Norway proposes new limited access to cross-border group contributions within the EEA
Heidi K Skovdahl and Inger Camilla U Gjeruldsen of Deloitte Norway explain the proposal for a new rule on cross-border group contributions, codifying the principles from EU/EEA law regarding ‘final loss’.
The Norwegian government has proposed a new rule for cross-border group contributions. The new rule codifies and clarifies existing practice which allows deductions for group contributions to companies within the European Economic Area (EEA) which has a ‘final loss’, subject to several limiting factors. The proposal is expected to be effective from income year 2021.
As a starting point, the current Norwegian tax rules limits deductions for group contributions to those made to Norwegian companies. In 2017, the EFTA Court gave its advisory opinion to the Court of Appeal in the case E-15/16 Yara International ASA. The EFTA Court concluded that the Norwegian statutory rules were in breach of the EEA agreement in cases where a contribution to an EEA subsidiary covers a ‘final loss’ in the subsidiary. This was accepted by the Norwegian government and the Court of Appeal in the Yara case.
Definition of ‘final loss’
The proposed new rule codifies the principles from the Yara case and clarifies the term ‘final loss’ in line with principles established under EU case law (e.g. the 2005 CJEU decision in case C-446/03 Marks & Spencer). According to the proposal, a loss is final when:
All options for using the loss have been exhausted (including past, present, and future periods), and the reason for the non-utilisation is due to the taxpayer’s specific facts and circumstances (i.e. not due to rules on expiration of losses or a lack of legal basis for using the loss);
The business activities in the subsidiary have ceased; and
A liquidation process for the foreign subsidiary has been initiated immediately following the year in which the loss is deducted (the liquidation process generally must be finalised within the same year as initiated).
The recipient must be an EEA resident company that has an actual establishment and carries out genuine business activities in the EEA state. Furthermore, the recipient must meet the general requirements for group contributions, that is more than 90% ownership and voting rights in the subsidiary on December 31 in the deduction year. Indirect ownership also fulfils the requirements if the foreign subsidiary is owned indirectly through an entity that is tax resident in Norway or in the foreign subsidiary’s residence state.
Limitation of deduction in certain circumstances
The government proposes several limitations of the deduction in the contributing company.
First, the final loss must have been carried forward to, or occurred in, the income year in which the Norwegian parent company deducts the group contribution.
Second, the loss must have arisen while the ownership and control requirements for group contributions were met.
Third, the deductible amount is limited to the lower of the taxable loss under the rules of the foreign subsidiary’s residence state and the taxable loss the subsidiary would have had if it was subject to tax in Norway.
Fourth, the deduction is reduced correspondingly if the foreign subsidiary within the last five years has transferred or received assets or obligations with latent gains or losses, and such gains or losses has not been recognised as income or been deducted for tax purposes.
Based on the wording of the current proposal, the new rule will only apply to a few cases. Taxpayers should therefore have a certain amount of loss before it is useful to check whether all the conditions are met.
Heidi K Skovdahl
Associate, Deloitte Norway
Inger Camilla U Gjeruldsen
Senior manager, Deloitte Norway