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Norway proposes to introduce 15% withholding tax on interests and royalties

Tom Skogly and Oscar Brown of Deloitte Norway discuss how the introduction of the proposed legislation will impact royalties, interest payments and transfer pricing.

Norway does not currently levy withholding tax (WHT) on interests or royalty payments. Following the 2014 independent tax committee suggestions, the Ministry of Finance published a consultation paper in late February, proposing to introduce a 15% WHT on royalty and interest payments to related parties. WHT on interests is limited to interest payment to related parties resident in low tax jurisdictions, with no such requirement for royalty payments. 

The proposal includes no de minimis threshold and applies to gross payments. Residents genuinely established within the EU/EEA may opt for a net payment method.


The draft legislation introduces a WHT on royalty payments, defined as payments for the use of or the right to use intellectual property. Instead of offering a separate definition of ‘intellectual property rights’, reference is made to the existing legal definition under Norwegian law, which is broad and covers inter alia copyrights, patents, trademarks, licenses, know-how and trade secrets. 

The broad definition of intellectual property rights raises questions regarding the application of the proposed WHT rules. For example, in intra-group arrangements, where a parent company purchases a product from a third party and licenses it to the rest of the group. It remains to be seen whether payments for the right to use computer programs (software) such as Word or SAP will be considered royalty payments within the ambit of the new rules. 

However, such a broad definition is not common among other OECD countries and not in line with the royalty definition under the OECD Model Convention and it is anticipated that the scope may be adjusted to become more in line with the OECD definition. This could be one to watch for the bigger international groups, with significant payments for the use products like SAP out of Norway. 

Interest payments

Introducing WHT on interest payments invites the question of what will constitute a payment under the proposed legal framework. Cash payments would of course qualify, but it is unclear if e.g. refinancing arrangements would fall within the scope of the new rules if adopted as is. Based on the wording of the draft legislation, it could be argued that accumulating interest by increasing the principal of the loan will trigger WHT. The solution is more unclear when it comes to converting interest claims into equity. The wording could suggest that the latter is not taxable, but this will hopefully be clarified before the parliament adopts the rules later this year.  

The proposal only extends to interest arising from ‘debt’. This entails that other interest income such as income from interest funds appears to be outside the scope of WHT. 

Transfer pricing 

Levying WHT on royalty payments to related parties also introduces several related transfer pricing issues. Assessing what constitutes a fair market value for the use of intangibles can be challenging. Regardless of pricing, some rely on an estimated price subject to an adjustment at year-end. This raises the question of whether the original or adjusted price will be subject to royalty WHT. If the parties find that the royalty payment have been too low and makes a following cash transfer based on the adjusted arms-length price, this will likely be subject to WHT if the Norwegian entity makes the payment. If the payment goes the other way, that should entail that part of WHT is refunded but this is not clear due to the gross principle. The question might not be as clear in more complex intra-group agreement structures, covering both royalties and other services. 

A related question is where a transfer pricing adjustment is carried out by the tax authority. Although similar to intra-group adjustments, these adjustments are merely made for tax purposes, which does not affect the actual royalty or interest payments made. As of now, it is left unanswered whether also these adjustments could trigger WHT going forward, either as interest or royalty payments or as hidden dividend payments, all of which, may be limited by an applicable tax treaty 

Tom Skogly
T: +47 406 06 169

Oscar Brown
T: +47 986 75 850

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