|
|
| Daniel Herde |
Trond Eivind Johnsen |
The Norwegian Ministry of Finance (MoF) has proposed changes
to the interest limitation rules applying to group companies,
possibly limiting the interest deductions for MNEs' inbound
investments in Norway.
The proposal is open to public consultation. Unless a de
minimis threshold, or one of two group equity ratio tests,
are met, the MoF proposes that deduction for all interest
expenses that exceed 25% of "taxable EBITDA" should be
denied.
While the current interest limitation rules only limit
interest expenses on intragroup debt and certain guaranteed
external debt, the proposed rules will affect all external debt
in addition to intragroup debt. The new rules will apply to all
group companies in Norway if the Norwegian part of the group
has net interest expenses exceeding NOK 10 million ($1.2
million) (compared to a de minimis threshold of NOK 5 million
per entity under the current rules).
Norwegian companies forming part of an MNE may, however,
escape interest limitation if they meet one of two equity ratio
tests:
1) If the equity ratio of the company in
question is equal to or higher than the equity ratio of the
consolidated group (i.e. the company is not thin-capitalised),
that company is fully exempt from interest limitation; or
2) If the equity ratio of the Norwegian part
of the group is equal to or higher than the equity ratio of the
consolidated group, all Norwegian group companies and entities
are fully exempt from interest limitation.
Determining the comparable equity ratios require certain
amendments to the company's annual accounts or consolidated
annual accounts for the Norwegian part of the group. This
includes:
- Ensuring that differences in accounting
principles are properly adjusted for;
- Attributing goodwill/badwill, etc. from
the group annual accounts to the group company that created
the value; and
- Ensuring that equity and debt that flow
through intragroup companies is only accounted for (once) in
the company where the equity/debt is actually used to invest
in capital goods.
As a result, one has to disregard shares in group companies
and intragroup receivables (asset in the balance sheet) and
reduce equity and debt respectively (equity and liabilities in
the balance sheet).
The essence of the equity tests is that Norway will not
allow a higher leverage on Norwegian investments compared to
the leverage of the MNE as such, using the group leverage as an
"arm's-length comparable". While the aim is to prevent the use
of debt for cross-border profit shifting, the rules may have an
adverse impact on largely equity funded MNEs interested in
capital-intensive investments in Norway, as the banks may
require local debt and the assets as pledge (e.g. property
investments or infrastructure). Equally, MNEs acquiring highly
leveraged ongoing businesses in Norway may soon be required to
push debt out of Norway to avoid the limitations.
On the other hand, for MNEs having only one Norwegian group
company, the proposed changes could be good news, as the
proposal is to increase the de minimis threshold for applying
the rules from NOK 5 million to NOK 10 million in net interest
expenses.
Claiming exemption under the equity ratio tests will require
substantive documentation and an increased compliance burden on
MNEs. Additionally, the proposed rules will not accept group
accounts prepared in any other accounting standard than NGAAP,
EU/EEA GAAP or IFRS. Consequently, MNEs with consolidated
accounts in other GAAPs (e.g. US GAAP) will not have access to
the equity ratio exemptions unless they prepare additional
consolidated group accounts under IFRS, NGAAP or GAAP in an EEA
country.
The proposal, which raises several other technical and other
issues, if adopted, is expected to enter into force for the
2018 income year.
Daniel Herde (dherde@deloitte.no) and
Trond Eivind Johnsen (tjohnsen@deloitte.no)
Deloitte Norway
Tel: +47 482 21 973 and +47 901 94 496
Website: www.deloitte.no