ARTICLE 13 　　　　　　　　　　　　　Interest 　　(1) Interest derived from sources within one of the Contracting States by a resident of the other Contracting State shall be exempt from tax by the first-mentioned Contracting State. 　　(2) Paragraph (1) shall not apply if the recipient of the interest, being a resident of one of the Contracting States, has a permanent establishment in the other Contracting State and the indebtedness giving rise to the interest is effectively connected with such permanent establishment. In such a case, see paragraph (6) (a) of Article 8 (Business Profits). 　　(3) Where any interest paid by a person to any related person exceeds an amount which would have been paid to an unrelated person, the provisions of this Article shall apply only to so much of the interest as would have been paid to an unrelated person. In such a case the excess payment may be taxed by each Contracting State according to its own law, including the provisions of this Convention where applicable. 　　(4) The term "interest" as used in this Convention means income from bonds, debentures, Government securities, notes, or other evidences of indebtedness, whether or not secured and whether or not carrying a right to participate in profits, and debt-claims of every kind, as well as all other income which, under the taxation law of the Contracting State in which the income has its source, is assimilated to income from money lent. 　　(5) Interest paid by a resident of one of the Contracting States to a person other than a resident of the other Contracting State (and in the case of interest paid by an Icelandic corporation, to a person other than a citizen of the United States) shall be exempt from tax by the other Contracting State. This paragraph shall not apply if: 　　(a) Such interest is treated as income from sources within the other Contracting State under paragraph (2) of Article 6 (Source of Income), or 　　(b) The recipient of the interest has a permanent establishment in the other Contracting State and the indebtedness giving rise to the interest is effectively connected with such permanent establishment. ARTICLE 14 Royalties 　　(1) Royalties derived from sources within one of the Contracting States by a resident of the other Contracting State shall be exempt from tax by the first-mentioned Contracting State. 　　(2) The term "royalties" as used in this Article means: 　　(a) Payment of any kind made as consideration for the use of, or the right to use, copyrights of literary, artistic, or scientific works (but not including copyrights of motion picture films or films or tapes used for radio or television broadcasting), patents, designs, models, plans, secret processes or formulae, trademarks, or other like property or rights, or knowledge, experience, or skill (know-how), and 　　(b) Gains derived from the sale, exchange, or other disposition of any such property or rights to the extent that the amounts realized on such sale, exchange, or other disposition for consideration are contingent on the productivity, use, or disposition of such property or rights. 　　(3) Paragraph (1) shall not apply if the recipient of the royalty, being a resident of one of the Contracting States, has in the other Contracting State a permanent establishment and the property or rights giving rise to the royalty is effectively connected with such permanent establishment. In such a case, see paragraph (6) (a) of Article 8 (Business Profits). 　　(4) Where any royalty paid by a person to any related person exceeds an amount which would have been paid to an unrelated person, the provisions of this Article shall apply only to so much of the royalty as would have been paid to an unrelated person. In such a case the excess payment may be taxed by each Contracting State according to its own law, including the provisions of this Convention where applicable. ARTICLE 15 Income from Real Property 　　(1) Income from real property, including royalties in respect of the operation of mines, quarries, or other natural resources and gains derived from the sale, exchange, or other disposition of such property or of the right giving rise to such royalties, may be taxed by the Contracting State in which such real property, mines, quarries, or other natural resources are situated. For purposes of this Convention income and gains from ships and aircraft and interest on indebtedness secured by real property or secured by a right giving rise to royalties in respect of the operation of mines, quarries, or other natural resources shall not be regarded as income from real property. 　　(2) Paragraph (1) shall apply to income derived from the usufruct, direct use, letting, or use in any form of real property. ARTICLE 16 Capital Gains 　　(1) A resident of one of the Contracting States shall be exempt from tax by the other Contracting State on gains from the sale, exchange, or other disposition of capital assets unless: 　　(a) The gain is derived by a resident of one of the Contracting States from the sale, exchange, or other disposition of property described in Article 15 (Income from Real Property) situated within the other Contracting State. 　　(b) The recipient of the gain, being a resident of one of the Contracting States, has a permanent establishment in the other Contracting State and the property giving rise to the gain is effectively connected with such permanent establishment, or 　　(c) The recipient of the gain, being an individual who is a resident of one of the Contracting States 　　(i) Maintains a fixed base in the other Contracting State for a period or periods aggregating 183 days or more during the taxable year and the property giving rise to such gains is effectively connected with such fixed base, or 　　(ii) Is present in the other Contracting State for a period or periods aggregating 183 days or more during the taxable year. 　　(2) In the case of gains described in paragraph (1) (a), see Article 15 (Income from Real Property). 　　In the case of gains described in paragraph (1) (b), see paragraph (6) (a) of Article 8 (Business Profits). (3) Notwithstanding Article 8 (Business Profits) and paragraphs (1) and (2) of this Article, gains which a resident of one of the Contracting States derives from the sale, exchange, or other disposition of ships or aircraft which are operated in international traffic shall be exempt from tax by the other Contracting State. ARTICLE 17 Capital Taxes 　　(1) Capital represented by property referred to in Article 15 (Income from Real Property) may be taxed in the Contracting State in which such property is situated. 　　(2) Subject to the provisions of paragraph (3) below, capital represented by assets, other than property referred to in paragraph (1), which are effectively connected with a permanent establishment or fixed base of a resident of one of the Contracting States may be taxed in the Contracting State in which the permanent establishment or fixed base is situated. 　　(3) Ships and aircraft of a resident of one of the Contracting States and assets, other than property referred to in paragraph (1), pertaining to the operation of such ships or aircraft shall be exempt from tax by the other Contracting State. 　　(4) All other elements of capital of a resident of a Contracting State not dealt with in this Article shall be exempt from tax by the other Contracting State. ARTICLE 18 Independent Personal Services 　　(1) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity, may be taxed by that Contracting State. Except as provided in paragraph (2), such income shall be exempt from tax by the other Contracting State. 　　(2) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity in the other Contracting State may be taxed by that other Contracting State, if: 　　(a) The individual is present in that other Contracting State for a period or periods aggregating 183 days or more in the taxable year. 　　(b) The individual maintains a fixed base in that other Contracting State for a period or periods aggregating 183 days or more in the taxable year, but only so much of it as is attributable to such fixed base, or 　　(c) The individual is a public entertainer, such as a theater, motion picture, or television artist, a musician, or an athlete, and the income is derived from his personal services as a public entertainer provided that he is present in that other Contracting State for more than a total of 90 days during the taxable year or such income exceeds 100 United States dollars or its equivalent in Icelandic kronur for each day such person is present for the purpose of performing in the Contracting State in which such services are performed. ARTICLE 19 Dependent Personal Services 　　(1) Subject to the provisions of Articles 21 (Teachers), 22 (Students and Trainees), 23 (Governmental Functions), and 24 (Private Pensions and Annuities), wages, salaries, and similar remuneration derived by an individual who is a resident of one of the Contracting States from labor or personal services performed as an employee may be taxed by that Contracting State. Except as provided by paragraph (2), such remuneration derived from sources within the other Contracting State may also be taxed by that other Contracting State. 　　(2) Remuneration described in paragraph (1) derived by an individual who is a resident of one of the Contracting States shall be exempt from tax by the other Contracting State if: 　　(a) He is present in that other Contracting State for a period or periods aggregating less than 183 days in the taxable year; 　　(b) He is an employee of a resident of the first-mentioned Contracting State or of a permanent establishment maintained in that Contracting State by a resident of a State other than that Contracting State, and 　　(c) The remuneration is not borne as such by a permanent establishment which the employer has in that other Contracting State. 　　(3) Notwithstanding paragraph (2), remuneration derived by an individual from the performance of labor or personal services as an employee aboard ships or aircraft operated by a resident of one of the Contracting States in international traffic or in fishing on the high seas shall be exempt from tax by the other Contracting State if such individual is a member of the regular complement of the ship or aircraft. ARTICLE 20 Amounts Received for Furnishing Personal Services 　　(1) Amounts received by a resident of one of the Contracting States in consideration of furnishing in the other Contracting State the personal services of one or more other persons shall not constitute industrial or commercial profits under Article 6 (Business Profits) to the extent that: 　　(a) (i) The person for whom the services were rendered designated the person or persons who would render the services, whether or not he had the legal right to do so and whether or not the designation was made formally; 　　(ii) The person for whom the services were rendered had the right to designate the person or persons who would render the services; or 　　(iii) By reason of the facts and circumstances the arrangement for personal services had the effect of designating the person or persons who would render the services; and 　　(b) The resident of the first-mentioned Contracting State directly or indirectly pays compensation for such services to any person, other than another resident of the first-mentioned Contracting State or of the other Contracting State who is subject to tax on such compensation. 　　(2) Paragraph (1) shall not apply to any amount received if it is established to the satisfaction of the competent authority of the other Contracting State with respect to such amount that neither the creation or organization of the resident of the first-mentioned Contracting State (where such person is a corporation or other entity) nor the furnishing of the services through such person has the effect of a substantial reduction of income, war profits, excess profits, or similar taxes. ARTICLE 21 Teachers 　　(1) Where a resident of one of the Contracting States is invited by the Government of the other Contracting State or by a university or other recognized educational institution in that other Contracting State to come to that other Contracting State for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or both, at a university or other recognized educational institution, and such resident comes to that other Contracting State primarily for such purpose, his income from personal services for teaching or research at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State. 　　(2) This Article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons. ARTICLE 22 Students and Trainees 　　(1) (a) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State for the primary purpose of: 　　(i) Studying at a university or other recognized educational institution in that other Contracting State, or 　　(ii) Securing training required to qualify him to practice a profession or professional specialty, or 　　(iii) Studying or doing research as a recipient of a grant, allowance, or award from an governmental, religious, charitable, scientific, literary, or educational organization,shall be exempt from tax by that other Contracting State with respect to amounts described in subparagraph (b) for a period not exceeding 5 taxable years from the date of his arrival in that other Contracting State. 　　(b) The amounts referred to in subparagraph (a) are: 　　(i) Gifts from abroad for the purpose of his maintenance, education, study,research, or training; 　　(ii) The grant, allowance, or award; and 　　(iii) Income from personal services performed in that other Contracting State in an amount not in excess of 2,000 United States dollars or its equivalent in Icelandic kronur for any taxable year. 　　(2) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State as an employee of, or under contract with, a resident of the first-mentioned Contracting State, for the primary purpose of: 　　(a) Acquiring technical, professional, or business experience from a person other than that resident of the first-mentioned Contracting State or other than a person related to such resident, or 　　(b) Studying at a university or other recognize educational institution in that other Contracting State,shall be exempt from tax by that other Contracting State for a period of 12 consecutive months with respect to his income from personal services in an aggregate amount not in excess of 5,000 United States dollars or its equivalent in Icelandic kronur. 　　(3) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State for a period not exceeding 1 year, as a participant in a program sponsored by the Government of that other Contracting State, for the primary purpose of training, research, or study, shall be exempt from tax by that other Contracting State with respect to his income from personal services in respect of such training, research, or study performed in that other Contracting State in an aggregate amount not in excess of 10,000 United States dollars or its equivalent in Icelandic kronur. 　　(4) The benefits provided under Article 21 (Teachers) and paragraph (1) of this Article shall extend only for such period of time as may reasonably or customarily be required to effectuate the purpose of the visit. In a case where an individual qualifies for benefits under both provisions, the benefits provided therein shall not extend for more than a total of 5 years from the date of his arrival. The benefits provided under Article 21 (Teachers) shall not be available to an individual for any period immediately following a period for which the benefits of paragraph (1) of this Article are available to that individual. ARTICLE 23 Governmental Functions 　　Wages, salaries, and similar remuneration, including pensions or similar benefits, paid by or from public funds of one of the Contracting States, or a political subdivision or local authority thereof, to a citizen of that Contracting State for labor or personal services performed for that Contracting State, or for any of its political subdivisions or local authorities, in the discharge of governmental functions shall be exempt from tax by the other Contracting State. ARTICLE 24 Private Pensions and Annuities 　　(1) Except as provided in Article 23 (Governmental Functions), pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting States in consideration of past employment shall be taxable only in that Contracting State. 　　(2) Alimony and annuities paid to an individual who is a resident of one of the Contracting States shall be taxable only in that Contracting State. 　　(3) The term "pensions and other similar remuneration", as used in this Article, means periodic payments made after retirement or death in consideration for services rendered, or by way of compensation for injuries received in connection with past employment. 　　(4) The term "annuities", as used in this Article, means a stated sum paid periodically at stated times during life or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). 　　(5) The term "alimony", as used in this Article, means periodic payments made pursuant to a decree of divorce, separate maintenance agreement, or support or separation agreement which is taxable to the recipient under the internal laws of the Contracting State of which he is a resident. ARTICLE 25 Social Security Payments 　　Social security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State (or in the case of such payments by Iceland, to an individual who is a citizen of the United States) shall be taxable only in the first-mentioned Contracting State. This Article shall not apply to payments described in Article 23 (Governmental Functions). ARTICLE 26 Diplomatic and Consular Officers 　　Nothing in this Convention shall affect the fiscal privileges of diplomatic and consular officials under the general rules of international law or under the provisions of special agreements. ARTICLE 27 Investment or Holding Companies 　　A corporation of one of the Contracting States deriving dividends, interest, royalties, or capital gains from sources within the other Contracting State shall not be entitled to the benefits of Article 12 (Dividends), 13 (Interest), 14 (Royalties), or 16 (Capital Gains) if: 　　(a) By reason of special measures the tax imposed on such corporation by the firstmentioned Contracting State with respect to such dividends, interest, royalties, or capital gains is substantially less than the tax generally imposed by such Contracting State on corporate profits, and 　　(b) 25 percent or more of the capital of such corporation is held of record or is otherwise determined, after consultation between the competent authorities of the Contracting States, to be owned directly or indirectly, by one or more persons who are not individual residents of the first-mentioned Contracting State (or, in the case of an Icelandic corporation, who are citizens of the United States). ARTICLE 28 Mutual Agreement Procedure 　　(1) Where a resident of one of the Contracting States considers that the action of one or both of the Contracting States results or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of the Contracting States, present his case to the competent authority of the Contracting State of which he is a resident. Should the residents claim be considered to have merit by the competent authority of the Contracting State to which the claim is made, it shall endeavor to come to an agreement with the competent authority of the other Contracting State with a view to the avoidance of taxation contrary to the provisions of this Convention. 　　(2) The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the application of this Convention. In particular, the competent authorities of the Contracting States may agree: 　　(a) To the sane attribution of industrial or commercial profits to a resident of one of the Contracting States and its permanent establishment situated in the other Contracting State; 　　(b) To the same allocation of income, deductions, credits, or allowances between a resident of one of the Contracting States and any related person; 　　(c) To the same determination of the source of particular items of income; or 　　(d) To uniform accounting for income and deductions. 　　(3) The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of this Article. When it seems advisable for the purpose of reaching agreement, the competent authorities may meet together for an oral exchange of opinions. 　　(4) In the event that the competent authorities reach such an agreement, taxes shall be imposed on such income, and refund or credit of taxes shall be allowed, by the Contracting States in accordance with such agreement. ARTICLE 29 Exchange of Information 　　(l) The competent authorities of the Contracting States shall exchange such information as is pertinent to carrying out the provisions of this Convention and of the domestic laws of the Contracting States concerning taxes covered by this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those (including a court or administrative body) concerned with assessment, collection, enforcement, or prosecution in respect of the taxes which are the subject of this Convention. 　　(2) In no case shall the provisions of paragraph (l) be construed so as to impose on one of the Contracting States the obligation to: 　　(a) To carry out administrative measures at variance with the laws or the administrative practice of that Contracting State or the other Contracting State; 　　(b) To supply particulars which are not obtainable under the laws, or in the normal course of the administration, of that Contracting State or of the other Contracting State; or 　　(c) To supply information which would disclose any trade, business, industrial, commercial, or professional secret or trade process, or information, the disclosure of which would be contrary to public policy. 　　(3) The exchange of information shall be either on a routine basis or on request with reference to particular cases. The competent authorities of the Contracting States may agree on a list of information which shall be furnished on a routine basis. 　　(4) The competent authorities of the Contracting States shall notify each other of any amendments of the tax laws referred to in paragraph (1) of Article 1 (Taxes Covered) and of the adoption of any taxes referred to in paragraph (2) of Article 1 (Taxes Covered) by transmitting the texts of any amendments or new statutes at least once a year. 　　(5) The competent authorities of the Contracting States shall notify each other of the publication by their respective Contracting States of any material concerning the application of this Convention, whether in the form of regulations, rulings, or judicial decisions by transmitting the texts of any such materials at least once a year. ARTICLE 30 Assistance in Collection 　　(1) Each of the Contracting States shall endeavor to collect on behalf of the other Contracting State such taxes imposed by that other Contracting State as will ensure that any exemption or reduced rate of tax granted under this Convention by that other Contracting State shall not be enjoyed by persons not entitled to such benefits. The competent authorities of the Contracting States may consult together for the purpose of giving effect to this Article. 　　(2) In no case shall this Article be construed so as to impose upon a Contracting State the obligation to carry out administrative measures at variance with the regulations and practices of either Contracting State or which would be contrary to the first-mentioned Contracting States sovereignty, security, or public policy. ARTICLE 31 Entry into Force 　　This Convention shall be ratified and instruments of ratification shall be exchanged at Washington, D.C. as soon as possible. It shall enter into force 1 month after the date of exchange of the instruments of ratification. The provisions shall for the first time have effect with respect to income and capital of calendar years or taxable years beginning (or in the case of taxes payable at the source, payments made) on or after January 1, of the year following the year in which the instruments of ratification were exchanged. ARTICLE 32 Termination 　　(1) This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention at any time after 5 years from the date on which this Convention enters into force provided that at least 6-months' prior notice of termination has been given through diplomatic channels. In such event, the Convention shall cease to have force and effect as respects income and capital of calendar years or taxable years beginning (or, in the case of taxes payable at the source, payments made) on or after January 1 next following the expiration of the 6- month period. 　　(2) Notwithstanding the provisions of paragraph (1), and upon prior notice to be given through diplomatic channels, the provisions of Article 25 (Social Security Payments) may be terminated by either Contracting State at any time after this Convention enters into force. ARTICLE 33 Extension to Territories 　　(1) Either one of the Contracting States may, at any time while this Convention continues in force, by a written notification given to the other Contracting State through diplomatic channels, declare its desire that the operation of this Convention, either in whole or in part or with such modifications as may be found necessary for special application in a particular case, shall extend to all or any of the areas (to which this Convention is not otherwise applicable) for whose international relations it is responsible and which impose taxes substantially similar in character to those which are the subject of this Convention. When the other Contracting State has, by a written communication through diplomatic channels, signified to the first-mentioned Contracting State that such notification is accepted in respect of such area or areas, and the notification and communication have been ratified and instruments of ratification exchanged, this Convention, in whole or in part, or with such notifications as may be found necessary for special application in a particular case, as specified in the notification, shall apply to the area or areas named in the notification and shall enter into force and effect on and after the date or dates specified therein. None of the provisions of this Convention shall apply to any such area in the absence of such acceptance and exchange of instruments of ratification in respect of that area. 　　(2) At any time after the date of entry into force of an extension under paragraph (1), either of the Contracting States may, by 6-months' prior notice of termination given to the other Contracting State through diplomatic channels, terminate the application of this Convention to any area to which it has been extended under paragraph (1), and in such event this Convention shall cease to apply and have force and effect, beginning on or after the first day of January next following the expiration of the 6- month period, to the area or areas named therein, but without affecting its continued application to the United States, Iceland, or to any other area to which it has been extended under paragraph (1). (3) In the application of this Convention in relation to any area to which it is extended by notification by the United States or Iceland, reference to the "United States" or "Iceland", as the case may be, shall be construed as referring to that area. 　　(4) The termination in respect of the United States or Iceland of this Convention under Article 32 (Termination) shall unless otherwise expressly agreed by both Contracting States, terminate the application of this Convention to any area to which the Convention has been extended under this Article by the United States or Iceland. 　　DONE at Reykjavik, in duplicate, in the English and Icelandic languages, the two texts having equal authenticity, this 7th day of May, 1975. FOR THE FOR THE UNITED STATES OF AMERICA REPUBLIC OF ICELAND (s) Frederick Irving. (s) Einar Agustsson.