NORWAY Law and Practice Contributed by: Bernhard Getz-Jeffreys and Johannes Wiegaard, Ro Sommernes Advokatfirma AS
5.7 Restraints on Related-Party Borrowing In the Norwegian context, specific limitations are imposed on loans between related parties, particularly with regard to interest deductions. Interest expenses on loans from related parties may be deductible, con - tingent upon the fulfilment of certain criteria. In 2019, novel interest limitation rules were intro - duced, affecting both intra-group and external loans. In instances where net interest expenses in the Nor - wegian part of the group exceed NOK25 million in total, the deduction for interest expenses is limited to 25% of the company’s taxable EBITDA. To safeguard ordinary loans, a balance sheet-based exemption rule has been implemented. This rule stipulates that inter - est deduction is not applicable if either the company’s equity or the equity in the Norwegian part of the group is greater than or approximately equal to the group’s equity. The intra-group interest limitation rule may still apply when the lender is a related party outside the group. Additionally, loans from a company to a personal shareholder (direct or indirect) will in most cases be regarded as a taxable dividend. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions In Norway, foreign income earned by local companies is generally subject to corporate taxation under Sec - tion 2-2 of the Norwegian Tax Act. However, certain types of foreign income, such as dividends and gains from the sale of shares in EEA-domiciled subsidiaries, may qualify for tax exemption under the exemption method in Section 2-38, provided that the subsidiar - ies are genuine enterprises meeting specific criteria. When tax is paid abroad, Norwegian companies can under certain conditions claim a credit deduction under Sections 16-20 and 16-30. To prevent tax avoid - ance, the general anti-avoidance rule enables the tax authorities to deny benefits from artificial structures designed to avoid Norwegian taxation.
lishments. As a result, the provisions of a tax treaty between Norway and the investor’s country of resi - dence may eliminate or reduce Norwegian tax liability in such cases. 5.4 Tax Implications of Change of Control Norway does not impose a general change of control tax. Taxation of change of control events depend on the manner of the change of control. Taxes on any dis - posal of shares are levied upon the party disposing of the shares, although no withholding tax applies if the party disposing of the shares is non-Norwegian. How - ever, if change of control is completed through a divi - dend distribution, a withholding tax may be imposed. For indirect holdings higher up in an overseas group, taxation may apply if the shares are connected to real estate or a permanent establishment in Norway. Additionally, the tax authorities may disregard artificial arrangements designed to avoid taxation during such transactions. Tax treaties between Norway and other countries influence the taxation of these scenarios by determin - ing which jurisdiction is entitled to tax capital gains, particularly when they involve real estate or business establishments. 5.5 Formula-Based Income Attribution Formula-based income attribution may apply within the natural resource tax rules. Outside these rules, income attribution is based on arm’s length pricing. 5.6 Deductibility of Intra-Group Management and Administrative Charges In Norway, payments from local companies for man - agement and administration costs incurred by a for - eign company in the same group may be deductible, provided that the cost is at arm’s length terms. In addition, documentation supporting that the pay - ments are necessary to generate taxable income is required. Tax treaties can also affect the right to deduct, especially in international transactions. This means that to be deductible, payments must fol - low the arm’s length principle and be documented as necessary for income service.
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