Post by Jrgen Strte on Feb 26, 2009 5:30:27 GMT 4
Norway: Norwegian Supreme Court rules on anti-avoidance
In November 2008, the Supreme Court pronounced a judgement regarding the main anti avoidance rule.
The company in question in the judgement was subject to the special Norwegian petroleum tax regime for upstream activities on the Norwegian continental shelf. Companies subject to this regime may be taxed at a rate of 78 % on profits. The company carried out a capital increase in a subsidiary. The capital increase consisted of an interest bearing receivable acquired from another group company. The subsidiary was not comprised by the petroleum tax regime, but taxed at the general corporate tax rate of 28 %. Placing the receivable by the subsidiary effectively implied a lowering of the tax rate on the interest income with 50 percentage points.
The authorities argued that the financial income of the receivable should be allocated to the parent based on the anti avoidance rule.
The Supreme Court concluded that the anti avoidance rule was not applicable as the transaction was not disloyal to the tax system. The conclusion was mainly based on the fact that the legislator had passed specific rules regarding the deduction for interest expenses within the petroleum tax regime which were meant to be exhaustive. The tax authorities must be extremely careful asserting there is a basis for the use of anti avoidance provisions when such rules apply. It was possible that the rules were defective, but the responsibility and authority to amend these rules rested with the legislator – not the tax authorities.
Jørgen Stræte (jstraete@deloitte.no)
In November 2008, the Supreme Court pronounced a judgement regarding the main anti avoidance rule.
The company in question in the judgement was subject to the special Norwegian petroleum tax regime for upstream activities on the Norwegian continental shelf. Companies subject to this regime may be taxed at a rate of 78 % on profits. The company carried out a capital increase in a subsidiary. The capital increase consisted of an interest bearing receivable acquired from another group company. The subsidiary was not comprised by the petroleum tax regime, but taxed at the general corporate tax rate of 28 %. Placing the receivable by the subsidiary effectively implied a lowering of the tax rate on the interest income with 50 percentage points.
The authorities argued that the financial income of the receivable should be allocated to the parent based on the anti avoidance rule.
The Supreme Court concluded that the anti avoidance rule was not applicable as the transaction was not disloyal to the tax system. The conclusion was mainly based on the fact that the legislator had passed specific rules regarding the deduction for interest expenses within the petroleum tax regime which were meant to be exhaustive. The tax authorities must be extremely careful asserting there is a basis for the use of anti avoidance provisions when such rules apply. It was possible that the rules were defective, but the responsibility and authority to amend these rules rested with the legislator – not the tax authorities.
Jørgen Stræte (jstraete@deloitte.no)