There is currently no withholding tax on interest payments made by Norwegian tax residents. The Norwegian Ministry of Finance has indicated that it is working on a proposal for the introduction of withholding taxes on interest and royalties, but no draft or consultation papers have been released to date.
Norway has concluded tax treaties with approximately 90 countries, many of which allocate the right to tax interest payments to the state of residency (subject to the creditor satisfying a beneficial ownership test).
As a main rule, dividends from Norwegian companies to a foreign shareholder are subject to 25 per cent withholding tax.
Two exemptions may apply under domestic law. First, dividends distributed to a qualifying shareholder resident in an EEA member state (the European Economic Area is the EU countries plus Iceland, Liechtenstein and Norway) should be exempt from withholding tax. A qualifying shareholder is one that has a legal form equivalent to a Norwegian qualifying shareholder, and is ‘genuinely established, and carries out genuine economic activities’ in an EEA member state.
Very broadly, qualifying legal forms should include most entities that would be considered fiscally opaque under Norwegian tax principles. There is no white list of approved legal forms, meaning each case must be considered on its own merits. The key point in this context is whether any member or shareholder of the entity has unlimited liability for the obligations of the entity (which would normally result in the entity being considered fiscally transparent). On that basis, most limited companies (eg, German GmbHs, Swedish Aktiebolag, UK Ltds, Luxembourg Sarls) should qualify. Other entities, including collective investment vehicles, pension schemes and life insurance undertakings should be considered on a case-by-case basis.
The ‘genuine establishment and genuine economic activity’ criterion is based on the Cadbury Schweppes line of case law from the Court of Justice of the European Union, providing that EU (and EEA) member states can apply discriminatory measures provided they relate to ‘wholly artificial arrangements’ set up to escape the national tax otherwise due.
There are two essential elements to the test. The first is whether there is an intention to obtain a tax advantage. This is in itself not decisive, as EEA member states are not allowed to maintain discriminatory measures to merely safeguard their tax base. Without an identifiable tax saving, however, there cannot be a wholly artificial arrangement entered into for the purposes of obtaining a tax benefit. This has also generally been accepted by the Norwegian tax authorities.
The second element is a test of whether there are objective circumstances which demonstrate that despite the arrangements formally qualifying for the grant of a tax exemption, the objectives pursued by the EU or EEA freedom of establishment (or capital, as the case may be) have not been achieved. While each case is assessed on its own merits, the following factors are typically considered relevant by the Norwegian tax authorities:
- whether the company has fixed premises at its disposal;
- whether the company has a permanent management and other employees carrying on the economic activity of the company; and
- whether employees are authorised and qualified to carry out the economic activity of the company and whether the authority is in fact used.
Holding companies and investment funds have been considered in administrative practice, but practice has been inconsistent. The main challenge is that the activities of such entities do not necessarily require a significant amount of personnel functions. It is also not fully clear how to consider situations where the entity has contractually outsourced functions to other parties (such as a manager or adviser).
When the tax authorities consider the question of genuine establishment, they tend to perform a detailed factual analysis, and the result differs from holding vehicle to holding vehicle, depending on those factual findings. A case-by-case analysis is therefore necessary. It is possible to request binding rulings from the Norwegian tax authorities on whether a shareholder satisfies this criterion.
In addition to the general exemption, a special exemption applies with respect to dividends distributed by companies subject to the petroleum tax regime (tax rate of 78 per cent). The portion of a distribution coming out of profits that have been subject to petroleum tax (calculated on a pro rata basis) is exempt from withholding tax provided the shareholder owns at least 25 per cent of the distributing company. The exemption only applies with respect to distributions from the company subject to petroleum tax. If that company is held through a Norwegian holding company, subsequent dividends from the holding company would be considered under the general rules outlined above (ie, no track and trace mechanisms).
Norway has concluded tax treaties with approximately 90 countries, some of which allocate the right to tax dividend payments to the state of residency, subject to the shareholder satisfying a beneficial ownership test. There is limited case law and practice concerning the beneficial ownership test. As a minimum, the shareholder must be the legal owner of the shares, and bear the economic risks associated with the ownership of the shares. In this context, an important factor is whether the recipient has the right to use and enjoy the dividend unconstrained by a contractual or other legal obligation to pass the payment received on to another person.
In line with the OECD BEPS project, Norway is taking steps to implement anti-abuse measures in tax treaties. To date, the principal purpose test is the prevailing means of countering treaty shopping (although many treaties still lack this type of provision), but Norway has expressed its preference for limitation on benefits clauses, and will work to implement such clauses through bilateral negotiations.
Remittances from Norwegian branches or permanent establishments to their head offices are not subject to withholding taxes.
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