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

Thanks to operational slickness and sheer force of will, A&M Tax will continue hoovering up talent across the globe
Setu Kamal became the first practising barrister to be added to the UK’s tax avoidance promoter list; in other news, UHY expanded its network in Canada
US President Donald Trump’s tariffs may get thrown out by courts in the future and taxpayers should already be planning for that possibility, BDO’s Dustin Stamper tells ITR
Awards
ITR is delighted to reveal the first shortlisted nominees for the Middle East Tax Awards
The firm has appointed Deloitte’s former tax leader for Thailand to lead the new operation, which builds on considerable Asian investment in recent months
The Donald Trump administration could use legislation from 1930 if the Supreme Court blocks its tariffs; in other news, China has updated its VAT refund procedures
Braun gives ITR an exclusive insight into WTS Digital’s UK launch of its AI product, which can free up more than 1,500 hours per month by reducing routine tasks
Long tells ITR about her varied role, why curiosity is a key characteristic for the tax professional, and what she’d be doing if she wasn’t working in tax
The choice facing governments is not whether to adopt AI in taxation, but how to do so in a way that upholds the principles of tax fairness, writes Neil Kelley
As ITR’s client data reveals discontent with German tax advisers’ cost management, Grant Thornton’s local TP head insists it’s a two-way street
Gift this article