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Norway – Recent Tax Developments

Revised National Budget – legislative proposals tax and VAT.

 

The Government’s proposal for a Revised National Budget 2017 was presented today May 11. The main proposal is the introduction of a new tax incentive scheme for start-up companies. Further, it was announced that the Government in connection with the 2018 budget will propose a postponed taxation of employees’ share options in small, newly established companies. Below is an overview of these and other key proposals within tax and VAT.  The proposals are most likely voted on in Parliament by June 2017.


Tax:

VAT: 

Administrative rules for tax and VAT: 


Proposed amendment to the Norwegian Interest Deduction Limitations

The Ministry of Finance has on May 4 2017 published a discussion paper proposing amendments to the Norwegian interest deduction limitation rules. The proposals are in line with recommendations by the Scheel committee (NOU 2014:13: capital taxation in a global economy) and recommendations from the OECD in BEPS action 4.  It should also be mentioned that ESA has raised questions as to whether the current rules are in conflict with rules of the EEA agreement. 

The current Norwegian interest limitation rules limit the deductible interest on loan from a related party to 25 per cent of an adjusted taxable income, similar to EBITDA. The taxpayer will not be able to deduct interest payments to the extent the expenses exceed 25 per cent of the mentioned EBITDA. Companies whose net interest costs are below NOK 5 million are exempt. Further, interest on loans from an external party are fully deductible provided a related company has not provided a guarantee or similar. 

The purpose of the new rules is to strike profit shifting which derives from loans to external parties. In the proposed new rules a Norwegian company which is part of a group of companies, as defined for accounting purposes, the interest expenses on external debt are also subject to the deduction limitation of 25 per cent of EBITDA. However, there is a combined threshold of NOK 10 million in net interest expenses taking into account all entities subject to taxation in Norway.

According to the proposal there are two escape clauses which allow a company to have full interest deductions. The escape clauses are intended to shelter ordinary debt arrangements:

The proposals will benefit Norwegian companies with internal debt financing which is lower than the debt financing ratio globally on a group level. On the other hand, the proposals could have adverse effects to Norwegian companies with higher internal and external debt financing than the foreign part of the group. 

The rules are proposed to have effect from 1 January 2018.  The public consultation period is open until 3 August 2017.  We expect a final legislative proposal to be submitted to parliament in the national budget for 2018 which will be presented in early October.

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