Anders V. Heieren
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The Norwegian Ministry of Finance submitted on 10 April 2019 a proposal to Parliament to legislate the general anti abuse rule for tax, VAT and other duties (“GAAR”). The proposal is primarily a codification of a similar rule developed over decades of Supreme Court practice in tax cases, but in some aspects represents a tightening in the taxpayer’s disfavour. It is expected that Parliament will enact the proposal, and the new GAAR rule will have effect from the income year 2020.
When applying the GAAR, the tax authorities will re-characterize the transaction (or series of transactions) to reflect the economic reality and tax accordingly. E.g. a distribution of tax-free dividends to company A could be re-characterized to a taxable dividend to parent company B resident in another state.
Two criteria must be met for the GAAR to be applicable:
The evaluation of the main purpose of a transactions or arrangement was previously based on a more subjective test of the personal motive of a taxpayer. The new rule lowers the hurdle for applying the GAAR by replacing this test with a more objective one, based on what a rational person would consider as the purpose (based on the relevant facts of the case). The new rule further states that a tax advantage achieved in another state shall no longer qualify as a business motive. Finally, it is mentioned in the White Paper, but not in the text of the new regulation, that a discussion of possible unwanted tax planning identified in the preparatory works for a new tax rule, without implementing specific targeted measures to avoid the same, shall not prevent application of the GAAR.
In some cases, but not always, the Supreme Court has assumed as relevant whether the same result could have been achieved in other ways with no risk of being framed by the GAAR (i.e. tax free distribution of paid-in capital instead of dividend distribution). It is positive that this is now listed as a relevant consideration against applying the GAAR. The list of relevant factors (not exhaustive) which shall be included in the overall assessment are:
The proposal to legislate the Norwegian anti abuse rule is to a large extent similar to the Article 6 the general anti-abuse rule laid down in the EU Council Directive 2016/1164 (Anti Tax Avoidance Directive). However, one difference may be that it is sufficient for the application of article 6 that “one of the main purposes” is to save tax, while under the new Norwegian rule the saving of tax must be the main purpose.