Norway

Income taxes are assessed on companies individually, not on a consolidated basis. Group relief is secured by the possibility of group contributions between Norwegian companies, provided common group direct or indirect (including foreign) ownership and voting rights is more than 90%. Furthermore, the Norwegian group contribution rules are, under certain conditions, also applicable to Norwegian branches of foreign companies that are resident within the EEA. Note that group contributions are not deductible for companies engaged in oil and gas producing activities subject to the Petroleum Tax Act.

Assets may, pursuant to the Group Regulations, be transferred tax-free between group companies at tax book value for tax purposes and at market value for financial book purposes. However, a guarantee for the latent tax liability created by the transfer must be provided upon request by the tax authorities.

Payment must equal market value of the assets transferred. The same applies to payment in the form of shares. If the transferee loses the affiliation with the tax group while still owning the transferred assets, the transferor will be taxed for the difference between the tax book value and the market value of the assets.

Transfer pricing

In Norway, the arm’s-length principle for related-party transactions is incorporated into the Tax Act. The transfer pricing provision of the Tax Act states that the OECD Transfer Pricing Guidelines 'shall be taken into account' when addressing transfer pricing issues under Norwegian tax law.

Transfer pricing has increasingly become the focus of the tax authorities’ attention in recent years. It is fairly common for the Norwegian tax authorities to choose test cases that are subject to substantial investment. During the most recent years, focus has been on, inter alia, business restructuring, services, cost contribution arrangements, and the financing of operations.

Norway does not have a general, unilateral advance pricing agreement (APA) regime. Bilateral and multilateral APAs are available under the relevant DTTs. It is also becoming more common to discuss complex cases with the tax authorities on a non-binding basis in advance of implementation or before assessment. However, there are no particular Norwegian safe harbour rules or any other official guidance on how to price specific transactions, etc.

Country-by-country (CbC) reporting

Norway has implemented CbC reporting rules for multinational groups with an overall income of NOK 6.5 billion or more. The report is to be submitted, at the latest, by 31 December of the year after the relevant accounting year. For multinational groups with divergent accounting years, the deadline is 12 months after the end of the accounting year.

Thin capitalisation

There is no general fixed debt-to-equity ratio requirement in Norwegian tax law, but general interest limitation rules apply (see below). For companies that are part of a group, adjustments to deductible interest costs may be made under the arm’s-length principle. Generally, such adjustments may be made if the company has obtained a larger loan from a group company than an independent credit institution would have granted, or if the agreed level of interest is higher than an independent credit institution would have required. Naturally, this analysis will vary based on the actual company’s financial capacity and its creditworthiness, which depends on several elements, such as the nature of the business, financial status, future income possibilities, financial guarantees, group relationships, etc. As such, there is no applicable 'safe harbour'. The company must also be able to service its debts. Typically, a thin capitalisation challenge from the tax authorities will be based on comparisons of key ratios indicating the company’s debt servicing capacity.

If a Norwegian entity is regarded as being thinly capitalised, part of the entity’s interest and debts may be reclassified to equity.

Interest deduction limitation

Interest expenses are, as a starting point, deductible for Norwegian tax purposes. There are, however, rules on interest deduction limitations on both internal and external interest in place, which are in line with the OECD G20 BEPS project. The rules on deduction limitation on interest to related parties apply to both stand-alone companies and group companies, while the deduction limitation rules on external interest only apply to companies that are consolidated into a group financial statement in the year before the income year or could have been consolidated under IFRS.

Threshold

The rules apply if the threshold is exceeded. For stand-alone companies, the threshold is net NOK 5 million. For entities that are considered as group companies, the threshold is net NOK 25 million combined for all Norwegian entities consolidated into the same group. The threshold is measured at the end of the year, and all interest expenses, both to related parties and external parties, should be included.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) rule

The maximum deduction in each company is 25% of tax EBITDA. The portion of net interest expenses that exceed 25% of tax EBITDA may be carried forward for ten years. In practice, the carryforward period is longer due to the old interest being deducted first within the deduction frame, while interest in the current tax year is added to the carryforward balance.

Equity escape clause 

Group companies may utilise the equity escape clause and deduct all interest expenses to related and external parties if it can be demonstrated that the equity ratio at the company level or for the Norwegian part of the group is no more than 2 percentage points lower than at the highest level in the structure where the group consolidates or may consolidate in accordance with NGAAP, IFRS, IFRS for SME, GAAP in a EEA country, UK GAAP, US GAAP, or Japanese GAAP.

The equity ratio is calculated based on the year-end accounts of the year prior to the tax year. ​

In order to compare the equity ratios, certain adjustments must be made to the accounts of the Norwegian entities to ensure comparability.

Interest expenses to related parties outside the group

Norway has a separate rule on interest expenses to related parties outside the group, where, if a group company has such interest expenses, it is subject to the NOK 5 million threshold and 25% of tax-EBITDA rule. A related party outside the group will typically be an individual who holds, directly or indirectly, 50% or more of the shares in the company. Consequently, a Norwegian company belonging to a group and qualifying for the equity escape clause may still be exposed to the interest deduction limitation to the extent it has debt to a related party outside the group.

Controlled foreign companies (CFCs)

Norwegian residents are taxed directly on their allocable part of the profits from a CFC’s income if the company is resident in a low-tax country, irrespective of whether income is distributed to the Norwegian investor. A low-tax country, in this respect, is a country where the effective foreign income taxation of the company’s profits is less than two-thirds of the effective taxation that would have been due had the company been resident in Norway. A condition for such taxation is that 50% or more of the foreign company’s shares or capital is held or controlled, directly or indirectly, by Norwegian taxpayers (alone or together), based on the status at the beginning and end of the income year in question.

Note that if Norwegian taxpayers own or control more than 60% of the shares or capital at the end of the income year, Norwegian control exists irrespective of the level of control at the beginning of the year. Norwegian control ceases to exist if Norwegian taxpayers own or control less than 50% of the shares or capital at both the beginning and end of the income year or less than 40% of the shares or capital at the end of the income year.

On the condition that Norway has signed a tax treaty with the country involved and the company in question is covered by the treaty, the CFC rules will be applicable only if the income of the entity in question is mainly of a passive nature. Furthermore, CFC taxation may also be prohibited if the company in question is resident within the EEA and cannot be deemed as a wholly artificial arrangement as outlined in the ECJ’s decision in the Cadbury Schweppes case. Hence, CFC taxation will be avoided for EEA companies that fulfil certain substance requirements.