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Method for gross up of net salary for cross-border employees

Norwegian authorities have for a number of years enforced a practice implying that net salary shall be grossed up in accordance with Norwegian tax rates, regardless of the tax amount actually paid in countries outside of Norway. Given that the employee is on an assignment in a country where there is no tax on income, or where the income tax is lower than in Norway, the taxation of the employee is based on a hypothetical benefit.

Consequently, costs for the employer are higher both on the total tax liability and potentially higher for calculating social security contributions both for the employer and for the employee.

The question has been tried both in lower and higher courts and in both cases the court ruled in the government's favour. The question, as such, is of principal character and it may be appealed to the Supreme Court.

Legal basis

The Ministry of Finance has clearly stated that the net salary agreement is a taxable benefit and is considered gained already when the contract between the employer and employee is signed. The benefit is considered taxable on accrued basis when the net salary is paid.

The tax authorities' view is that the employer in Norway is obliged to calculate the correct gross salary as if the employee was working in Norway. One argument given is that the term 'net salary' is not defined in the legislation and that Norwegian tax principles and rates must therefore apply. Avoidance of double taxation is ensured either under reference to the applicable tax treaty or Norwegian domestic law.

The lower and higher court expressed significant doubt with regard to correct interpretation of the law, but ultimately concluded that it shall be the responsibility of the legislators to clarify in law or secondary law if the practice is unreasonable.

Our opinion is that this is incorrect. As a starting point, there is not a clear legal basis to deviate from the rule and principle that the taxable basis is an actual benefit given from the employer, either as a cash salary or as benefits in kind. The principle of legality, general tax principles and de lege ferenda considerations weigh considerably against the lawfulness of the administrative practice followed by Norwegian tax authorities.

Practical consequences

Instead of including the actual paid taxes in the host country and accruing this to the point of payment in accordance with the cash basis, Norwegian authorities require that the net salary is grossed up in accordance with Norwegian tax rates in advance of any actual tax payments. The marginal tax rate in Norway is 47.2% (including employee social security rate of 8.2%) and the employer social security rate is 14.1%.

As an example, a Norwegian employee on assignment in Dubai, where there is no tax on salary income, will not pay any tax on the salary income in Norway given that he fulfills certain criteria. Social security contributions must, however, be paid. In a case like this, the consequence for the Norwegian tax authorities view will be as follows:


Employer soc sec

Employee soc sec


$250,000 (net)




$472,000 (grossed up)




The difference in payable social security amounts is $49,500.

Cost saving opportunities

As the current administrative practice is supported by two court cases, the latest ruled July 6 2015, it is not an option to deviate from the practice and guidelines given by the Norwegian tax authorities. However, it is important to emphasise that the employers social security contribution may be avoided if the payroll is placed outside of Norway and the employee is not a member of the Norwegian social security scheme.

Litigation set to continue

As the current situation in many contexts implies unreasonable and unnecessary costs for the employer, it is important to review the companies' tax policy in cases where the employer has a significant number of assignees from Norway to other countries, especially if the assignees work in countries with significantly lower tax rates than in Norway.

The higher court decision is not legally binding, as the deadline for appeal has not yet expired. It remains uncertain at this point if the case will be appealed and, if appealed, whether it will be approved for a Supreme Court decision. Due to the principle character of the question and the doubt expressed in the previous courts, we believe it is likely that the case will be approved for entry if appealed.

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