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

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

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

E-invoicing is currently characterised by dynamism, with fragmentation acting as a key catalyst for increasing interoperability, says Aida Cavalera of the International Observatory on eInvoicing
Pillar two and the US tax system ‘could work in harmony’, Scott Levine tells ITR in an exclusive interview to mark his arrival at Baker McKenzie
Peter White, who has a tax debt of A$2 million, has been banned for five years from seeking registration with Australia’s Tax Practitioners Board (TPB)
Wopke Hoekstra’s comments followed US measures aimed against ‘unfair foreign taxes’; in other news, Grant Thornton and Holland & Knight made key tax partner hires
An Administrative Review Tribunal ruling last month in Australia v Alcoa represents a 'concerning trend' for the tax authority, one expert tells ITR
A recent decision underlines that Indian courts are more willing to look beyond just legal compliance and examine whether foreign investment structures have real business substance
Following his Liberal Party’s election victory, one source expects Mark Carney to follow the international consensus on pillar two, as experts assess the new administration
A German economics professor was reportedly ‘irritated’ by how the Finnish ministry of finance used his data
Countries that care about the fair taxation of tech multinationals and equitable global distribution of wealth should back the UN’s tax framework, writes economist Abdelmalek Riad
The cuts disproportionately affected staff in certain positions, the report also found; in other news, MHA announced the €24m acquisition of Baker Tilly South East Europe
Gift this article