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Norway: Public consultation on expansion of tax residency rules

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Daniel Herde

Trond Eivind Johnsen

The Norwegian Ministry of Finance has proposed new rules regulating the tax residency for companies that have been opened to public consultation.

Under the proposed rules, companies will be considered as tax residents in Norway on two alternative grounds: either if they are effectively managed and controlled in or from Norway, or if they are incorporated pursuant to Norwegian company law. Further, it is suggested that the current effective place of management test is altered, involving a broader assessment. Additionally, the proposal includes a defensive rule, denying tax residency (and thus several benefits deriving from being a resident) to companies that are tax resident to another country due to a tax treaty. If adopted, the changes are scheduled to enter into force from January 1 2018.

Incorporation alternative

Under the current rules, a Norwegian incorporated company may be a foreign tax resident if its effective place of management and control is outside Norway. With the new provision, entities incorporated pursuant to Norwegian company law will be considered Norwegian tax residents, unless a tax treaty or mutual agreement procedure (MAP) agreement states otherwise.

Proposed change in the effective place of management assessment

Under the current rule, companies with their effective place of management and control in Norway are considered Norwegian tax residents. According to case law, the decisive criterion seems to be where the board of directors function is carried out, i.e. normally where the decisions at the board of directors level are adopted and the board of directors meetings are held. The consultation paper accompanying the proposals suggests that the place of effective management should now entail a broader assessment, considering both the board function, the daily management and location of the business activities. The ministry argues that this is more in line with the effective place of management assessment in the OECD Model Tax Convention. For foreign companies with business in Norway, the new rule may cause uncertainty, as the proposed assessment is more complex and unclear than the existing provisions.

Denying domestic law benefits for foreign tax residents

The new provisions will include an exemption for Norwegian incorporated companies that are tax residents in another state pursuant to the tiebreaker rule in an applicable double tax treaty or a MAP agreement. The purpose is to deny possible benefits that may be derived from being a tax resident pursuant to domestic law, while a double tax treaty denies Norway the right to tax the company as a tax resident. Nonetheless, it should be noted that all entities incorporated pursuant to Norwegian company law will still be obliged to file an annual tax return, regardless of whether they are regarded as a non-resident due to the proposed defensive rule.

Establishing tax book values for companies becoming Norwegian tax residents

As the new provisions may lead to new companies becoming Norwegian tax residents, the consultation paper does propose a rule that regulates tax book values for the company's assets and liabilities. The tax book value of tangible and intangible fixed assets should be the original purchase or cost price reduced by simulated depreciation according to Norwegian tax law. For other assets and liabilities, the tax book value will be the market value on December 31 2017.

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

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