NORWAY Law and Practice Contributed by: Bernhard Getz-Jeffreys and Johannes Wiegaard, Ro Sommernes Advokatfirma AS
6.4 Taxation of Intangibles Developed by Local Corporations Any transfer of intangibles made by local corporations to third parties, within or outside the Norwegian juris - diction, is as a starting point a taxable event. Taxation also occurs if the Norwegian company emigrates for tax purposes (exit taxation). The capital gains taxation is based on the gain real - ised on the transfer, ie, the difference between the tax book value and the market value of the asset. If a third party is allowed to utilise the intangible asset, payment shall be made based on market terms. If the sales price/rent differs from the market value, the tax authorities may adjust the pricing pursuant to transfer pricing rules. Tax treaties can have an impact, especially when intangible assets are transferred to foreign subsidiar - ies. Such agreements can reduce or eliminate tax on gains, depending on the provisions agreed between Norway and the country in question. 6.5 Controlled Foreign Corporation-Type Rules Norwegian companies may be subject to tax on the income of their foreign subsidiaries under CFC rules, as outlined in Section 10-60 of the Norwegian Tax Act. These rules aim to prevent tax avoidance by taxing the income of subsidiaries located in low-tax jurisdic - tions, regardless of whether the income is distributed as dividends. CFC rules are triggered when Norwegian companies control foreign entities operating in jurisdictions with significantly lower tax rates. In such cases, the foreign subsidiary’s income is taxed in Norway to ensure it cannot be used to shift profits and avoid taxation. However, these rules do not apply to foreign branches of Norwegian companies, which are taxed under the general provisions for foreign income. Taxpayers can claim a credit deduction for taxes paid abroad to prevent double taxation, provided that they
Tax treaties also play a critical role, reducing or elimi - nating withholding tax on dividends, as governed by Section 10-13. For companies controlling foreign enti - ties in low-tax jurisdictions, Section 10-60 introduces Controlled Foreign Corporation (CFC) rules to ensure such income is taxed in Norway (for further explana - tion, see 6.5 Controlled Foreign Corporation-Type Rules ). 6.2 Non-Deductible Local Expenses When foreign income is exempt from taxation in Nor - way, for example through the exemption method, cer - tain local costs related to this income may be treated as non-deductible. This primarily applies to costs that are directly related to the exempt foreign income. Section 6-1 of the Norwegian Tax Act states that costs must be necessary to acquire taxable income to be deductible. If the costs can be linked to exempt foreign income, they will in principle not be deduct - ible. General operating expenses that are not directly related to exempt income may still be deductible. 6.3 Dividends From Foreign Subsidiaries Dividends from foreign subsidiaries are taxed in Nor - way according to different rules depending on whether they are covered by the exemption method or whether they are subject to withholding tax. Dividends encompassed by the participation exemp - tion are tax-exempt for the local corporation. How - ever, if the recipients do not hold more than 90% of the shares of the distributing company, 3% of the dividends received (not considered repayment of fully paid-in capital) will be deemed taxable, at a rate of (currently) 22%. If a dividend is not covered by the exemption method, it may be subject to withholding tax in the country where the subsidiary is domiciled. The withholding tax may vary, and tax treaties between Norway and the country in question may reduce or eliminate the with - holding tax on the dividend. In addition, Section 16-30 of the Norwegian Tax Act may under certain conditions allow the company to claim a credit deduction for the foreign withholding tax paid, which can help to avoid double taxation.
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