol); and
-   article 28 (Assistance in the collection of taxes), will be replaced by a provision which is in line with the 2005 version of the OECD Model (article XVI of the protocol).

The amended article 23 of the treaty provides that both states will apply the exemption with progression and credit method for the avoidance of double taxation (article VIII of the protocol).

Article 1A(1) of the protocol provides that a company of one of the states will be regarded as liable to tax in that state, even when the entire income attributable to the company is exempt from tax, if the company meets all the requirements for the exemption specified in the domestic tax law.

Article 1A(2) contains a LOB clause under which the contracting states have to decide by mutual agreement to which extent a resident, subject to a preferential tax regime, will not be entitled to the benefits of the treaty. Tax exempt investment companies will not be entitled to the treaty benefits regarding dividend, interest, royalties, capital gains (other income) and other income (article IV(2) of the protocol).

Article IB of the protocol provides for the application of the mutual agreement procedure in case of double taxation differences resulting from classification differences of entities (article IV(2) of the protocol).

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