Norway: Proposed limitations on related-party debt interest deduction

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

Norway: Proposed limitations on related-party debt interest deduction

mollnes.jpg

Ingunn Mollnes

Norway's Ministry of Finance released a consultation paper on April 11 2013 that would introduce limits on the deduction of interest on related-party debt. The purpose of the proposal is to restrict earnings stripping via intercompany debt financing. Under the proposal, net interest expense paid to a related party would not be deductible in a year to the extent such expense exceeds 25% of a basis of limitation, a figure similar to EBITDA. The limitation would be calculated separately for each entity. However, the limitation only applies to companies that have net interest costs exceeding NOK1 million ($170,000). The proposal suggests that the rules would apply as from fiscal year 2014.

Related parties

The term "related-parties" covers both direct and indirect ownership and/or control. The minimum ownership/control requirement is 50%. The proposal is not only limited to cross-border loan arrangements and will also include loans between Norwegian taxpayers. Back-to-back loans via an independent lender would also be caught by the rules.

The proposed rule is not intended to limit the right to deduct interest on loans obtained from unrelated lenders such as banks and financial institutions; however, interest paid to unrelated lenders is included when calculating the interest deduction limit.

Basis for limitation

The basis for the 25% limitation would be the net taxable profit, before taking into account interest earned by the corporation, interest accrued on debt taken out by the corporation and tax depreciation.

Net interest expense

"Net interest expense" would be defined as interest accrued on debt less interest earned. Gains or losses on certain bonds would be treated as interest earnings or interest accrued on debt. Currency gains/losses are, however, not included. Neither are gains/losses on interest and currency derivatives. Although interest paid to both related and unrelated parties would be included in calculating the 25% limitation, the amount disallowed would be limited to net interest expense paid to related parties.

For example:

Taxable profits before any adjustment

200

Tax deprecation

40

Net interest expense (120 external/40 internal)

160

Basis for calculation

400

Limitation

100

Interest deduction will be limited to the 100, however, interest on external debt will always be deductible – so 120 will be deductible, while the total of interest paid to related party will not be deductible.

Carry-forward of non-deducted intra-group interest and taxation of interest income

Any related party interest payments which are not deductible because of limitation may be carried forward for a maximum of five years. Interest received is taxable income for the creditor even if the debtor has been denied deductions due to the limitation.

Ingunn Mollnes (imollnes@deloitte.no)

Deloitte, Norway

Tel: +47 51 81 56 57

Website: www.deloitte.no

more across site & shared bottom lb ros

More from across our site

AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Gift this article