Contributed By Advokatfirmaet Simonsen Vogt Wiig
The construction of onshore wind power plants has been the main driving force for project finance in Norway during the last decade. However, due, amongst other things, to opposition from the public towards the construction of new plants, Norway has seen a steep decrease in new projects and it is expected that only a limited number of new Norwegian onshore wind projects, and related project financings, will be seen going forward.
Norway has recently opened the "Utsira Nord" and "Sørlige Nordsjø II" offshore areas for licence applications, and a number of industry heavyweights, including Equinor, Hydro, Statkraft, Aker, Wilhelmsen, Ørsted, Eni and RWE, have already signalled their intentions to participate. It is, however, not expected that true project financings within offshore wind in Norway will be seen for a while.
If different types of financing relating to public-private partnership and construction of real estate (including construction of data processing centres), vessels, fibre broadband and similar are excluded, there are consequently a limited number of ongoing true project financings in Norway currently.
The current focus on green and sustainable financing, including without limitation the Norwegian implementation of the EU Taxonomy Regulation, will, however, mark a shift in this regard. This is likely to benefit a number of the new industry sectors which are deemed future candidates for project financing in the Norwegian market. It is therefore expected that in the coming years an increase of various types of project financings relating to areas such as carbon capture, battery cell production facilities, hydrogen, solar and the development of zero emission vessels will be seen.
Large project financings in Norway are dominated by infrastructure funds and other large international sponsors.
Due to a particular Norwegian law licence requirement for lending activities (see 4.1 Restrictions on Foreign Lenders Granting Loans), it is predominantly banks and similar licensed financial institutions that act as lenders under Norwegian law-governed project financings. This includes both Nordic banks, such as DNB Bank and Skandinaviska Enskilda Banken, and various foreign banks, such as Dekabank, Crédit Agricole and Rabobank.
The use of public-private partnerships (PPP) as a method of financing is not widespread in Norway compared to other European countries.
Since it was introduced, PPP has been used for certain road projects, as well as construction of hospitals, schools and similar construction projects. In these projects, the public entity party usually orders a service and sets out specific functional requirements, standards, qualities, etc, of the service that is to be delivered. On the basis of this framework, a contract is entered into with a private contractor for the implementation and operation of the projects. PPPs usually have a duration of 20–30 years.
PPPs are not specifically regulated under Norwegian law, but are partly regulated under generally applicable statutory legislation, such as the Public Procurement Act. General statutory legislation, such as the Working Environment Act and the Pollution Control Act, are also applicable. Other legislation is applicable depending on the sector in question, such as the Planning and Building Act for construction/real estate, the Petroleum Activities Act for oil and gas and the Water Resources Act for hydropower.
Apart from the Norwegian Public Road Administration's standard for road developments applied in the PPP road projects, no standard Norwegian law PPP contracts have been developed yet. Thus, each new PPP contract is subject to considerable negotiation.
The use of PPPs is controversial in Norway. In particular, the unions have been sceptical of PPPs. Following the election in 2021, Norway will most likely get a new government with a negative view on PPPs, and it is, therefore, not expected that there will be many new PPPs at state level in the years ahead.
Large project financings in Norway are dominated by infrastructure funds and other large international sponsors and lenders and Norwegian deals are consequently structured in a similar way as in other European jurisdictions.
Project financings are usually made in favour of a special-purpose vehicle (see 5.5 Local Law Requirements) on a non-recourse basis, subject to a satisfactory debt-to-equity ratio, with debt service being based on cash-flow generated in the project company. Due to a particular Norwegian law licence requirement for lending activities, see 4.1 Restrictions on Foreign Lenders Granting Loans, there will usually not be any junior debt other than shareholders' loans.
It is worth mentioning that Norwegian law does generally not allow assignments of contracts (see 2.5 Restrictions on the Grant of Security or Guarantees) and direct agreements with the project company's counterparties are therefore an important part of the lenders' security package. However, as the concept of direct agreements under project financings is relatively new under Norwegian law, they should be carefully structured to ensure the validity of the lenders' rights towards a bankruptcy estate and other creditors.
Green technology and sustainability are currently hot topics, which are expected to play a great part going forward across all sectors. It is expected that this green wave will lead to increased activity in renewable energy, including in relation to offshore wind, solar wind, hydrogen and battery-cell production facilities.
The right to establish security over assets and rights under Norwegian law is limited to those explicitly provided for by the Mortgages Act or other statutory law.
Security is generally created by an agreement between the security-provider and the security-holder.
Security can be created over a security-provider's rights to real property (land) which have been registered with the Norwegian Land Registry. The security may relate to the ownership rights, lease rights, or any other registered right of use in relation to that land, such as waterfall rights and mining rights. The security is perfected by registering a statutory form with the Norwegian Land Registry.
Registered Assets and Rights
Assets and rights which have been registered in a public register, such as vessels, aircraft, patents and patent applications, power lines, mineral production licences, aquaculture licences or petroleum licences, can be subject to security. Perfection is achieved by registration of a statutory form with the applicable registry: the Norwegian Ship Registry (Ordinary or International), the Norwegian Shipbuilding Registry, the Aviation Register, the Norwegian Industrial Property Office, the Power Lines Register, the Register of Petroleum Licences or the Norwegian Aquaculture Register.
Unregistered Movable Properties
Unregistered movable properties (assets) can be pledged as security. Perfection is achieved by transfer of possession from the owner to the mortgagee, or to a third party which will keep the asset in custody on the pledgor's behalf. As this usually is impractical for the security-provider, such security is rarely used for project financings.
Shares and Financial Instruments
Share certificates have not been used in Norway for many years. Shares in private limited-liability companies are usually registered in the company's shareholders' register, which is kept by the company itself. Such shares may be pledged and perfection is achieved by giving notice of the pledge to the company, whereupon the company notes the pledge in the shareholders' registry. In relation thereto, it is important that the company's articles of association explicitly state that the shares are freely transferable, ie, that a transfer of shares is not subject to the company's consent and that the other shareholders do not have a right of first refusal.
Shares in public limited companies and certain private limited companies are registered with the Norwegian Central Securities Depository (VPS). Such shares may be pledged and perfected by registration against the shares in the relevant account with the VPS.
Inventory, Machinery and Plant, Etc
Floating charges may be created and registered over certain specific rights and assets, such as a company's present and future:
These floating charges are perfected by registration against the relevant company in the Norwegian Mortgaged Movable Property Register (No: Løsøreregisteret).
Present and future monetary claims against a named debtor under an identified legal relationship may be assigned as security. This includes present and future monetary claims relating to a contract, an intra-group loan agreement, an insurance policy, a bank account/deposit, or similar. The security is perfected by notification to the relevant debtor.
In addition, a floating charge may be created over a company's present and future trade receivables against its customers. The charge is made on a standard form and is perfected by registration with the Norwegian Mortgaged Movable Property Register (No: Løsøreregisteret). Thus, it is not required to notify each debtor of the charge in order to have a perfected security.
A general "floating charge" over all (unspecified) assets and rights that a company has or will obtain is invalid and unenforceable under Norwegian law. However, it is possible to create floating charges over certain specific assets (see 2.5 Restrictions on the Grant of Security or Guarantees).
For registerable security, a one-time minor registration fee is payable for each mortgage/charge. The exact amount varies between the registries (as of 2021):
The collateral will generally need to be clearly identified at the time that the relevant security was established to create a valid security interest.
This is, however, not applicable for floating charges, as described in 2.1. Assets Available as Collateral to Lenders. Moreover, any such floating charges will not be effective against a third party acting in good faith who has received security over a claim or an asset covered by that security and has perfected the security as prescribed by law.
There are certain restrictions under Norwegian law in connection with the grant of security or guarantees that one should be aware of the following.
Liens are generally not recorded in any central, or searchable registry. With respect to registerable security, each relevant registry must be checked. Which registry is relevant would depend on the specific assets relevant to the project. The usual registries are listed in 2.1. Assets Available as Collateral to Lenders.
A security interest is typically released by agreement between the parties or by declaration from the mortgagee.
The procedure for release of security depends on how the relevant security was perfected. If the security was perfected by way of notification to the debtor (typically for monetary claims, insurance claims and bank accounts/deposits) or the company (for share pledges), the security will be released by notification to the same third party.
For security that was perfected by way of registration, the security will be released by discharging that registration. This usually means that the original document must be endorsed for discharge and returned to the relevant registry. Some registries, such as the Norwegian Ship Registry, allow for pre-positioning of the release documentation for release upon further instructions.
Whether the lender is entitled to enforce its collateral is dependent on the terms and conditions of the relevant underlying agreement.
The general enforcement of collateral is regulated by the Enforcement Act. The act applies to both public and private claims. A motion to enforce a claim, for instance, collateral under a secured loan agreement, may only be filed after obtaining general or special grounds for enforcement. In addition, the claim must be enforceable.
The general grounds for enforcement of debt are listed in the Enforcement Act section 4-1 letters (a) through (h) and include judgment from a Norwegian court. These general grounds provide a basis for enforcement, regardless of the collateral asset. The special grounds for enforcement differ, depending on what kind of asset is agreed upon as collateral. However, an agreement for collateral with a perfected security interest will constitute special grounds for enforcement for all types of assets, cf the Enforcement Act sections 8-2, 9-2, 10-2, 11-2 and 12-2.
Providing the existence of grounds for enforcement is established, the question is whether the claim is enforceable. Chapter 4 parts III to V provides the terms for enforceability. One prerequisite is that the claim is overdue and that the unpaid debt at the due date constitutes a breach of contract, cf section 4-4. Under Norwegian law, lack of payment at the due date does not imply a breach of contract if the reason for the lack of payment is the creditor's default. In the event of insolvency for the debtor, grounds for enforcement are still applicable, provided the agreement has legal protection, cf section 4-9.
In summary, a secured lender can enforce its collateral in the event of a missing payment at the due date if this constitutes a breach of contract.
In addition to the rules on grounds for enforceability, there are rules on the proceedings when enforcing a claim. Inter alia, enforcement can only be filed by the legal person mentioned in the basis for enforcement as entitled or a legitimate acquirer of the claim.
Shares, other securities and account claims can as an alternative to the Enforcement Act be pledged in favour of banks, trustees and similar institutions under the Collateral Act. The act is an implementation of Directive 2002/47/EC on financial collateral arrangements.
Pursuant to the Collateral Act, security over the collateral can be enforced in accordance with the agreements between the security-provider and the security-holder, always provided that the realisation or valuation of financial collateral and the calculation of the relevant financial obligations must be conducted in a commercially reasonable manner.
For legal questions under the law of contracts and torts, the general rule is that the parties themselves can agree to have foreign law as the governing law of the contract. This is referred to as the autonomy of the parties and implies that Norwegian courts will uphold a choice of foreign law as the governing law of the contract. Normally, an agreement of choice of law must be made explicitly, however, it is not required to be made in writing. Without an explicit choice of law, an implied choice of law may also be accepted under Norwegian law.
The rules regarding questions of choice of law in property law are somewhat different. Generally, the parties themselves may not choose the governing law regarding questions of property law. In principle, these questions are regulated lex rei sitae. For real estate, lex rei sitae is where the real estate is located. The same applies to movable property (assets), unless the property can be registered in a registry. If so, the rule governing the property rights will be the law of the registrar state. This implies that Norwegian courts will not uphold a choice of foreign law as the governing law regarding property law, unless the choice is in line with the jurisdiction of lex rei sitae.
Regarding choice of jurisdiction, written agreements will generally be upheld, cf the Dispute Act section 4-6. However, there will be some exceptions to this general rule, eg, under the Ordre Public principle.
Under the Lugano Convention, which applies as Norwegian law, the right to enter into jurisdiction agreements is limited for only a small number of disputes, where according to the Lugano Convention there is a compulsory jurisdiction. Disputes concerning, inter alia, property rights in real estate and company law matters must be brought before the court specified in Article 22 of the Lugano Convention. For all other disputes, the parties are free to choose jurisdiction among the courts of a Member State. There is therefore no restriction under the Lugano Convention on agreements of jurisdiction in favour of a court that is covered by the principle of mutual trust.
Due to a ruling from the Norwegian Supreme Court, there are certain uncertainties as to the requirement for when a Norwegian company can validly create security over its assets under security agreements governed by foreign law. The relevant case was regarding the assignment of monetary claims, but it is uncertain whether the principles laid down by the Supreme Court are also applicable for other assets and rights. It is therefore generally recommended to ensure that such foreign law security also complies with Norwegian law requirements, including for the perfection.
The Lugano Convention gives judgments effect both as legally binding and enforceable with a few narrow exceptions in Articles 33 and 34, cf Articles 45. Outside the scope of the Lugano Convention, The Dispute Act sections 19-16 states that final and enforceable rulings on civil claims rendered by a foreign court shall be final and enforceable in Norway if jurisdiction has been agreed, pursuant to Section 4-6 for a specific action or for actions that arise out of a particular legal circumstance. Neither sections 19-16 nor 4-6 demand reciprocity.
Regarding arbitral awards, the Arbitration Act section 45 states that an arbitral award shall be recognised and enforceable without regard from which country it derives. There are some narrow exemptions in section 46, however, the main rule remains that arbitral awards are enforceable in Norway. The Arbitration Act does not have requirements as to where the foreign arbitral award may come from nor of reciprocity.
There are no general matters under Norwegian law that might impact a foreign lender's ability to enforce its rights under a loan or security agreement compared to a Norwegian lender. It should, however, be noted that, if the plaintiff is based outside Norway/EEA, the defendant may demand that the plaintiff provide satisfactory security in case the plaintiff becomes liable for paying the defendant's legal costs.
Contrary to that which is the case in many jurisdictions, under Norwegian law, the business activity of lending is subject to strict licensing requirements. Only certain financial institutions are eligible for a licence permitting them to conduct the business of lending in Norway.
Licensed EU/EEA credit institutions as defined in CRD IV (directive 2013/36/EU and regulation 575/2013), meaning banks and other similar lending institutions which fund themselves from the public, domiciled within another EU/EEA country than Norway, may, upon completing certain notification procedures, provide lending services cross-border into Norway, ie, lend to a Norwegian resident without having a physical presence in Norway.
However, other foreign financial institutions, which are either financial institutions domiciled within the EU/EEA area which do not meet the requirements of being an EU/EEA credit institution (a typical example would be an investment fund), or financial institutions domiciled outside the EU/EEA area, irrespective of meeting the material requirement of being a credit institution, may not, pursuant to Norwegian law, provide lending services into Norway on a cross-border basis. Such institutions may only carry out the business activity of lending in Norway through a licensed physical Norwegian subsidiary or branch.
The granting of both security or guarantees as a business activity are subject to the same restrictions as those that pertain to lending (and as described in 4.1 Restrictions on Foreign Lenders Granting Loans). However, in the event that a Norwegian obligor grants security or a guarantee in connection with being granted a loan by a foreign lender, there are no restrictions on the Norwegian borrower's ability to provide that security.
The Norwegian foreign investment regime is generally liberal and open for foreign investments.
However, according to the Security Act, a contemplated change of control of a business, which is made subject to the act due to its importance for national interest or possession of graded information, shall be notified to the relevant ministry or the National Security Authority (as applicable). A change of control will only qualify if it involves at least one third of the ownership interest in the business or if the acquirer will otherwise gain a major influence over the business.
The authorities shall, within 60 business days from receiving that notification, inform the relevant acquirer of whether the change of control is accepted or if it is decided to send the matter to the Government for its assessment.
If the Government is of the opinion that the change of control may lead to a not insignificant risk that national security interest will be threatened, it may resolve to refuse, or impose certain conditions for, the transaction.
There are no restrictions on payments abroad or repatriation of capital by foreign investors, apart from applicable sanctions and any withholding tax that might be applicable; see 8.1 Withholding Tax.
There is no Norwegian legislation prohibiting a Norwegian company from holding bank accounts abroad.
Other than in relation to licensing requirements, there are no requirements to have the financing or project agreements registered or filed. The formalities and requirements should be assessed on a case-by-case basis, depending on the relevant type of project agreement.
General – Licence Requirements
In general, the utilisation of natural resources in Norway requires a licence from the relevant authority. This requirement applies to sectors such as, amongst others, aquaculture, energy (fossil and renewable) and mineral extraction.
With respect to project financing, certain parts of the energy sector have been deemed especially attractive. Onshore wind projects and small-scale hydropower projects have in particular been regarded as suitable. The introduction of renewable energy certificates, and the subsequent merger of the Norwegian and Swedish markets in 2012, has further driven the interest for onshore wind and small-scale hydropower. With the recent developments in the offshore wind sector in Norway, which includes the opening of two new areas, project financing is likely to be an attractive way of funding projects in the offshore renewable sector as well.
Within the energy sector, the licence authority lies with the Norwegian Parliament, the Norwegian Ministry of Petroleum and Energy and the Norwegian Water Resources and Energy Directorate.
Pursuant to the Energy Act, facilities for the generation, conversion, transmission and distribution of electrical energy cannot be built, owned or operated without a licence. The Offshore Energy Act stipulates similar requirements, ie, that a licence is required in order to build, own or operate generation and grid facilities in areas covered by the Offshore Energy Act, which includes Norway's territorial sea outside the baselines and to the continental shelf. According to the Offshore Energy Act, a licence may, however, only be granted to a legal entity established pursuant to Norwegian law and registered in the Norwegian Register of Business Enterprises (No Foretaksregisteret), unless otherwise provided by international agreements, eg, the Agreement on the European Economic Area. Corresponding requirements are set out in the petroleum legislation but not in the Energy Act, where there are less stringent formal requirements.
Grid companies are mostly owned by municipalities and country authorities. Distribution grid companies may obtain general local area licences, by which they are exempted from the licence criteria for each separate installation within the relevant area. Grid companies will also operate their grids pursuant to a trading licence, which ensures the efficient operation, utilisation and development of the grid.
Development of onshore wind
In order to develop an onshore wind power plant, the developer needs to hold the necessary rights, eg, property rights. Usually, the developer will lease the necessary property rights from the affected landowners, but the developer might also obtain the necessary rights by expropriation in accordance with the Expropriation Act. With respect to the licence, this is usually held by a limited-liability project company established pursuant to Norwegian law, as this is deemed as a practical arrangement.
Development of offshore wind
Offshore renewable energy generation in Norway is governed by the Offshore Energy Act. The Act states that the right to exploit renewable energy sources at sea belongs to the State. This differs from the corresponding section in the Petroleum Act, in which the State is given property rights to sub-sea petroleum deposits.
The application for a licence to develop an offshore wind farm may only be submitted after the Government has opened specific geographical areas for licence applications. As of 1 January 2021, two areas were opened by the Government, namely, Utsira Nord and Sørlige Nordsjø II. There has been widespread interest amongst various energy utilities with respect to the two areas, which has led to the creation of several consortiums consisting of both large Norwegian and European corporations.
On 11 June 2021, the much-anticipated white paper "Putting Energy to Work" was presented, along with guidelines to the offshore wind application process was released. The guidelines provide a more detailed description of the licensing process. The Ministry also made several recommendations for amending the Offshore Energy Act and the Offshore Energy Regulation.
The utilisation of water for electricity generation in Norway is subject to extensive legislation setting of the different licensing requirements.
Under the current rules, licences may only be issued to public bodies and to companies where those bodies hold at least two thirds of the capital and votes in the company. Hence, private investors are prohibited from holding more than one third of the shares in a large hydropower production company that holds a licence under the Waterfall Rights Act. The Act, and the public ownership requirement, does not, however, apply to small-scale hydropower projects below certain thresholds, which for the last few years have been subject to substantial foreign investments.
The concept of a trust, originating from common law, is not recognised under Norwegian law. Security agents and/or facility agent will, however, generally be recognised when acting on behalf of finance parties or secured parties in relation to inter alia finance and security documents.
The Norwegian Supreme Court has ruled that a bond trustee may in its own name represent the bond-holders in legal proceedings. There has not been any similar ruling with respect to security and facility agents, thus the finance parties and secured parties may be required to appear in their own name in legal proceedings.
The general rule governing priority of competing security interest under Norwegian law is the first-in-time doctrine. The core of the doctrine is that the security interests that are the first to be established shall have the better priority.
There are, however, certain exceptions from this doctrine:
To enjoy protection in the case of an insolvency, the security interests must be fully perfected, see 2.1 Assets Available as Collateral to Lenders, and the applicable hardening period will need to have lapsed. Non-perfected security will be ranked equal to unsecured creditors, despite contractual agreements on priority.
There are no general statutory requirements for the incorporation or organisation of a project company under a Norwegian law project financing. Such requirements may, however, follow from the laws and regulations which are applicable for the project company's activities.
Project companies are typically special-purpose vehicles created solely to finance and operate the projects they are involved in, which are organised as Norwegian private limited liability companies.
The sponsors will be direct or indirect shareholders in the project company. Nordic lenders will often prefer that the parent companies are incorporated in Norway in order to have a complete Norwegian structure for the project financing.
Prior to 11 May 2021, the restructuring of a company and the corresponding procedures were set out in the Debt Negotiation and Bankruptcy Act (the DNB Act). However, due to the outbreak of COVID-19 and the regulations set forth in the DNB Act being somewhat outdated, the Act on Restructuring was enacted in 2020 (the Restructuring Act).
The Restructuring Act aims to make it more accessible and practicable for a company to go through a restructuring, rather than filing for bankruptcy. The main purpose is therefore to avoid bankruptcy in situations where a company in general is profitable, but is experiencing temporarily financial difficulties.
The Restructuring Act has similarities to the reorganisation systems in the USA (Chapter 11), the UK and Europe in general.
The main features of the Restructuring Act are as follows.
For compulsory reconstruction, the list is exhaustive, whilst other measures may be taken in a voluntary restructuring.
If the restructuring fails, the alternative is bankruptcy.
In the event of bankruptcy proceedings, all the assets of the borrower, pledgor and/or guarantor are seized as one to the advantage of the creditors. However, the bankruptcy proceeding does in principle have no effect on a creditor who has a valid security created over the asset(s) of the debtor (provided there are no claw-back possibilities, see 6.4 Risk Areas for Lenders). According to the Mortgage Act (the Mortgage Act), the underlying claim becomes due upon the opening of bankruptcy proceeding.
There are, however, a few practical rules regarding the process of enforcing the security during a bankruptcy proceeding one should be aware of, such as the following.
The secured creditors (including the statutory lien of the bankruptcy estate) have first priority, and will be paid before any other creditors. In the event the bankruptcy estate is able to make a claim under the statutory lien, those funds are also to cover the costs of the bankruptcy proceedings. The same applies for a statutory lien created for property tax, cf the Mortgage Act section 6-1, in the event that the debtor is the owner of any property.
Provided the foregoing has been covered (or is not applicable, the creditors are paid in the following order (cf The Satisfaction of Claims Act (the Claims Act) chapter 9). In essence, the priority of payment in an insolvency is as follows:
Usually, there will only be some (or none at all) coverage of unsecured claims. If there is not enough to cover all unsecured claims, they will receive a dividend. There will rarely be any coverage for the specific interest claims or subordinated claims.
In addition to the practical considerations as previously stated in 6.2 Impact of Insolvency Process, the Claims Act contains several claw-back provisions, whereby a payment, security or guarantee may be deemed null and void.
The court can set aside certain transactions that the debtor entered into before the opening of the proceedings, but at a time when it was already in a distressed financial situation (claw-back). To prevent the creditors being deprived of enforcing their claims against such assets, the liquidator, acting on behalf of the insolvency estate, will apply for these transactions to be set aside. This includes transactions such as:
If a transaction is set aside as a result of any of the claw-back provisions, the receiving party of the transaction must return to the estate that which was received from the debtor.
The main principle is that all entities can be subject to bankruptcy proceedings unless there is explicit regulation stating the opposite. Certain entities are explicitly excluded from bankruptcy proceedings, such as:
There are no restrictions or controls regarding insurance policies over project assets provided or guaranteed by insurance companies.
However, compensation paid by a foreign insurance company under an insurance policy may be subject to Norwegian income tax. This would depend on whether the compensation is in regard to total or partial damage to the asset, and if the asset is a business asset or a commodity/current asset.
Compensation relating to total or partial damage to current assets in income-producing activities may be taxable. In the event of total damage to a business asset, compensation for such damages will be included to calculate taxable profit or loss. Certain rules will apply, depending on the type of business asset in question. Only partial damage to a business asset is not considered a taxable event.
Insurance policies over project assets can be payable to foreign beneficiaries and the monetary claims thereunder can be assigned as security in favour of foreign creditors.
Interest payments on debt to related companies in low-tax countries is subject to 15% withholding tax (WHT).
The main purpose behind the rules is to counteract related-party transactions resulting in Norwegian tax-base erosion and profit-shifting; only payments to related companies in low-tax countries are affected.
Related companies are regarded as companies which directly or indirectly own or control another company by at least 50%. The limitation to low-tax countries is defined in the same way as in the Norwegian-controlled foreign corporation (CFC rules) and tax legislation in general, which essentially entails a limit where the ordinary income tax on the profit of the company amounts to less than two thirds of the tax the company would have been subject to if it had been tax-resident in Norway.
To ensure that the rules on withholding tax are in accordance with EEA law, payments to enterprises that are established and conduct real economic activity within the EEA are exempted from withholding tax. The right to impose withholding tax may further be limited or cut off by provisions on taxation of interest included in tax treaties with other jurisdictions.
The payer of interest (the borrower) is the one who reports, assesses tax liability and makes tax deductions.
The definition of interest follows the general definition of interest in Norwegian tax law. For financial lease transactions, this entails that such payments should only be subject to withholding tax if the interest element of the lease payment qualifies as interest for tax purposes. This is not a clear-cut limitation and the Ministry of Finance has previously commented that whether remuneration for leasing is to be regarded as interest payments must be assessed based on the circumstances in the individual case.
The withholding tax is a gross tax without any deductions.
Under Norwegian law, there are no general taxes, etc, relevant to lenders. Norway has rules regarding limitations on deductibility of interest; however, these rules concern the borrower's ability to deduct interest costs.
Under Norwegian law, there are currently no general laws or rules limiting the amount of interest that can be charged, other than a general clause under the Contracts Act authorising courts to set aside or amend agreements if it would be unreasonable or in conflict with a generally accepted business practice legal basis to invoke it.
Under the new Financial Agreements Act, which will come into effect in 2022, interest and other compensation which obviously are disproportionate to the credit granted, or which unfairly take advantage of a dependency, debt problem or financial distress, will not be valid.
The governing law of the main project agreements for Norwegian projects is usually Norwegian or English, but the law of another jurisdiction may be agreed between the parties. Project agreements in PPP transactions are always governed by Norwegian law.
The governing law of financing agreements are dependent on the sponsors' and lenders' preferences. In addition to Norwegian law, English and German law are the most common choices of law for the project financing of Norwegian projects.
Security agreements for Norwegian assets are usually governed by Norwegian law. Collateral located outside of Norway is, however, often governed by the laws of the relevant jurisdictions (see 3.2 Foreign Law).