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ESA finds Norwegian rules limiting intra-group interest deductibility to represent a breach of the EEA Agreement

EFTAS Surveillance Authority (“ESA”) has in a Letter of formal notice to Norway, dated 4 May 2016, concluded that the Norwegian interest cap rules in the Norwegian Tax Act (“NTA”) constitute a restriction on the freedom of establishment laid down in Article 31 of the EEA agreement.

ESA notes that the rules, according to preparatory statements, are targeted specifically to the disadvantage of companies having their seat in other (EEA) States. Although the rules do not differentiate on basis of the nationality or residence of taxpayers, ESA notes that the rules lead to indirect discrimination. Companies affected by the rules are for the most part EEA based companies that conduct cross-border activities, or Norwegian based companies that conduct cross-border activities through an EEA based branch, because in cross-border situations the companies cannot prevent or reduce the negative tax effect of the interest cap rules by making use of the Norwegian group contribution rules.  Furthermore, ESA states that the restriction on deductibility of intra-group interest payments as laid down in Norwegian tax law is a prohibited restriction also because it is disproportionate. ESA refers to that under EU-law, genuine business transactions must be respected and that a reduction of tax deductibility should be limited to the proportion that exceeds what would have been agreed between non-affiliated parties.

The Norwegian interest cap rules entered into force with effect from 1. January 2014. The Norwegian government has not yet published a formal comment on ESAs notice.

The formal notice can be read in its entirety here.

Filings to protect your company’s tax positions may be required. Please contact us if you need should need any assistance or wish to discuss.

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