NORWAY Law and Practice Contributed by: Daniel Nygaard Nyberg, Karoline Ulleland Hoel, Ole Andenæs and Jens Fredrik Bøen, Wikborg Rein Advokatfirma AS
related regulations. Even though sub-threshold AIFMs are not subject to these rules, they must comply with contractual obligations towards fund investors, as well as general marketing and contract law. The application of business conduct rules is referred to as a “legal standard”. What constitutes “acting in an orderly manner” and “fair treatment of investors” will certainly evolve over time. Managers who are guilty (by way of intent or negli - gence) of severe or repeated violations of the way they apply business conduct rules are exposed to penal - ties such as fines and imprisonment. This proves the significance of business conduct rules, and illustrates the actions that supervisors and authorities can take in cases of non-compliance. 3.4 Tax Regime for Managers Norwegian AIFMs are generally subject to the ordinary corporate income tax regime, but they are taxed at the increased financial activities tax rate of 25% and are additionally subject to a 5% increase in social security contributions payable on the salaries of their employ - ees. This higher tax rate compensates for the fact that their management services are generally VAT exempt. 3.5 Rules Concerning Permanent Establishments There are no relevant sector-specific exemptions or carve-outs, but the foreign fund structures involving Norwegian AIFMs or advisers are generally structured in a way that should limit the risk for a Norwegian Depending on the circumstances of the particular fund and manager, carried interest is often treated as share income or gain for Norwegian tax purposes, which is largely tax-exempt under the Norwegian participation exemption. In some structures and cases, the carried interest qualifies as the business income of the man - ager, which is subject to a tax rate of 22–25%. 3.7 Outsourcing of Investment Functions/ Business Operations AIFMs have the flexibility to delegate certain functions and operations to third-party entities. When such del - permanent establishment for the fund. 3.6 Taxation of Carried Interest
egation encompasses functions traditionally under the purview of the AIFM, as delineated in AIFMD Annex I, it is mandatory for authorised AIFMs to notify the FSAN. While delegation arrangements can increase efficien - cies and ensure access to external expertise, particu - larly given the global nature of the investment fund industry, their extensive use may also create opera - tional and supervisory risks, predominantly in relation to empty shells and letterbox companies. Addition - ally, the extent and manner of outsourcing must not compromise prudence or obstruct the FSAN’s ability to conduct adequate supervision over the third party executing the functions/operations. 3.8 Local Substance Requirements Norwegian AIFs may be managed by either a Nor - wegian-based AIFM (licensed by or registered with) the FSAN or an EEA AIFM exercising its AIFMD pass - porting rights. Additionally, the AIFM can outsource portfolio management to an investment manager abroad, as further described under 2.8 Local/Pres- ence Requirements for Funds . As such, Norwegian AIFs may be managed without a local presence. However, Norwegian AIFMs must maintain sufficient financial, technical and human resources in line with the nature of their business, investment services and the complexity of their activities. Administrative prac - tice typically requires that to ensure the continuity of its resources, the AIFM must have: • at least two conducting officers, one of them repre - senting the portfolio management function and one of them the risk management function; and • generally, at least three people present on a close to full-time basis, including at least two full-time managers. 3.9 Change of Control In Norway, AIFMs are subject to specific notifica - tion requirements in the context of mergers, sales, restructurings, or similar transactions. Below is a non- exhaustive list of the most relevant requirements for alternative funds.
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