An insight into Norwegian Tax Appeal Board rulings
Adrian Dobloug Høidahl of Deloitte Norway focuses on selected rulings from the Norwegian Tax Appeal Board from 2020.
The Norwegian Tax Appeal Board is the appeal body for most of the decisions made by the tax office. In 2020, the Tax Appeal Board rendered 70 decisions.
The first decision addressed in the article is on the taxation of cryptocurrency. In the second decision, retroactive group contributions were considered between two merged companies. The third and fourth decisions deal with the classification of proceeds from shares, as either dividends or paid-in capital.
Treatment of bitcoins for capital gains tax and wealth tax purposes
In the case from December 16 2020 (NS 158/2020), an individual had acquired and sold Bitcoins over several years. The first question before the Tax Appeal Board was whether Bitcoins could be considered part of the taxpayer’s property used in the residence or household of the owner or his family, which is exempt from capital gains taxation.
The taxpayer argued that since the Bitcoins had been mined in Bitcoins early phases, with the mining activity as a hobby, the conditions for the exemption were met. The Tax Appeal Board referred to the tax office decision, stating that Bitcoins are a means of payment and not a household item, thereby subject to capital gains taxation.
The second question was whether Bitcoins was an asset for wealth tax purposes, and if so, how it should be valued. The taxpayer argued that there were several uncertainties concerning the economic value of the currency, and that the sources used for valuation purposes by the tax office were unreliable.
The Tax Appeal Board concluded that Bitcoin was an asset for wealth tax purposes, and that the tax office’s valuation, using an average rate from several internet sites and exchanges, was defendable and in line with the law.
Retroactive group contributions
In the case from October 15 2020 (NS 128/2020), a company had sold two real estate options with taxable gains and distributed the remaining profits to its three shareholders. Following the distribution, one of the three shareholders acquired the other shareholder’s shares, making the acquiror the sole shareholder.
The question before the Tax Appeal Board was whether the gain from the sale of the options could be neutralised by the new sole shareholder through a retroactive group contribution, the Norwegian way of tax consolidation.
The Tax Appeal Board stated that the corporate requirements for retroactive group contribution was not possible to fulfill, as the two companies were merged at the time of the group contribution request. A group contribution has to be rendered between the companies that wants to tax consolidate, which is not possible if the two companies have amalgamated. The Tax Office’s decision was therefore upheld.
Classification as dividend or paid-in capital
In the decision from October 15 2020 (NS 129/2020), a company had received dividends from three subsidiaries, all of which were sold before the end of the fiscal year. The question before the Tax Appeal Board was whether the company could choose to treat the dividends as repayment of paid-in capital (fully exempt from tax) or whether the company was subject to tax on 3% of the distributions.
The Tax Appeal Board agreed with the taxpayer that shareholders, as a point of departure, are entitled to classify a distribution as repayment of paid-in capital or a dividend for tax purposes, and that the shareholder normally can decide the classification when submitting the tax return.
However, when shares were sold in the middle of the income year, the Tax Appeal Board stated that the seller would lose its right to classify previous distributions that year as repayment of capital, unless otherwise specifically agreed with the buyer. Furthermore, as the shareholder had not actively classified the distribution as repayment of paid-in capital, the distribution would then follow the corporate law treatment and thus be classified as a dividend.
In the decision from May 19 2020 (NS 73/2020), a fully-owned company had acquired own shares from its sole shareholder. In the tax returns the shareholder had treated the transaction as a sale of shares, with a marginal capital gain.
However, because the transaction did not affect the shareholders ownership in the company, the sale should, as a starting point, have been treated as a dividend distribution in accordance with existing administrative practice. The question before the Tax Appeal Board was whether parts of the dividend could be classified as repayment of paid-in capital which is tax-exempt.
The Tax Appeal Board looked at the history of the shares in the company and was able to trace a large part of the distribution back to previous paid in capital for tax purposes, even though there had been several emissions, share splits, etc.
The partial reclassification from taxable dividends to tax-exempt repayment of paid-in capital was initiated by the Tax Appeal Board (without being invoked by the taxpayer), and reduced the taxable income for the taxpayer significantly. This is a good example of the Tax Appeal Board giving the taxpayer a helping hand.
Adrian Dobloug Høidahl
Lawyer, Deloitte Norway