Under tax treaties, the right to tax dividends is normally shared between states. This is not the case for capital gains on shares. For capital gains, it is typically either the shareholder’s state of residence or the state of the company (the source state) that is granted the taxing right under the tax treaties.
Rules under Norwegian domestic law
A taxpayer resident in Norway disposing of shares in a foreign company
An individual taxpayer resident in Norway who disposes of shares in a company resident abroad is taxable in Norway for capital gains on shares under Section 10-31(1) of the Norwegian Tax Act. Losses are deductible under Section 10-31(2).
In this context, it is also worth noting the rules on so-called exit taxation on share gains in Section 10-70 of the Tax Act. However, those rules apply to shares in both Norwegian and foreign companies.
A taxpayer resident abroad disposing of shares in a Norwegian company
An individual taxpayer resident abroad who disposes of shares in a company resident in Norway cannot be taxed in Norway for capital gains. There is no domestic legal basis for taxing such gains in Norway.
Rules under tax treaties
The OECD Model Tax Convention does not contain a specific provision on capital gains on shares for individual taxpayers. Accordingly, capital gains are governed by the general rule in Article 13(5) of the Model Convention, which provides that the state of residence of the shareholder has exclusive taxing rights.
However, far from all tax treaties entered into by Norway follow the Model Convention on this point. This is particularly true of the Nordic Tax Treaty (Article 13(7)), which grants the state of residence of the company the right to tax capital gains within a five-year period.
As with Property Law the calculation of the gain shall be carried out in accordance with the rules of the state that has the taxing right. The same applies to deductions, with reference to Section 9-4(2) of the Norwegian Tax Act.
Atle Melø
amelo@melo.no
+47 951 80 979
