Norway: Foreign rig owner wins Norway Supreme Court case concerning limited tax liability
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

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

Norway: Foreign rig owner wins Norway Supreme Court case concerning limited tax liability

Sponsored by

Sponsored_Firms_deloitte.png
literature-3091212-1920.jpg

The Supreme Court in Odfjell Rig (case Rt-2015-1360) concluded that the limited activities carried out onshore were not sufficient to create the taxable nexus to Norway that would be necessary for tax to apply to the income deriving from a bareboat charter.

Herde
Johnsen

Daniel Herde

Trond Eivind Johnsen

A ruling by the Supreme Court in Odfjell Rig (case Rt-2015-1360) concluded that the limited activities carried out onshore were not sufficient to create the taxable nexus to Norway that would be necessary for tax to apply to the income deriving from a bareboat charter.

Odfjell Rig Ltd, a Bermudian limited company, together with other companies had invested in a (limited) partnership that owned a rig. A related company hired the rig on a bareboat charter. As a starting point, a bareboat charter does not create a taxable presence on the Norwegian continental shelf. The complicating factor in this case was that services were acquired from a related Norwegian manager with employees and offices in Norway. In Norway, a taxpayer is identified with its subcontractors, related or non-related, when taxable presence is considered (as in the Safe Services ruling from the Supreme Court, Rt-2001-512) – a principle that is further sedimented through this ruling. Activities carried out were, inter alia, insuring the rig, market activities, performing contact person duties, receiving bareboat charter fee and repaying debt and interest on behalf of the rig owner. It is not stated in the judgment, but it is evident that the manager did receive some million NOK annually for such services. The tax authorities increased the taxpayer's income with NOK 116 million ($13.5 million) for FY 2009 and NOK 135 million for FY 2010.

One judge (dissenting) thought that the manager's activities on behalf of the rig owner were sufficient to make the partnership and consequently the partners taxable in Norway. The majority of four judges was of the opinion that the (manager's) activities were only of a preparatory and auxiliary nature. Decisive in this respect was that the main service under the bareboat charter was to provide an operational rig, not the supplementary services mentioned above – a conclusion that can be reached by looking at both the time spent and the value of the services compared with the rig and rig hire.

The taxable presence pursuant to domestic law affects registration and compliance obligations and is also a prerequisite for taxing foreign taxpayers (unless a tax treaty provides protection against taxation). It has been unclear what the exact threshold for creating taxable presence under domestic law is and we see in practice that business trips are normally treated as not creating taxable presence. After this judgment, activities of an auxiliary character that create limited value seen in connection with the foreign companies' agreements should also fall below the threshold, even though it is unclear where the exact line is drawn. This judgment could reduce compliance costs for some foreign companies in Norway.

Daniel Herde (dherde@deloitte.no) and Trond Eivind Johnsen (tjohnsen@deloitte.no)

Deloitte Advokatfirma

Tel: +47 482 21 973 and +47 901 94 496

Website: www.deloitte.no

more across site & bottom lb ros

More from across our site

As German clients attempt to comply with complex cross-border rules, local advisers argue that aggressive tax authorities are making life even harder
Based on surveys covering more than 25,000 in-house lawyers, the series provides insights into what law firms must score highly on when pitching to in-house counsel
The UK tax authority reportedly lost a case due to missing a deadline; in other news, Canada has approved pillar two legislation
There will always be multinationals trying to minimise tax by pushing the boundaries of their cross-border arrangements, Rob Heferen claimed
HMRC’s attempts to crack down on fraudulent tax relief claims are well-meaning, but the agency risks penalising genuinely innovative businesses, writes Katy Long of ForrestBrown
Argentina, Brazil, Mexico and South Africa are among the countries the OECD believes could benefit from the simplified TP rules
It comes despite an offshore enabler penalty existing in the UK throughout the entire period
It is extraordinary that tax advisers in the UK can offer their services without having to join a professional body. This looks like it is coming to an end, Ralph Cunningham writes
Meet the esteemed judges who are assessing the first-ever Social Impact Awards
The ‘big four’ firm has also vowed to spend more on nurturing junior talent; in other news, Blick Rothenberg has hired a pair of tax partners
Gift this article