NORWAY Law and Practice Contributed by: Bernhard Getz-Jeffreys and Johannes Wiegaard, Ro Sommernes Advokatfirma AS
In 2024, Statistics Norway reported that Sweden, Finland, Switzerland, the UK and the USA together accounted for 53% of total foreign direct investment in Norway. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices Local tax authorities in Norway challenge treaty shop - ping, where entities in treaty countries are used by residents of non-treaty countries to reduce taxes. Nor - way addresses this through various measures, includ - ing the principal purpose test (PPT) in many modern tax treaties, which denies benefits if the arrangement’s primary purpose is tax advantage. Some treaties also include a limitation on benefits (LOB) clause, restrict - ing benefits to entities with genuine economic activity in the treaty country, a common feature of US treaties. Norway’s general anti-avoidance rules (GAAR) further allow authorities to challenge artificial structures cre - ated primarily for tax advantages. 4.4 Transfer Pricing Issues for Inbound Investors Inbound investors operating through local corpora - tions in Norway face transfer pricing challenges. Transactions between related parties must comply with the arm’s length principle, requiring prices and terms to reflect those agreed upon by independent parties in an open market. The tax authorities can adjust taxable income if transactions deviate from this standard. Strict documentation requirements, specified in the Norwegian Tax Administration Act, enforce compli - ance: • Section 8-11 requires contemporaneous documen - tation of transfer prices for related-party transac - tions, available for audits. • Section 8-12 imposes additional taxes and sanc - tions for incomplete or missing documentation, with significant financial consequences, including discretionary income adjustments. Valuing intangible assets such as trade marks, pat - ents and technology remains a complex issue, as Norwegian authorities, in line with OECD guidelines,
scrutinise valuations across jurisdictions. Intra-group services must be supported by evidence of necessity, actual delivery and market-based pricing. Similarly, loans between group companies must reflect market interest rates, with adjustments applied for deviations, particularly in cases of thin capitalisation. Notably, transfer pricing rules do not apply to equity transac - tions. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements Local tax authorities in Norway frequently challenge limited risk-sharing arrangements with related parties due to their potential to shift profits to low-tax jurisdic - tions. Authorities assess whether these arrangements reflect genuine economic substance by evaluating risk allocation, functional contributions and compliance with the arm’s length principle. Transactions must align with market terms and be properly documented. If the local entity assumes greater risks or functions than agreed, adjustments may be made for tax purposes. Contributions to intan - gibles or market value may also increase local profit allocation. Authorities can disregard profit-shifting arrangements or adjust profit margins to industry benchmarks. 4.6 Local Transfer Pricing Rules and OECD Standards Norwegian transfer pricing rules align closely with OECD guidelines. However, Norwegian tax authorities impose strict documentation requirements, often demanding more detailed records than some other OECD countries. Inadequate documentation can result in fees, discre - tionary adjustments or additional taxes. The general anti-avoidance rule allows the tax authori - ties to reclassify transactions designed primarily for tax benefits, reflecting Norway’s stringent applica - tion of OECD base erosion and profit shifting (BEPS) measures. Additionally, Norwegian authorities close - ly scrutinise the allocation of profits from intangible assets, ensuring they align with the enterprise’s sub - stance and risk distribution.
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