NORWAY Trends and Developments Contributed by: Thea Slethaug, Axel Bjørke, Sigbjørn Sørensen and Jarand Aarhus, Aider Legal
from a different country may find itself commercially exposed. Permanent Establishment: The Thresholds That Determine Corporate Tax Liability A permanent establishment can arise in several ways under Norwegian tax treaties. The most relevant for project companies are: • a fixed place of business in Norway through which the business of the enterprise is wholly or partly carried on; • a building site, construction project, installation project or assembly project that lasts for more than a specified period; • a dependent agent in Norway who habitually exer - cises authority to conclude contracts on behalf of the enterprise; and • petroleum-related activities on the Norwegian continental shelf exceeding a specified number of days. For most foreign project companies, it is the construc - tion and installation provision that is most immediately relevant. Under this provision, a project constitutes a permanent establishment, and accordingly trig - gers Norwegian corporate tax liability, if its duration exceeds the threshold period specified in the appli - cable treaty. The key takeaway is that this threshold is relative to the treaty. For example, a Portuguese company car - rying out an installation project in Norway will, under the Norway–Portugal tax treaty, become subject to Norwegian corporate tax once the project has lasted for more than six months. A German company car - rying out an identical project will not reach the same threshold until the project has lasted for more than 12 months, as provided under the Norway–Germany tax treaty. The two companies are doing the same work in the same country, but their corporate tax exposure is entirely different as a result of treaty provisions. This example illustrates why treaty analysis must be carried out at the outset of any project, before bids are submitted and contracts are signed. The duration of the project is often known or can be estimated at the tendering stage, and the treaty threshold should
be a central input into both the tax structuring and the commercial pricing of the bid. Where a permanent establishment does arise, Nor - wegian corporate tax applies to the profits attribut - able to the Norwegian permanent establishment. Tax losses may be carried forward indefinitely, which pro - vides some comfort for companies in early phases of Norwegian operations. However, the existence of a permanent establishment also has significant conse - quences for the taxation of individual employees – as discussed below. The Critical Distinction: Genuine Subcontracts vs Hired Labour Arrangements At the onset of any project planning, a fundamental classification of the project for tax purposes should be made, as the difference between a genuine subcon - tract and a hired labour arrangement is key in deter - mining tax treatment. In a genuine subcontract, the foreign company takes responsibility for delivering a defined result – a com - pleted installation, a finished structure or a specific service outcome. The foreign company manages its own personnel, bears the project risk and is respon - sible for the quality of the delivered work. In this sce - nario, corporate tax exposure is determined by the permanent establishment analysis described above, and individual employees may benefit from treaty pro - tection in appropriate circumstances. In a hired labour arrangement, the foreign company supplies personnel who work under the direction and control of the Norwegian client. The company is not delivering a result – it is supplying labour. The tax consequences in this scenario are significantly more adverse. Norway will levy income tax on an employee who is regarded as being hired out to a Norwegian tax-paying lessee, regardless of the duration of the stay and regardless of whether the foreign employer has a permanent establishment in Norway. The 183- day employee exemption that applies in the genuine subcontract scenario is simply not available, and the employee is tax liable to Norway from the first day of work.
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