Norway: Herkules Capital wins carried interest tax dispute in the Norwegian Supreme Court

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Norway: Herkules Capital wins carried interest tax dispute in the Norwegian Supreme Court

Saastad-Rolf
Li-Wensing

Rolf Saastad

Wensing Li

In a ruling from November 12 2015 (Herkules), the Norwegian Supreme Court stated that carried interest for tax purposes is to be treated as operational income in the general partner, rather than income of employment, which was the tax authorities' view. Hence, the tax authorities' view that the carried interest should be treated as personal income taxed at approximately 50% was overruled by the court. The court emphasised that the basis for an assessment of income classification and income allocation for tax purposes is primarily the agreements entered into by the taxpayers, to the extent they reflect the realities and are mutually binding.

Herkules is a private equity fund established under a Jersey LLP structure. The advisory services were provided to the fund by the key individuals through a management agreement with Herkules Capital, a Norwegian company of which those individuals were employed. Both Herkules Capital and the general partner of the fund were 60% indirectly owned by the key individuals through their holding companies, whereas 40% was owned by a private equity sponsor. All profits generated by the fund were split on a pre-agreed fixed basis, with up to 8% of invested capital being paid to ordinary investors and any excess profits being split 80/20 (carried interest) with the general partner.

Although the carried interest were treated as operational income for tax purposes in Herkules, it is unclear whether the classification as such applies to carried interest in general. The classification of carried interest as operational income in this case was agreed by the involved parties in advance of the court hearings. Hence, it was not necessary for the Supreme Court to address this question in particular.

Another important question left open is if there still may be room for argumentation that carried interest should be regarded as income of capital in certain cases where the level of involvement and/or risk-taking are different.

Rolf Saastad (rsaastad@deloitte.no) and Wensing Li (wensli@deloitte.no), Oslo

Deloitte|

Tel: +47 907 47 556 and +47 458 88 150

Website: www.deloitte.no

more across site & shared bottom lb ros

More from across our site

Encompassing everything from international scandals to seismic political events, it’s a privilege to cover the intriguing world of tax
In his newly created role, current SSA commissioner Bisignano will oversee all day-to-day IRS operations; in other news, Ryan has made its second acquisition in two weeks
In the age of borderless commerce, money flows faster than regulation. While digital platforms cross oceans in milliseconds, tax authorities often lag. Indonesia has decided it can wait no longer
The tariffs are disrupting global supply chains and creating a lot of uncertainty, tax expert Miguel Medeiros told ITR’s European Transfer Pricing Forum
Corporate counsel should combine deep technical knowledge with strategic dynamism, says Agarwal, winner of ITR’s EMEA In-house Indirect Tax Leader of the Year award
Luxembourg’s reform agenda continues at pace in 2025, with targeted measures for start-ups and alternative investment funds
Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
Gift this article