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 2024

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 & bottom lb ros

More from across our site

View the Social Impact EMEA Awards 2024 shortlist and join us on September 12 at The Waldorf Hotel in London
The announcement is due to be made during the country’s Union Budget statement next week, according to reports
Around 30 roles are to be cut as the firm’s tax controversy and disputes practice will be incorporated into its tax division
The Labour Party has made ambitious commitments to close the UK’s ‘tax gap’, but how can they do it, and what will it mean for business?
The refreshed leadership team does not include Paddy Carney, who previously made headlines for her dual role on PwC Australia’s and PwC International’s boards
Nusetti, global tax head at pharmaceutical company Lupin, tells ITR about being a tax magician, military aspirations and what makes tax cool
The UK tax agency unsuccessfully argued that a software company was not entitled to R&D tax relief
Pillar two anticipation may have led to stable international corporation tax rates according to the OECD; in other news, A&M has continued its lateral hiring spree
Singapore faces controversies with many trade partners and needs to constantly keep tax guidelines up to date, a local tax expert told ITR
With HMRC’s renewed enforcement focus, it’s as important as ever for UK companies to get their NRD compliance affairs in order, writes Lewin Higgins-Green of FTI Consulting
Gift this article