All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Norway: Interest limitation rules restrict freedom of establishment, ESA states


Trond Eivind Johnsen

"Norway has failed to fulfil its obligations arising from Article 31 of the EEA Agreement", states the EFTA Surveillance Authority (ESA) in a letter of formal notice to the Norwegian Ministry of Finance dated May 4 2016. The reason is Norway's interest limitation rules combined with the group relief rules

The Norwegian tax law provisions

The Norwegian interest limitation rules disallow the deduction of interest expense on intragroup debt (and third-party debt guaranteed by an affiliated party) that is more than 25% of the taxpayer's earnings before interest, taxes, depreciation and amortisation (EBITDA) for tax purposes. The rules apply equally to all Norwegian taxpayers, regardless of the group's domestic or cross-border presence.

The Norwegian group relief scheme allows Norwegian resident group companies or Norwegian branches of EEA resident group companies to exchange "group contributions". The distributing company can deduct the contribution within the frame of its taxable income. The recipient must add the contribution to its taxable income, which in turn can be set off against the taxpayer's losses.

The alleged restriction of the freedom of establishment

Either the group contributions can function as a substitute for internal debt, to transfer capital/debt within the group, or it can be used to adjust the EBITDA to increase deductibility of interest expenses. According to the ESA, domestic groups, due to their access to the group relief scheme, are in reality unaffected by the interest limitation rules, while EEA resident groups cannot in the same way access the relief scheme to neutralise or avoid the effects of the interest limitation rules. Thus, it seems that ESA is of the view that when comparing solely domestic groups with cross-border groups, only the latter is de facto affected by the interest limitation rules, which in turn leads to a higher tax charge for such groups. In conclusion, the ESA states:

The legislation at issue amounts to a restriction on the freedom of establishment for groups of companies where the loan is provided by an affiliated company residing in another EEA State in cases where the conditions for eligibility for group contributions would have been fulfilled had both companies been Norwegian residents.

Fails to meet the proportionality test

Upon stating the existence of a restriction, the ESA continue to investigate whether the restriction is justified by overriding reasons in the public interest and further if the rules go beyond what is necessary to attain that objective ("the proportionality test"). While ESA easily conclude that the objective of preventing tax abuse is an "overriding reason of public interest", they find that the rules are not proportionate.

The Norwegian interest limitation rules rely solely on objective elements and ESA states that the "rules lead to a general presumption of abuse". However, the rules are not designed with the objective to prevent "wholly artificial arrangements" only, and there was no assessment on the substance vs artificiality of the debt arrangement in the application of the rules. In the absence of an escape clause giving taxpayers the possibility to provide economic justification for their intragroup arrangements, the ESA found that the rules violate the EEA agreement.

Further process

The Norwegian authorities have two months to give their view on the formal notice. If their response fails to satisfy ESA, they can expect a reasoned opinion on the alleged breach, which in turn could result in either a law change or an EFTA court case.

Response awaited

It will be interesting to read the response from the Norwegian authorities. The ESA's understanding of the Norwegian rules in question may seem to lack some nuances, which we do expect the Norwegian authorities to point out. Our experience is that also domestic groups, regardless of their access to group contributions, are limited by the interest limitation rules – not only in theory, but also in practice.

Trond Eivind Johnsen (

Deloitte Norway

Tel: +47 901 94 496


More from across our site

The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree