The Norwegian Directorate of Taxes changes its opinion on employee share incentive schemes

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

The Norwegian Directorate of Taxes changes its opinion on employee share incentive schemes

Sponsored by

Sponsored_Firms_deloitte.png
tart

Daniel M. H. Herde and Lene Bergersen of Deloitte Norway explain an interpretative statement from the Norwegian Directorate of Taxes, in which the Directorate changes its view on the Kruse Smith model.

On January 1 2022, the Norwegian Directorate of Taxes issued two statements regarding the acquisition of shares by employees, and whether the capital gains will be taxed as salary income. Both statements are explained in an earlier article by Deloitte for ITR. 

One of the statements specifically addressed a type of scheme where an employee pays only part of the purchase price upon acquisition of the shares, and the residual amount is settled upon future disposal of the shares. This is known as the Kruse Smith model. This statement received criticism for challenging the Kruse Smith model by applying stricter requirements than the Norwegian Supreme Court. 

 

 

 

 

On March 28, the Directorate of Taxes therefore published an updated interpretative statement in which the Kruse Smith judgment (Rt. 2000 p. 758) was given added weight. For a description of the Kruse Smith judgment, please refer to our earlier article.

  

 

The updated statement

 

In the statement from January 1, the Directorate stated that the obligation to repay the residual amount must be “genuine” to be regarded as a loan rather than a taxable discount (taxable as salary income). The key is that the employee must have an unconditional obligation to repay the loan. In the Directorate’s view, a loan would not be unconditional if the repayment was dependent on the economic development of the company. 

  

 

Based on this statement, it would be challenging to apply the Kruse Smith model going forward, because employees under such schemes would normally not be obliged to pay the residual amount, if the company developed negatively. 

  

 

In the updated statement, the Directorate applied a less strict view and generally confirmed the Supreme Court’s reasoning in the Kruse Smith judgment. In summary, the Directorate confirmed that an employee may acquire the shares at a value far below the marked value, as long as the employee commits to repay the residual amount upon disposal of the shares. 

  

 

Furthermore, the Directorate confirmed that the employees can receive “downside protection” by not having to repay the residual amount (the loan) in the case that the company develops negatively or goes bankrupt. 

  

 

However, if the residual amount is waived (in other words, if the loan is forgiven), the benefit will be taxed as salary income. Regarding interest on the residual amount, the Directorate confirmed that the obligation to pay the residual amount would normally be covered by the tax rules on subsidised loans under employment (Norwegian Tax Act sections 5-12 paragraph 4), where the normal interest rate is lower than market rate. 

  

 

Taxation as salary income may first apply if the rate is lower than the normal interest rate under such employment loans. 

  

 

Based on the renewed statement, the Kruse Smith model still has support and may be applied going forward. 

   

 

 

Daniel M. H. Herde 

Partner, Deloitte Norway

E: dherde@deloitte.no 

  

 

Lene Bergersen

Associate, Deloitte Norway

E: lebergersen@deloitte.no 

 

more across site & shared bottom lb ros

More from across our site

Software company Oracle has won the right to have its A$250m dispute with the ATO stayed, paving the way for a mutual agreement procedure
If the US doesn't participate in pillar two then global consensus on the project can’t be a reality, tax academic René Matteotti also suggests
If it gets pillar two right, India may be the ideal country that finds a balance between its global commitments and its national interests, Sameer Sharma argues
As World Tax unveils its much-anticipated rankings for 2026, we focus on EMEA’s top performers in the first of three regional analyses
Firms are spending serious money to expand their tax advisory practices internationally – this proves that the tax practice is no mere sideshow
The controversial deal would ‘preserve the gains achieved under pillar two’, the OECD said; in other news, HMRC outlined its approach to dealing with ‘harmful’ tax advisers
Former EY and Deloitte tax specialists will staff the new operation, which provides the firm with new offices in Tokyo and Osaka
TP is a growing priority for West and Central African tax authorities, writes Winnie Maliko, but enforcement remains inconsistent, and data limitations persist
The UK tax agency has appointed six independent industry specialists to the panel
The two tax partners have significant experience and expertise in transactional and tax structuring matters
Gift this article