NORWAY Law and Practice Contributed by: Harald Sætermo, LexOslo
5.5 Thin Capitalisation Rules and Other Limitations Norway does not have traditional thin capitalisation rules based on a fixed debt-to-equity ratio. Instead, interest deductions may be limited under statutory interest limitation rules and general transfer pricing principles. The interest limitation rules are complex, but in sim - plified terms they apply where net interest expenses exceed statutory thresholds. For companies that are not part of a group, the threshold is NOK5 million and only net interest expenses on debt to related parties may be restricted. For group companies, the ordinary threshold is NOK25 million, calculated on a combined basis for the Norwegian part of the group, and the limitation may apply to both related-party and third- party interest. Deductible net interest expenses are generally capped at 25% of tax EBITDA. Group companies may, in cer - tain circumstances, rely on an equity escape rule, broadly where the equity ratio at company level or for the Norwegian part of the group is sufficiently aligned with the equity ratio in the consolidated group. How - ever, the equity escape rule does not necessarily pro - tect against limitation of interest paid to related parties outside the consolidated group. Disallowed net interest expenses may be carried for - ward for up to ten years. Related-party financing must also comply with the arm’s length principle under the transfer pricing rules, and withholding tax may apply to certain interest payments to related parties in low- tax jurisdictions. Foreign investors should assess acquisition financing and intra-group debt carefully, particularly where the Norwegian borrower has material related-party debt or a weaker equity position than the group as a whole. 5.6 Transfer Pricing Norwegian tax law applies the arm’s length principle to transactions between parties in a community of inter - est, including related-party transactions. The rules allow the tax authorities to adjust income, deductions and other tax positions where the prices or conditions agreed between such parties differ from those that
would have been agreed between independent parties under comparable circumstances. The Norwegian rules refer to, and generally follow, the OECD Transfer Pricing Guidelines. They are particu - larly relevant for cross-border controlled transactions, including sales of goods and services, intra-group financing, guarantees, royalties, management fees, cost-sharing arrangements and business restructur - ings. Norwegian companies and permanent establishments may be required to prepare transfer pricing docu - mentation if they meet the relevant size thresholds. The documentation should describe the group, the Norwegian entity, the controlled transactions and the comparability analysis, including functional analysis, method selection and benchmarking or other support for the pricing applied. Large multinational groups may also be subject to country-by-country reporting. Transfer pricing is an important audit area for the Norwegian Tax Administration, particularly in relation to intra-group services, financing, intangibles and restructurings. Foreign investors with Norwegian sub - sidiaries or branches should ensure that intra-group arrangements are documented and implemented con - sistently with the arm’s length principle. 5.7 Anti-Evasion Rules Norway has both a statutory general anti-avoidance rule and several specific anti-avoidance or protec - tive rules. The general anti-avoidance rule may apply where, viewed objectively, the main purpose of a transaction or arrangement appears to be to obtain a tax advantage and, after an overall assessment, it would be contrary to the purpose of the tax rules to respect the arrangement for tax purposes. The rule is aimed at tax avoidance rather than ordinary commercial tax planning. In practice, the assessment will consider the commercial rationale and non-tax effects of the arrangement, the size of the tax advan - tage, the degree of tax motivation, the legal and eco - nomic effects of the transaction, and whether the arrangement produces a tax result inconsistent with the relevant legislation.
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