Norway: Interest deductibility changes
Ingrid Anne Kinden
On 8 November, the new Norwegian government presented the final proposal for legislation that would limit the tax deduction of interest on related party debt. The proposed rule is designed to restrict earnings stripping via intercompany debt financing in Norway. The main features of the proposed limit on the deduction of interest on related party debt are as follows:
Net interest expense paid to a related party will not be deductible in a year to the extent the expense exceeds 30% of earnings before interest, tax depreciation and amortisation (EBITDA), subject to certain adjustments;
The limit will be calculated separately on an entity-by-entity basis, so no consolidated group approach will be available;
The threshold for the limitation to apply will be set at NOK 5 million;
Net interest expense in excess of the limitation will be available for a 10 year carry-forward, provided the expense falls within the 30% limitation for those years;
External debt for which a related party provided security will be considered internal debt and, therefore, will fall within the scope of the rules;
Tax losses carried forward and group contributions will not be deductible if the tax base before the limitation for deducting net interest expense is negative or zero. If an interest deduction is disallowed, the taxpayer can thus have a positive tax base and tax payable even though it has tax losses carried forward; and
The new legislation will apply from fiscal year 2014.
The proposed legislation is expected to be approved by the parliament without further changes.
Because the measures will apply to both Norwegian and cross-border groups, they may create challenges and require certain groups to undergo reorganisation.
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