On 6 November 2024, the competent authorities in the United States (US) and Norway signed a Competent Authorities Agreement (CAA), agreeing that qualifying Regulated Investment Companies (RICs) under IRC Sections 851 and 852 are not restricted from treaty benefits under Article 20 of the US-Norway Double Tax Treaty (DTT). This effectively means that RICs may claim treaty benefits under the DTT, including a reduction of dividend withholding tax to 15%.

CAA background

The CAA is in line with a recent decision by the Norwegian Tax Appeal Board dated 4 November 2024, which in short decided that RICs were eligible for treaty benefits based on the interpretation on the funds' status under Articles 8 and 20 of the DTT. In a November 2020 decision, the Tax Appeal Board had concluded that a RIC generally can be considered "resident" in the US, based on Article 3 para 2, letter b (ii) of the DTT. Further, and in line with the Organization for Economic Co-operation and Development Model Convention (OECD MC) commentaries, the 2020 decision stated that because the RIC was not obliged to redistribute 90% of its taxable profit, it qualified as the beneficial owner of the Norwegian dividend distributed. However, the decision denied the US RIC any treaty eligibility under Article 20 for investment holding companies on the basis that the RIC (1) was a corporation paying substantially less than the tax generally imposed on corporate profits and (2) did not substantiate that 25% or more of owners were US tax resident. This position on Article 20 has now been reversed.

Under the general statute of limitations in Norway, claims for refund of dividend withholding tax can be made within five years of the tax year the dividend withholding tax was suffered. This means that, for withholding tax on dividend distributions made in 2019, refund claim opportunities would expire on 31 December 2024. The Norwegian tax authorities have not conveyed whether the CCA will only apply going forward or apply retroactively as well. The Tax Appeal Board's decision related to dividends distributed in the period 2013, 2015 and 2016. Consequently, it can be argued that the RICs should also be entitled to refunds for withholding tax suffered in prior years as long as the claim is made within the statute of limitations.

Who is affected?

The legislative change will impact qualifying RICs, under IRC Sections 851 and 852, that receive dividend distributions from Norwegian-tax-resident companies.

For dividends to be distributed going forward, preapproval applications may be submitted to the Norwegian authorities to provide at-source relief (from 25% to 15%). Refund claims may be submitted retroactively up to five years; however, there is currently some uncertainty regarding the extent to which these will be processed and approved.

Implications

US RICs may apply for a preapproval from Norwegian tax authorities on expected future dividend distributions for reduced withholding tax on dividends (subject to certain conditions) from Norwegian-resident companies.

US RICs may also want to consider filing refund claims for up to five years retroactively to apply a reduced 15% rate (from 25%) for dividend withholding tax paid on dividend distributions from Norwegian-tax-resident companies.