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Daniel Herde |
Trond Eivind Johnsen |
A ruling by the Supreme Court in Odfjell Rig (case Rt-2015-1360) concluded that the limited activities carried out onshore were not sufficient to create the taxable nexus to Norway that would be necessary for tax to apply to the income deriving from a bareboat charter.
Odfjell Rig Ltd, a Bermudian limited company, together with other companies had invested in a (limited) partnership that owned a rig. A related company hired the rig on a bareboat charter. As a starting point, a bareboat charter does not create a taxable presence on the Norwegian continental shelf. The complicating factor in this case was that services were acquired from a related Norwegian manager with employees and offices in Norway. In Norway, a taxpayer is identified with its subcontractors, related or non-related, when taxable presence is considered (as in the Safe Services ruling from the Supreme Court, Rt-2001-512) – a principle that is further sedimented through this ruling. Activities carried out were, inter alia, insuring the rig, market activities, performing contact person duties, receiving bareboat charter fee and repaying debt and interest on behalf of the rig owner. It is not stated in the judgment, but it is evident that the manager did receive some million NOK annually for such services. The tax authorities increased the taxpayer's income with NOK 116 million ($13.5 million) for FY 2009 and NOK 135 million for FY 2010.
One judge (dissenting) thought that the manager's activities on behalf of the rig owner were sufficient to make the partnership and consequently the partners taxable in Norway. The majority of four judges was of the opinion that the (manager's) activities were only of a preparatory and auxiliary nature. Decisive in this respect was that the main service under the bareboat charter was to provide an operational rig, not the supplementary services mentioned above – a conclusion that can be reached by looking at both the time spent and the value of the services compared with the rig and rig hire.
The taxable presence pursuant to domestic law affects registration and compliance obligations and is also a prerequisite for taxing foreign taxpayers (unless a tax treaty provides protection against taxation). It has been unclear what the exact threshold for creating taxable presence under domestic law is and we see in practice that business trips are normally treated as not creating taxable presence. After this judgment, activities of an auxiliary character that create limited value seen in connection with the foreign companies' agreements should also fall below the threshold, even though it is unclear where the exact line is drawn. This judgment could reduce compliance costs for some foreign companies in Norway.
Daniel Herde (dherde@deloitte.no) and Trond Eivind Johnsen (tjohnsen@deloitte.no)
Deloitte Advokatfirma
Tel: +47 482 21 973 and +47 901 94 496
Website: www.deloitte.no
