Interest Deductions In Play in Norway-EFTA Dispute

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By Marcus Hoy

Nov. 2 — A tax dispute between Norway and the European Free Trade Association Surveillance Authority calls into question amendments in the Norwegian Tax Act that limit companies’ deductions for interest expenses.

An Oslo practitioner said Oct. 31 that some companies may be entitled to tax refunds depending on the outcome of the case, which could take between a year and two years to resolve.

The EFTA Surveillance Authority (ESA) is challenging amendments that came into force Jan. 1, 2014, and set tighter limits on the interest expenses deductible from Norwegian companies’ business income. The authority found one aspect of the amendments unfair to foreign groups.

Norway isn’t an EU member, but it must comply with most EU law, including free trade rules, through its European Economic Area (EEA) membership. The ESA ensures that participating EFTA states Iceland, Liechtenstein and Norway respect their obligations under the EEA Agreement.

Under Norway’s 2014 amendments, interest expenses of more than 5 million kroner ($605,000) that exceed 30 percent of taxable income after earnings before interest, taxes, depreciation and amortization (EBITDA) aren’t deductible if paid to an affiliated party. The rules apply to both intra-group loans and to third-party debt that has been guaranteed by an affiliated party—an entity that controls, or is controlled by, at least 50 percent of the debtor.

Group contribution rules also exist allowing for tax relief if a company makes a contribution to another company that is a member of the same group. This contribution can then be deducted from the taxable income of the donor and added to the income of the recipient. These rules, however, apply only when the granting company and the receiving company are both corporations belonging to the same group and the parent company owns more than 90 percent of the subsidiary. This component, in the ESA’s view, amounts to unfair treatment of foreign groups because few, if any, can qualify.

On May 4, the ESA sent a letter of formal notice to Norway on the matter. On Oct. 25, it issued a reasoned opinion, the last stage before formal court proceedings are initiated. Norway now has two months to respond.

Cross-Border Groups Disadvantaged: ESA

“ESA is of the opinion that the interest cap rules are indirectly discriminatory because—although they apply to domestic groups and cross-border groups equally—they are unlikely to be applied to loans within a Norwegian group in practice,” the surveillance authority said Oct. 25. “As a consequence, cross-border groups find themselves at a disadvantage. ESA is of the view that this amounts to an infringement of the freedom of establishment protected by the EEA Agreement.”

The authority said it doesn’t dispute that the Norwegian legislation “pursues legitimate objectives aimed at maintaining the balanced allocation of taxing powers between EEA States and the prevention of tax avoidance and abuse.” Still, it said the rules “go beyond what is necessary to achieve this goal, since they are not limited to preventing only artificial arrangements created to avoid tax.”

Protective Claim

Anders Heiren of the law firm Arntzen de Besche in Oslo said multinational companies with subsidiaries in Norway that are more than 90 percent foreign-owned “should consider filing a protective claim before the end of the year.” The case between Norway and the ESA “could take between one and two years to resolve. If the rules must be changed, the Norwegian position could be to allow minimum adjustments and only to those who have appealed. The basis for any claim may be to treat it as if the foreign lender had been a Norwegian company with access to benefits from group contributions,” Heiren said.

Heiren added that it is uncertain whether the government will now comply with the ESA reasoned opinion or choose to argue its case in the EFTA court. “This could easily be a case that Norway prefers to defend in court,” he said.

In an Oct. 31 statement provided to Bloomberg BNA, Finance Ministry State Secretary Jorgen Naesje said the government is now considering ESA’s opinion. “Multinational companies have an incentive to allocate a lot of debt, and thus interest costs, to Norway while their interest income is allocated to countries with lower or zero taxation,” he said. “The rules are designed to restrict deductions for interest paid between associated parties. The interest limits rules are an important part of the ongoing work to combat profit shifting. We will now consider the ESA reasoned opinion before responding in more detail.”

To contact the reporter on this story: Marcus Hoy in Copenhagen at correspondents@bna.comTo contact the editor responsible for this story: Molly Moses at

For More Information

The ESA’s reasoned opinion is available in English at’s May 4 letter of formal notice is available in English at

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