This country-specific Q&A provides an overview to tax laws and regulations that may occur in Norway.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-second-edition/
How often is tax law amended and what are the processes for such amendments?
Possible amendments in the Norwegian tax legislation are at least considered once a year. Every autumn The Ministry of Finance sets up a fiscal budget proposal to be submitted to the Parliament. The proposition may contain proposals for legislative amendments to the Tax Act.
The legislative power is vested in the Norwegian Parliament. To amend the tax law, the Government must submit a bill. In the case of significant issues, or extensive revision of existing tax law, the Government often appoints an expert committee or commission to study the matter. The commission submits a report including a draft bill to the Ministry of Finance. The Ministry usually sends the report out for comments to relevant government agencies, organizations, institutions and associations. When comments have been received, the Ministry prepares the proposition. This is presented to the King in Council and is then submitted to the Parliament for approval.
Amendments may also be considered in spring in connection with the approval of the Revised Budget, and from time to time, at any time throughout the year.
The Norwegian tax acts passed by the Parliament is supplemented by various provisions issued by the Ministry of Finance or by the Tax Directorate.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
Entities and individuals that do business in Norway must file an income tax returns within 31 May the year following the income year. The return must be submitted electronically. An extension is possible to obtain.
Enterprises that are liable to VAT are obliged to submit VAT returns. As a main rule, the VAT returns must be submitted every two months.
Individuals receive a tax return from the Norwegian Tax Administration in March/April. The tax return gives an overview of the taxpayer’s income, deductions, assets and debts for the last income year. The taxpayers must check that the information in the tax return is correct and complete. If there are no changes to be made, there is no need to submit the tax return. If a taxpayer needs to make changes, the deadline for submitting them is 30 April.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The Ministry of Finance is the regulatory authority. The Tax administration consists of the Directorate of Taxes in Oslo and local tax offices in five regions. There are also three national tax offices: the Central Office - Foreign Tax Affairs, the Central Tax Office for Large Enterprises and the Oil Taxation Office. Also, the Norwegian National Collection Agency is a part of the Tax Administration.
The length of time to resolve tax issues depends on the complexity. Standard issues can often be resolved by telephone or by e-mail exchange with the tax authorities. More complex disputes may take years to resolve.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
If the taxpayer disagrees with a formal decision made by the tax authorities, the decision can be appealed to the Tax Appeal Board.
As a result of massive criticism for the lack of fair and independent treatment, the Tax Appeal Board system has recently been changed. The Tax Appeal Board will now comprise independent representatives with a minimum level of relevant competence in tax matters. For companies taxed by the Oil Taxation Authorities, there is a special Appeal Board. Due to the changes, the appeals have piled up recently, and we currently see that the processing time has increased significantly.
Norway does not have a specialised tax court. If the taxpayer disagrees with the appellate board’s decision, it is possible to appeal the decision to the Municipality Court. The deadline to initiate court proceedings is six months from the date when the resolution was sent to the taxpayer.
A judgment by the Municipality Court can be appealed to the Court of Appeal. Under certain conditions a judgment from the Court of Appeal can be appealed to the Supreme Court.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Corporations are required to make advance payments of tax on 15 February and 15 April in the year after the income year. Any residual tax, which is the difference between the tax assessed and the preliminary tax levied, must be paid three weeks after the tax assessment has been announced.
For taxpayers under the petroleum tax regime, tax shall be paid in six instalments.
As the main rule, the corporation tax must be paid even if the tax assessment has been appealed or a court judgment is pending.
For a company there is also several other tax related deadlines such as payment of VAT, withholding tax for employees, employment tax etc.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Information that has been reported to the Norwegian Tax Administration is subject to the confidentiality obligations in the Tax Administration Act. Breach of duty of confidentiality is a legal offence and is very seldom seen.
In general, the Tax Administration does not share confidential information with other Government Agencies. However, there are statutory exceptions where the confidentiality is waived under the existing regulations. Due to court practice in resent cases, we will advise taxpayers to keep tax advice separate from accounting information.
Also, the Norwegian Tax Administration exchanges information with other countries’ tax authorities in accordance with the tax treaties.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Norway is a signatory of the Common Reporting Standard and has implemented it in national law.
Norway is in the process of creating a public ownership registry to ensure transparency of ownership. On June 5 2015 the Norwegian Parliament voted to establish a public registry of corporate ownership information. As yet, the Government has not announced a proposal/proposition as to what the new beneficial ownership registry should look like.
What are the tests for residence of the main business structures (including transparent entities)?
Residence is not defined in the Norwegian Tax Act. Limited companies incorporated in Norway and foreign companies with their effective management and control in Norway are treated as resident. A company incorporated according to Norwegian law with its effective management and control outside of Norway, and with no/few other functions performed in Norway, may be considered to be non-resident. There are few examples of the latter situation in tax practice.
In a consultation paper of 16 March 2017, the Ministry of Finance has proposes amendments to the provisions of the Income Tax Act concerning where a company is tax resident.
Pursuant to the proposal, a company will be resident for tax purposes in Norway if it is incorporated in Norway or if the real management takes place in or from Norway.
If the company pursuant to a tax treaty with another country is a resident of that other country, it will not be deemed resident in Norway baes on the proposal. The new rule, which also includes tax residency based of place of incorporation, may be effective from next year.
Can the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
The Norwegian tax authorities consider transfer pricing and cross border transactions a field of great priority. The tax authority’s focus has been on for example intragroup financing arrangements, intra-group services and business restructurings and group organisation. Cases where the tax authorities are of the opinion that the transaction is not in compliance with the arm’s length principle are subject to extensive assessments. The signals from the OECD and the EU with respect to focus areas have great attention in this field.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
CFC rules apply where Norwegian companies or individuals, directly or indirectly, own or control at least 50 % of a company resident in a low-tax jurisdiction. According to the rules, the Norwegian resident shareholders are taxed of their proportionate share of income earned by the company in the low tax country.
The CFC legislation is not applicable to controlled EEA companies that are genuinely established in an EEA country and actually performs economic activities in the EEA (i.e. have sufficient substance). Further, the rules may generally not be applied to companies resident in a country Norway has concluded a Double Tax Treaty, provided that the company’s income is not primarily of a passive nature.
Norway does not have specific thin capitalisation rules, except for the main activities covered by the Petroleum Tax Act. In other situations the Thin Cap issue must be determined on the basis of the general arm’s length principal, laid down in the General Tax Act.
In addition to the general transfer pricing requirements, Norway has adopted rules limiting taxable deductions for interest expenses. Until now the rules have only limited interest deductions for debts within the group. The Ministry of Finance has proposed changes, including that the rules also should cover interests on external debt from 2018.
The tax legislation contains detailed rules related to transfer pricing reporting. Norwegian companies that has had related transactions of a certain level, has a reporting duty in the tax return. Companies with transactions over the reporting level, and that is a part of a larger multinational group, must also file transfer pricing documentation. The more detailed rules are based on the OECD standards for transfer pricing reporting. Country-by-country reporting is also required.
As of yet, there are no formal APA procedures enacted in Norwegian legislation, but APA’s are possible to obtain.
Is there a general anti-avoidance rule (GAAR) and, if so, how is it applied by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only, etc?
Norway has a general anti-avoidance rule which is developed by the courts. Under the existing rule, transactions may be reclassified for tax purposes if certain criteria are met.
The rule consists of a basic premise and an overall assessment. The basic premise is that the main motive behind the transaction must have been to reduce Norwegian taxes. Application of the rule also requires that it, based on an overall assessment of the effects of the disposition, the taxpayer's objective in making the disposition and the circumstances in general, seems adverse to the objective of the specific tax rule to use the disposition as a basis for taxation.
The standard is wide-ranging and the tax authorities are applying the anti-avoidance rule in a lot of different cases. Therefore, the enforcement of the rule is quite commonly litigated. The quantity of decisions from the Norwegian Supreme Court concerning the application of the rule is fairly extensive.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
Norway has already implemented a lot of the recommendations from OECD’s BEPS Project. For example, Norway has adopted country-by-country reporting regulations and necessary legislation for the exchange of tax rulings. In relation to Actions 8-10 on transfer pricing, Norway’s transfer pricing rules generally follow the OECD guidelines. Changes made to the guidelines are immediately adopted into Norwegian legislation.
The Norwegian Tax Act already contains interest deduction limitation rules. The Ministry of Finance has proposed amendments so that the rules will be more consistent with the recommendations in Action 4. Also, the Ministry of Finance has announced that the CFC rules will be revised.
How will BEPS impact on the government’s tax policies?
Norway has already made changes to the tax legislation in accordance with the recommendations, and more changes are soon to come. Thus, the BEPS Project has had, and will continue to have a great impact on the Norwegian Government’s tax policies.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
Norway does broadly follow the recognised OECD model of taxation.
a) business profits
Corporations pay a flat rate of 24 % on net taxable income. The tax rate is planned to be reduced to 23 % by 2018.
b) employment income and pensions
In Norway, the income tax for individuals is calculated on two different bases. A flat tax rate of 24 % is paid on “ordinary income” less the personal allowance and certain special allowances. Ordinary income comprises all taxable income (including for instance employment income and pensions), less allowable deductions.
Secondly, employee’s social security contributions and surtax are paid on so-called «personal income», which comprises for instance gross wage income and pension income, without deductions of any kind. All members of the national social security system must pay a social security contribution at 8,2 % of salaries and 5,1 % on pensions. Surtax at progressive rates is levied on gross earned income above a certain level. The following rates of surtax apply:
0.93 % above NOK 164,100 to 230,950
2.41 % above NOK 230,950 to 580,650
11.52 % above NOK 580,650 to 934,050
14.52 % above NOK 934,500
c) VAT (or other indirect tax)
Most companies doing business in Norway will have to apply, and be registered, for VAT in Norway. As a main rule, this applies to all companies conducting activity in Norway that generates a turnover of at least NOK 50 000 in any twelve-month period.
Value Added Tax must be added to most goods and services sold in Norway. There are basically four VAT rates in Norway. 25% is the standard rate. The rate is 15 % on the supply of food and 10 % on e.g. passenger transport services, hotel rooms and cinema tickets. Some goods, such as books and newspapers, are subject to a zero rate.
d) savings income and royalties
Interests and royalties are included in taxable income and taxed at a flat rate of 24 %.
e) income from property
Rents and capital gains at disposal of real estate are generally taxed at a flat rate of 24 %. In most cases, there is no capital gains tax on profits from sale of a person’s principal home.
f) capital gains
Generally, capital gains are taxed at a flat rate of 24 %. Capital gains derived by a Norwegian limited company from the sale of shares in a Norwegian or EEA resident limited liability company are exempt from taxation.
g) stamp and/or capital duties
With some exceptions, stamp duty is levied on real estate transfers. The stamp duty is currently 2,5 % of the market value of the real estate. There are no other stamp duties in Norway. Norway does not levy capital duty.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
The determination of taxable income is as a starting point based on the results shown by the annual accounts. However, many of the regulations of the Accounting Act, for instance rules concerning valuation of assets and liabilities and depreciation, will differ from the rules in the Tax Act. Also, some revenues are not considered taxable income, and not all expenses are deductible. A company's accounting profit/loss is seldom identical to its tax profit/loss. The accounting profit/loss for the year is corrected in accordance with the applicable tax rules to arrive at the taxable profit/loss.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
The most common company types in Norway are General Partnership (ANS), Limited Partnership (KS/IS) and Limited Liability Company (AS). Partnerships and Limited Partnerships are separate legal entities, but are considered transparent for tax purposes. Profits and losses generated by a partnership are calculated at the partnership level and the result is allocated to the partners and taxed at their hands. Limited Liability Companies qualify as taxpayers separate from the shareholders.
Trusts may not be formed under Norwegian law. Generally, trusts formed under the law of another jurisdiction would be recognised for tax purposes and would be regarded as being a separate taxable entity.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Norwegian tax law distinguishes between general tax liability and limited tax liability. Companies resident in Norway have a general tax liability to Norway. This means that a resident company is liable for Norwegian tax on its worldwide income. A company is considered resident in Norway if it has its place of effective management and control in Norway.
Non-resident companies are subject to corporation tax on profits/income from Norwegian sources, including income derived from a permanent establishment in Norway.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Norway has a special tonnage tax regime for shipping. The objective is to ensure the competitiveness of the Norwegian shipping industry.
Pursuant to the tax scheme, shipping companies are exempt from taxation of profits derived from eligible shipping activities. Instead, ship owners are obliged to pay an annual tonnage tax. The tonnage tax rates vary with the net tonnage of the vessel.
The Petroleum Taxation Act contains provisions regarding liability for tax on income earned from exploration for, or extraction of petroleum deposits and pertaining activity in Norwegian waters and on the Norwegian Continental Shelf. Income from all petroleum related activities carried out on the Norwegian Continental Shelf may be taxed in Norway.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Norway does not have a specific tax regime for intellectual property. However, Norway has a tax credit scheme for research and development (R&D) costs called SkatteFUNN.
Normally, the tax deduction is limited to 18 % of incurred R&D costs. Under specific conditions a deduction of up to 20% of the company’s R&D costs may be granted. The maximum basis for deduction is Nkr 25 million for self-developed R&D and Nkr 50 million for R&D purchased from approved institutions. If the company does not have taxable income for the income year in question, the company will receive a cash refund for the year following the income year.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
In Norway, group companies are taxed as independent taxable entities. However, Norway has rules that permit group contributions, i.e. transfer of taxable income. The rules are applicable to Norwegian corporations that belong to the same group, provided that the parent company holds more than 90 % of the shares and the voting rights of the subsidiary. Under certain conditions, the rules also apply to Norwegian branches of foreign companies that are resident within the EEA. Group contributions are deductible for the contributor and taxable for the recipient. Group contribution with tax effect may not be given or received with respect to income subject to the Norwegian petroleum taxation regime.
Are there any withholding taxes?
Norway levies withholding tax on dividends to foreign shareholders at a rate of 25 %, unless a lower rate applies under a double taxation treaty.
In addition, there is no withholding tax on dividend payments to corporate shareholders within the EEA under the exemption method. To qualify for the tax-exemption rules, the recipient of the dividends must fulfil certain substance requirements.
There is no withholding tax on interest or royalty payments. The Tax Commission's 2014 report on tax reform recommended that withholding taxes need to be implemented and applied on interests and royalties.
Are there any recognised environmental taxes payable by businesses?
Norway has a long experience with environmental taxation to promote more environmentally-friendly behavior. Norway has CO2 tax on petrol, mineral oil and natural gas produced in or imported to Norway. It is also tax on for instance deflation of Nitrogen oxide, lubricant and and sulphur tax on mineral oil.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
Norway has a fairly generous exempt method. Income from shares is as a main rule exempt, provided it is not from a low tax country. However, since accompanying costs are deductible, 3 % of dividends must be taken to income. This does not apply for dividends within a tax group. Also distributions and gain from partnerships are on certain conditions comprised.
Dividend payments from companies resident in the EEA to corporate shareholders are treated similar to dividends from a domestic company, provided that the paying company has sufficient substance. There is no minimum level of holding or holding period.
Dividend payments and gains from a company resident outside the EEA area will be comprised by the method if the corporate shareholder holds 10% or more of the share capital and the voting rights of the foreign company for a period of at least two years. Dividends are tax exempt from day one, provided that the criteria are met at a later time.
The exemption does not apply to dividends from low tax jurisdictions outside the EEA.
Dividends are not exempt from taxation if the dividend payment is tax deductible for the paying company, regardless of where the company is resident.
From the perspective of an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered by the jurisdiction?
Even though Norway has a favourable exempt method, and a competitive tonnage tax system, there are few tax incentives. Most international groups would probably not see Norway as a realistic alternative for relocation of activities after Brexit.