Transfer Pricing 2022

Last Updated April 14, 2022

Norway

Law and Practice

Authors



Ernst & Young Advokatfirma AS fields one of Norway’s largest corporate tax practices and Norway’s largest transfer practice; hiring lawyers, auditors and economists and specialising in Norwegian and international taxation of corporations and individuals, transfer pricing, indirect taxes, customs, and duties. The firm has approximately 20–25 people frequently working with transfer pricing-related matters, covering operating-model effectiveness, transfer pricing model design, controversy, and dispute resolution. The transfer pricing team covers both lawyers and economists, serving a broad range of sectors and international clients. Ernst & Young Advokatfirma AS has a growing team focusing on tax controversy and dispute resolution, with several of the partners in the firm being admitted to the Norwegian Supreme Court and lawyers capable of acting as litigators for the firm’s clients. The firm houses further expertise in tax matters arising from corporate transactions, with growing experience in blockchain and cryptocurrency matters.

In Norway, the arm’s-length principle is stated in the General Tax Act (“GTA”) Section 13-1, first to fourth paragraph. The GTA Section 13-1 fourth paragraph explicitly refers to the Organisation for Economic Co-operation and Development (“OECD”) Transfer Pricing Guidelines (“OECD Guidelines”) and states that the OECD Guidelines shall be taken into account in cases concerning transactions with parties subject to a double tax treaty with an arm’s-length provision.

Norway’s double tax treaties are based on the OECD’s Model Tax Convention, and all of the double tax treaties have an arm’s-length provision included. Thus, in practice, the OECD Guidelines are always used as a basis when the Norwegian tax authorities propose a reassessment of the transfer prices of a taxpayer.

The Norwegian arm’s-length principle promulgated in GTA Section 13-1 provides that where the income of a Norwegian taxpayer (“taxpayer”) is reduced as a result of its transactions with related parties, the Norwegian Tax Administration (“NTA”) may discretionarily reassess the taxable income of the taxpayer. In order for the NTA to reassess a taxpayer’s taxable income, the following three conditions must be met in accordance with the GTA Section 13-1 first paragraph:

  • there must be a direct or indirect community of interest between the parties involved in the transaction;
  • there must be a reduction of the taxpayer’s income or wealth; and
  • the reduction in income or wealth must be due to the relationship (ie, the community of interest) between the parties. This is a requirement of causality.

The NTA bears the burden of proving that the three above-listed conditions are met, and that the taxpayer’s income or wealth has been reduced as a result of its transfer prices in transactions with related parties. Once the NTA have discharged this burden, the burden of proof is put on the taxpayer to prove otherwise.

The Role of the OECD Guidelines in Arm’s-Length Assessment

In the Supreme Court’s ruling in Agip (Rt. 2001 page 1265), the Supreme Court established that the arm’s-length principle promulgated in what was then GTA Section 54 (now GTA Section 13-1) was aligned with the arm’s-length principle expanded upon in the OECD Guidelines, and that the OECD Guidelines were more precise in explaining the content of the arm’s-length principle than the GTA Section 54. Consequently, from a legal perspective, there would be no restrictive or overly broad interpretation of the GTA Section 54 by considering the OECD Guidelines in the arm’s-length assessment. Following this ruling and the proceeding practice, it is clear that the OECD Guidelines is given an essential role in transfer pricing cases.

There are no additional regulations in Norway which expand upon the arm’s-length principle and its applicability in specific cases (except for transfer pricing documentation rules which are incorporated in the regulations to the Norwegian Tax Assessment Act of 2017).

Skatte-ABC

In administrative practice, the Directorate of Taxes prepares an annual tax handbook (“Skatte-ABC”) for use by the tax officers within the Norwegian Tax Administration. The tax handbook has for several years had specific sections related to transfer pricing and specific topics. However, the tax handbook presents no deviating guidelines compared to the OECD Guidelines. As such, it could be viewed as a brief summary of topics considered important by the tax authorities in their work with transfer pricing. The tax handbook has limited standing as legal precedent and is rarely used as a legal source in transfer pricing cases.

The arm’s-length principle which today is promulgated in the GTA Section 13-1 was originally incorporated in the former Norwegian Tax Law in 1911. In the following decades, the specific statute encompassing the arm’s-length principle was subject to many technical revisions; however, the material content of the arm’s-length principle remained unchanged.

The arm’s-length principle originally incorporated in the Tax Law in 1911 has, in itself, not been subject to any major changes, but the interpretation and application of the arm’s-length principle has evolved over the years, heavily influenced by the developments in early court cases and the OECD Guidelines.

Today the GTA Section 13-1 second paragraph contains a special rule which effectively shifts the burden of proof from the tax authorities to the taxpayer, in cases where the counterparty to the transaction is resident in a state outside of the European Economic Area (“EEA”). The special rule leads to a presumption of income reduction due to community of interest in certain cases. This special rule was incorporated in 2008.

Additionally, today’s rule in GTA Section 13-1 fourth paragraph was also incorporated in 2008, with the purpose of formalising the OECD Guidelines’ applicability and status in Norwegian tax law. This change did not alter the position of the OECD Guidelines following the Agip ruling of the Supreme Court, as discussed in 1.1 Statutes and Regulations.

The arm’s-length principle in Norway applies for both domestic and cross-border transactions between related parties. In domestic transactions, where both parties are subject to tax within the ordinary tax regime, there would normally be no interest for the tax authorities in reassessing the transfer prices (unless potential VAT could be a relevant subject). However, Norway also has special tax regimes: tonnage taxation and oil taxation. Domestic transactions between a taxpayer in the ordinary tax regime and a taxpayer within a special tax regime are at risk of further scrutiny.

The GTA Section 13-1 does not contain any definition of “community of interest” (or related parties). Following the transfer pricing documentation requirements in the Norwegian Tax Administration Act (“NTAA”) Section 8-11 fourth paragraph, related parties are defined as entities or establishments that are directly or indirectly owned or controlled with at least 50%. However, in the GTA Section 13-1 there is a more flexible test as to whether the parties to the transaction are in a community of interest.

A “community of interest” does not need to be established through common ownership of more than 50% or the majority of voting rights. Depending on the specific facts of the case, a community of interest may also be established due to a longstanding contractual relationship between the parties which could make them dependent on each other, or in situations where a creditor is in a position with power to influence the decisions of the taxpayer. Whether a “community of interest” does in fact exist must be assessed on a case-by-case basis.

There is no specific guidance in Norwegian tax or case law related to any one preferred transfer pricing method. The NTA accepts all methods described in the OECD guidelines (ie, comparable uncontrolled price (“CUP”), cost-plus, resale minus, profit split and the transactional net margin method). 

The NTA’s general standpoint is that the standard OECD methods should be applied. This is not, however, a firm requirement. Other methods may be adopted if considered more appropriate based on the facts and circumstances surrounding a specific transaction. 

The NTA has not provided guidance on the hierarchy of transfer pricing methods, but generally adheres to the OECD Guidelines stating that where it is possible to locate comparable uncontrolled transactions, the CUP method is the most direct and reliable way to apply the arm’s-length principle. Consequently, the NTA considers that in such cases the CUP method is preferable over all others. 

The NTA requires taxpayers to demonstrate and document that the transfer prices applied are at arm’s length but does not explicitly require the use of ranges or statistical measures. The applicable principles for the arm’s-length range in Norway follows the guidance provided in the OECD Guidelines paragraph 3.55 to 3.66.

Comparability adjustments are required in line with the principles of the OECD Guidelines.

There are no specific regulations in Norwegian tax law related to transfer pricing of intangible assets. The NTA refers to the methodology and principles described in Chapter VI of the OECD Guidelines. 

The NTA adheres to the provisions and guidance in the OECD Guidelines’ Chapter VI on hard-to-value intangibles. In line with OECD Guidelines, the NTA’s general position is that the costs incurred in the development of intangibles does not necessarily serve as a valid basis for arm’s-length pricing of those intangibles.

Cost contribution arrangements as described in the OECD Guidelines are accepted in Norway. 

Year-end and retrospective pricing adjustments may be acceptable in Norway for a period of up to five years from expiry of the relevant income year. Following the implementation of the NTAA as of 1 January 2017, taxpayers are able to perform a self-adjustment for a period covering the past three years. For adjustments exceeding three years, a formal request must be submitted to the NTA.

It should, however, be noted that although adjustments of corporate income tax returns for prior years are permitted in Norway, there is no guarantee that the NTA will accept the adjustments. 

Norway has a relatively large double tax treaty network and since it signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) in June 2017, several existing tax treaties has been modified. All of the Double Tax Treaties Norway has entered into with other countries contain special provisions for the exchange of information in tax matters.

Norway does not have any advance pricing agreement (“APA”) programme regulated in its domestic law. However, since approximately 2010, the NTA has engaged in APAs under the articles on mutual agreement procedures in the bilateral tax treaties Norway has concluded. The NTA has given notice that further growth in the number of APA initiatives and processes are one of its focus areas. APAs are normally available to Norwegian taxpayers, although APAs have had some momentum in recent years the number of APAs initiated annually is relatively modest.

Unilateral rulings are only available for the sale of natural gas.

The MAP/APA Section in Norway is organised as a separate independent department within the NTA and has been delegated the authority by the Norwegian Ministry of Finance to enter into APAs with authorities in other countries. For MAPs related to the taxpayers subject to the Norwegian Special Tax Regime on Petroleum Income, the Competent Authority is the Ministry of Finance.

Norway does not issue unilateral APAs, all APAs are entered into at a bilateral level between affected authorities.

The MAP and APA processes in Norway may in certain cases be co-ordinated. During a MAP process the taxpayer may obtain clarification on the same issue for subsequent income years (ie, years not part of the MAP) for which tax returns have been submitted, if the actual conditions of the case are unchanged. Based on a formal request from the taxpayer, the MAP/APA department may agree to include such subsequent income years in the ongoing MAP process subject to approval from the competent authority in the other state.

Norway has not stated any specific limitations concerning eligibility of APAs. The MAP/APA Section may, however, based on their assessment of facts and circumstances in the request, decide to not to pursue the process further.

There are no formal deadlines for applying for APAs in Norway. Unless the applicable double tax treaty includes specific rules regulating the deadline for an APA application, a Norwegian taxpayer would normally have the possibility to file a submission for an APA on a contemporaneous basis.

The process normally starts with initial conversations between the taxpayer and the MAP/APA Section. During such conversations, the taxpayer and the MAP/APA Section will discuss the case at hand and agree on the next formal steps to take. As part of the initial conversations stage, the MAP/APA Section would generally ask the taxpayer to present transfer pricing documentation and analyses related to its case and communicate their desired outcome for the APA.

APA processes in Norway are free of charge.

An APA in Norway would normally cover a period from three to five years. During this period the taxpayer may be required to prepare documentation demonstrating that it is adhering to the APA as agreed.

There is no specific legislation on retroactive APAs in Norway. The MAP/APA Section may, however, agree to include a “roll-back” feature for the previous one to two years as part of the APA process, if requested by the taxpayer.

Norway has not implemented any specific penalties related solely to transfer pricing. Potential penalties are the same as those applied for the general tax regime in Norway, where a 20% penalty tax of the tax benefit that has or could have been achieved is imposed if incorrect or incomplete information has been provided to the NTA. In cases of gross negligence or intent from the taxpayer an additional penalty of 20% or 40% may apply, resulting in a potential maximum penalty tax rate of 60%.

The NTAA states that transfer pricing documentation must be prepared on a contemporaneous basis. Transfer pricing documentation must be submitted within 45 days upon request from the NTA. As of today, the transfer pricing documentation must not be submitted annually within a specific date.

The documentation requirements are generally aligned with the OECD BEPS requirements. However, some additional local documentation requirements apply as well. The NTA accepts filing in the master file and local file format. In addition to the structure and information provided in BEPS Action 13, Norwegian transfer pricing documentation requires the following information.

  • A description of the group’s operational model.
  • A description of the industry, hereunder important competition parameters.
  • A brief historic description of the group, its business activities and any previously implemented reorganisations.
  • Financial information of the group and the local entity for the last three years, and an explanation for any major reduction in the local entity’s operating profits; this also include information concerning the turnover and operating profits/losses for the last three years of other enterprises in the group which the Norwegian company has had controlled transactions with during the income year.
  • In the case of centralised services within the group, one must explain the receiving entities’ expected benefit from the service; in the case of a cost-based allocation, one must explain the cost base, allocation ratio and any mark-up.
  • Transaction analysis, including a two-sided functional analysis and a description of the transfer pricing method (how the price is determined and how it is tested).
  • If there exist no comparable transactions or it would be unreasonably difficult or costly to gather such information, the local entity may not include such a comparability analysis for a transaction.
  • A list of immaterial transaction that the local entity engaged in.

There are no direct penalties for non-compliance with transfer pricing documentation requirements as such, but the failure to meet the documentation requirements is likely to lead to a shift in burden of proof during a tax dispute in favour of the tax authorities. Furthermore, the general penalties for non-compliance in the NTAA may apply. As a main rule, these penalties may not amount to more than approximately NOK60,000 (50 times the court fee).

Norwegian taxpayers must provide information outlining their related party transactions in a statutory attachment to the corporate income tax return each tax year (form RF-1123).

Furthermore, in accordance with the NTAA Section 8-11, Norwegian taxpayers are required to prepare compliant transfer pricing documentation, if they have intercompany transactions totalling more than NOK10 million, or have intercompany balances that exceed NOK25 million during the tax year.

The Norwegian documentation requirements do not apply to groups that on a consolidated basis have less than 250 employees, and either have revenue below NOK400 million or have a balance sheet total below NOK350 million at year-end.

Taxpayers exceeding the statutory thresholds to prepare transfer pricing documentation under Norwegian transfer pricing regulations is required to prepare transfer pricing documentation contemporaneously, and in accordance with the Norwegian transfer pricing documentation requirements in Section 8-11-4 to Section 8-11-13 to NTAA.

The ultimate Norwegian parent entity of a group with an aggregate revenue of NOK6.5 billion in the year preceding the financial year is obliged to prepare and submit a country-by-country report in Norway, see NTAA Section 8-13. In certain specific cases, a secondary filing obligation can occur for subsidiaries in Norway. Subsidiaries resident in Norway and part of a group that is required to submit a country-by-country report shall notify in the annual tax return which group company is to submit the country-by-country report and in which jurisdiction this group company is resident.

The Norwegian transfer pricing rules are aligned with the OCED guidelines (ie, there are no notable differences).

The NTA and the Norwegian courts adhere to the arm’s-length standard and follow the OECD Guidelines regarding the application and the interpretation of the arm’s-length principle. Thus, the Norwegian transfer pricing rules do not depart from the arm’s-length principle.

The OECD BEPS Action 8-10 is implemented in the Norwegian transfer pricing legislation as a function of the GTA Section 13-1(4), which makes explicit reference to the latest version of the OECD Guidelines. 

Following the OECD’s release of the BEPS Action points in 2015, the NTA has notably increased its attention on aligning transfer pricing outcomes with value creation. This has materialised in a steady increase of transfer pricing audits on topics concerning value-driving aspects of functions and decision-making. Further to this, the NTA has embraced the DEMPE (development, enhancement, maintenance, protection, and exploitation) concept in connection with intangibles, especially with regard to topics concerning economic and legal ownership of intangibles.

The BEPS 2.0 initiatives have support across the political spectrum in Norway. Advisors in the Norwegian Ministry of Finance are actively participating in discussions at the OECD and preparing for the implementation of the measures in Norwegian law. In addition, a committee is currently reviewing the Norwegian tax system and is taking the BEPS 2.0 measures into account in its work. When it comes to the likely impact of the initiatives, we expect that in particular Pillar 2 will result in a higher tax cost and higher compliance costs for a relatively large number of multinationals. The higher compliance costs will likely apply even for companies that do not operate in typical low tax countries. The Pillar 2 rules may also result in reduced incentives to operate in low tax countries.

Norway has not implemented any specific regulations permitting structures where one entity bears the risk of another entity’s operations by guaranteeing the other entity a return.

Norway adheres to the principles, methodologies, and the interpretations of the arm’s-length principle as described in the OECD Guidelines. The UN Practical Manual on Transfer Pricing may, at best, serve as a supportive source to the OECD guidelines.

Norway has not implemented any specific safe harbour rules in its transfer pricing legislation.

Norway has not implemented any specific rules or regulations related to potential (local) savings that may arise from undertaking business operations in Norway.

Norway has not implemented any notable unique rules, regulations or practices applicable in a transfer pricing context. 

Norway has not implemented any specific requirements related to the co-ordination between customs valuation and transfer pricing.  However, the Norwegian Customs Authority has developed guidance in their report, Tollverdi og internprising, on the relationship between customs valuations and the OECD guidelines on transfer pricing. 

A transfer pricing audit in Norway contains many stages. The audit normally starts with an examination of certain intercompany transactions or a restructuring of the taxpayer. The examination can be through the NTA’s request for additional information or an examination and physical inspections at the premises of the taxpayer. The common practice is that the NTA issues a formal letter to the taxpayer requesting transfer pricing documentation for a defined period of years (normally the past two to three years) to be submitted. At this stage the taxpayer has 45 days to submit its transfer pricing documentation. The documentation can either be sent directly to the case worker appointed to the case or submitted trough the NTA’s software systems.

The NTA’s assessment of submitted transfer pricing documentation will generally be followed by a formal request for additional information from the taxpayer. The taxpayer has, as a main rule, a broad obligation to provide such requested information. The taxpayer is normally granted about 30 to 60 days to submit requested information. Extensions are normally granted.

Once an examination is performed, the NTA issues a notice of proposed reassessment. The taxpayer is given the opportunity to provide a response to this notice. The correspondence is written via formal letters. If the NTA retains its position after receiving the response letter from the taxpayer, the NTA will issue a draft decision of the formal reassessment, if requested by the taxpayer. The taxpayer is then again given the opportunity to provide a response to the NTA and the draft decision. Both with respect to the notice of reassessment and the draft decisions, the taxpayer is normally granted three to four weeks for providing this response, and extensions are often granted if requested.

After the NTA has received the taxpayer’s response to the draft decision, the NTA will consider whether the response suggests that the draft decision be withdrawn, adjusted or upheld. If the NTA retains its position in the draft decision, the NTA will issue a formal and final reassessment to the taxpayer. The taxpayer has then six weeks to appeal this reassessment, alternatively six months to bring a lawsuit against the reassessment.

Once the formal reassessment is made, the NTA will effectuate the income adjustments in their systems. Consequently, the taxpayer will – either simultaneously with or shortly after receiving the formal reassessment – receive a revised computation of the tax payable and information for payment. The tax is due within three weeks after the computation is received by the taxpayer, and the tax must be paid regardless of whether the taxpayer has appealed the reassessment or brought the reassessment before the courts.

Appeal

When the formal reassessment is made by the NTA, the taxpayer has the choice between appealing the decision to the national Tax Appeal Board or to bring the decision directly to the courts. If the decision is appealed, the Secretariat of the Tax Appeal Board will prepare the case and send the proposed draft decision to the taxpayer for remarks. Once remarks are provided, the case will be forwarded to the members of the Tax Appeal Board for a final decision, which will represent the decision of the NTA in the case. The final decision by the Tax Appeal Board can be brought before the courts within six months. If the taxpayer does not appeal but brings the tax office’s formal reassessment to the court, the court will only be able to try the legality of the assessment (correct facts, correct understanding and application of the law, procedural rules, etc). The Tax Appeal Board, however, has full competence to try all sides of the case, including discretionary elements.

Once the case is in the court system, the case will first be decided in the District Court (the specific court depending on the region). Following the decision by the District Court, the case can be appealed to the Court of Appeal. After the Court of Appeal’s decision, the decision can be appealed to the Supreme Court; however, it is rarely the case that transfer pricing cases are allowed into the Supreme Court.

The period from the NTA’s request for transfer pricing documentation to the issue of a formal reassessment normally take about two to five years and the process is generally conducted through formal, written communication.

It is generally not possible to make generalisations regarding judicial precedent is in transfer pricing cases. Transfer pricing cases are very sensitive to the specific facts, and thus former court cases do not necessarily provide much guidance or many principles to abide by in following cases. However, with reference to the general legal principle that similar cases should be treated equally, courts will often consider how certain transfer pricing issues have been previously addressed in similar cases and whether the former case may have some judicial precedent and serve as a basis for the court’s decision.

Under the jurisprudence on legal interpretation and methodology, it is often stated that decisions by the District Courts and the Court of Appeal do not have legal normative powers and that decisions from these instances have relevance only in so far as the arguments are valid. Decisions from the Supreme Court will, however, provide precedent for future cases. This holds especially true in cases where the Supreme Court has elaborated on the general understanding of a rule or principle. In transfer pricing cases this would often be statements on the general understanding of principles described in the OECD Guidelines.

There have been quite few transfer pricing cases considered by the Norwegian Supreme Court. Most of the transfer pricing cases brought into the court system are decided in the District Courts or the Court of Appeal. The judicial precedent of the District Courts and the Court of Appeal’s decisions are limited, but they do, however, provide basis for certain arguments and reasoning which could be of relevance in similar cases. Some of the principal court rulings are discussed below.

The Agip Ruling (Rt. 2001 page 1265, Supreme Court)

Please refer to 1.1 Statutes and Regulations for discussion of the implications of this case.

The Baker Hughes Ruling (Rt. 1999 page 1087, Supreme Court)

On the question of whether the rental price for physical equipment was arm’s length, and also whether a significant deviation in the taxpayer’s reported transfer price and the reassessed arm’s-length price constituted incorrect information in relation to the formal rules on statute of limitations.

The Telecomputing Ruling (Rt. 2010-790, Supreme Court)

On the question of whether an intercompany loan from a Norwegian taxpayer to a US subsidiary could be reclassified to equity under the arm’s-length principle in GTA Section 13-1. This would entail that the Norwegian taxpayer would not be allowed to deduct the loss realised on the receivable owed by the subsidiary. The Supreme Court concluded that there were legitimate business reasons for the loan transaction, and thus that it was not possible to recharacterise the loan.

The Statoil Ruling (Rt. 2007 page 1025, Supreme Court)

On the question of whether an interest-free loan from a Norwegian taxpayer to a related party was arm’s length or whether it was arm’s length to calculate an interest rate. The court concluded that the subsidiary did not have any loan capacity and it was not arm’s length to allocate the loan capacity of the subsidiary between the different intercompany lenders.

The Cytec Ruling (UTV-2007-1440, Court of Appeal)

On the question of whether intangible property was transferred in a business restructuring without sufficient compensation. In 1998, Cytec bought Dyno’s 50% ownership in Cytec Norway for a total consideration of NOK420 million, making Cytec Norway 100% owned by Cytec. After the acquisition, Cytec Norway was restructured in 1999. The court of appeal performed a delineation of the restructuring arrangement to establish the most plausible facts, based on presentations from the company and the tax authorities. Based on the facts and circumstances presented, the court concluded that all the intangibles previously residing in Cytec Norway were transferred without corresponding compensation. To set the value of the transferred intangibles, the court accepted the tax authorities’ approach by using the acquisition price of Cytec Norway; ie, Cytec’s NOK420 million payment for Dyno’s 50% ownership, as a CUP adjusted for assets and value not considered transferred.

The Normet Ruling (UTV-2019-363, the Court of Appeal)

On the question of whether a business restructuring containing a transfer of intangible property and shares was arm’s length. The dispute concerned the allocation of values between the transferred intangible property (gains were taxable) and the transferred shares (gains were tax exempt). The NTA argued that the third-party acquisition price represented a CUP which, with minor adjustments, could be used to set the price of the IP and the shares. Additionally, the taxpayer’s valuation of the IP was claimed to be non-compliant with the arm’s-length principle. The court concluded that the NTA’s approach was in line with the arm’s-length principle and that the acquisition price could be used as a CUP.

Norway has not implemented restrictions on outbound payments to uncontrolled parties (ie, third-party transactions).

In 2021, Norway introduced withholding tax on interest, royalties and lease payments from a Norwegian company or branch to foreign related entities in low-tax jurisdictions. From 1 July 2021, withholding tax could be levied on interest and royalty payments to a related party in a low-tax jurisdiction. From 1 October 2021, withholding tax could be levied on lease payments for certain tangible fixed assets paid to related parties in a low-tax jurisdiction.

Under the rules, the parties are related if one company owns the other party directly or indirectly with at least 50% or if the companies are subject to common ownership or control with at least 50%. Whether the receiving entity is resident in a low-tax jurisdiction shall be assessed in accordance with the controlled foreign corporation (CFC) rules in the GTA. Generally, a jurisdiction is considered to be “low-tax” if the effective taxation of the company in that jurisdiction is less than 2/3 of the effective taxation that type of company would be subject to had it been resident in Norway.

For all the transactions listed above, the withholding tax rate is 15% on the gross amount. However, this rate could be subject to a reduction following the applicable double tax treaty.

With respect to the payment of the withholding tax, it is the Norwegian company or branch as the payee, that is obliged to deduct the withholding tax and pay the tax on behalf of the foreign related party. The Norwegian company or branch withholding the tax levied, can be responsible to cover the tax liability if the deducted amount is not sufficient.

Norway does not have any specific rules regarding the effects of other countries legal restrictions on payments, etc.

The NTA has, since 2009, issued an annual transfer pricing report covering amongst other things a summary of the NTA’s activities and focus areas, the number of ongoing, new and settled transfer pricing cases including amounts, and a list of completed and pending MAP and APA processes.

Norway does not prohibit the use of secret comparables. The NTA are free to apply such comparables as part of their transfer pricing assessments. The use of secret comparables was subject to discussion in the Total E&P ruling in the Norwegian Supreme Court, see Rt. 2015 page 353.

As of March 2022, it is too early to provide any concise description of how COVID-19 has impacted transfer pricing in Norway. Presumably, certain companies will have suffered extraordinary losses compared to previous years. Overall, we assume that the COVID-19 consequences in Norway will be the same as those described and identified in the OECD’s guidance in its report on “transfer pricing and economic implications of COVID-19.” (the COVID Guidelines). The NTA published a Norwegian article on transfer pricing and COVID-19 implications reflecting the views presented in the COVID Guidelines.

During the COVID-19 pandemic, the government has on several occasions provided extensions to the deadline for paying taxes falling due in 2020 and 2021. First, the government introduced temporary rules on deferral of taxes under certain conditions, due to the COVID-19 pandemic. Deferral was provided until 30 June 2021. In 2021, the taxpayers who were eligible for such deferral, were automatically provided with a payment scheme. The deferred tax shall be paid in instalments with the first payment on 31 October 2021. Due to a new lock-down in December 2021, the instalment payments for December 2021, January and February 2022 were postponed to 31 March 2022 and until 30 December 2022.

Taxpayers granted a deferral of tax, must pay a default interest which, for the period 15 January 2022 to 30 March 2022, was 6% and from 1 April 2022 it is 8.5%. In the case of default on an instalment payment, the taxpayer must pay the deferred tax at once.

We have thus far not observed that the COVID-19 situation in Norway has significantly impacted on the general progress of transfer pricing audits, other than meetings being conducted digitally as opposed to in person. 

Ernst & Young Advokatfirma AS

Oslo Atrium, Postboks 20
NO-0051 Oslo
Norway

+47 24 00 24 00

+47 24 00 24 01

www.EY.no
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Ernst & Young Advokatfirma AS fields one of Norway’s largest corporate tax practices and Norway’s largest transfer practice; hiring lawyers, auditors and economists and specialising in Norwegian and international taxation of corporations and individuals, transfer pricing, indirect taxes, customs, and duties. The firm has approximately 20–25 people frequently working with transfer pricing-related matters, covering operating-model effectiveness, transfer pricing model design, controversy, and dispute resolution. The transfer pricing team covers both lawyers and economists, serving a broad range of sectors and international clients. Ernst & Young Advokatfirma AS has a growing team focusing on tax controversy and dispute resolution, with several of the partners in the firm being admitted to the Norwegian Supreme Court and lawyers capable of acting as litigators for the firm’s clients. The firm houses further expertise in tax matters arising from corporate transactions, with growing experience in blockchain and cryptocurrency matters.

Transfer Pricing as a Focus for the Norwegian Tax Authorities

Transfer pricing has been one of the main focus areas for the Norwegian tax authorities for many years, especially in the last decade. The number of people engaged in transfer pricing related matters by the Norwegian Tax Administration (“NTA”) has been steadily increasing in the last ten years. In parallel, the NTA has restructured its internal organisation and areas of responsibility, effective from 1 January 2019.

Today, the division for “Large Enterprises” in the NTA (Divisjon Innsats, Storbedrift) hosts the tax authorities’ transfer pricing section (“TP section”). The TP section consists of approximately 100 employees. Together with the Oil Tax Office, the TP section has a nationwide responsibility for all transfer pricing cases in the NTA. In comparison, prior to the reorganisation, transfer pricing cases were placed and handled in individual regions and specialist offices within the tax authorities.

In addition to the TP section, the NTA has also established a separate valuation group (“VAL”) with the intention to have personnel with valuation expertise assist in transfer pricing cases. VAL is a multidisciplinary group with its role being to act as an internal advisory unit across the Large Enterprises division and the tax authorities in general.

There is a separate section for mutual agreement procedure (MAP) and advance pricing agreement (APA) cases, which has the sole responsibility for negotiating with tax authorities in other jurisdictions to reach an understanding to prevent double taxation in transfer pricing cases.

Transfer Pricing Documentation Requirements

Norway introduced transfer pricing documentation requirements with effect for the income year 2008. Since 2008, there have not been any significant material revisions with respect to the mandatory documentation requirements in Norway. Although the documentation requirements have been stable for many years, the tax authorities normally request an extensive amount of additional information from the taxpayer once a transfer pricing audit has been started.

This is likely to do with the fact that the taxpayer has quite an extensive obligation to provide the tax authorities additional information upon request, and that the amount of information required to be provided in the taxpayers’ transfer pricing documentation may vary depending on the complexity and volume of the intercompany transactions (as a principle of proportionality applies).

Both under the previous Tax Assessment Act of 1980 and the current Tax Assessment Act of 2017, the tax authorities have the possibility to apply sanctions towards a taxpayer in the case of non-compliance with the procedural rules in the Tax Assessment Act, such as the rules specifically related to transfer pricing documentation or the rules related to providing additional information upon request. Such sanctions may include an infringement notice (surcharge), coercive fines and penalty taxes.

However, although a penalty tax is applied in some cases, the tax authorities rarely issue surcharges or coercive fines for insufficient information provided in transfer pricing documentation. The taxpayer shall submit the transfer pricing documentation within 45 days upon request from the tax authorities, and it is rarely given any extension on this deadline. The use of fines for late delivery of the requested transfer pricing documentation has not been a focus for the tax authorities.

With respect to requested supplementary information from the taxpayer, the tax authorities will often provide the taxpayer with an extension to submit the information, if one is requested. Consequently, in Norway it is rarely the case that taxpayers are hit with surcharges or coercive fines for late delivery of transfer pricing documentation and other requested information.

Following the OECD BEPS project in 2015, Norway did not implement the suggested transfer pricing documentation requirements provided in Action 8-10, as the Ministry of Finance considered the documentation requirements incorporated in 2008 to be already aligned with the recommendation in the BEPS project. However, during 2020, the NTA has assisted the Ministry of Finance with assessing the current rules on transfer pricing documentation and also a simplification of the rules concerning country-by-country reporting in Norway. As of March 2022, the Ministry of Finance has not proposed any amendments to the current documentation rules. We believe that taxpayers can expect an update on the regulatory rules concerning transfer pricing in the near future.

Since 2020, the NTA has revised and expanded upon the transfer pricing section in their tax handbook (Skatte-ABC). This handbook serves as guidance from the Directorate of Taxes to the tax officers working within the tax authorities. However, the OECD Transfer Pricing Guidelines (“OECD TPG”) are incorporated into the Norwegian Tax Act, and the guidance provided in the tax handbook is more of a brief summary of certain important transfer pricing topics, rather than a set of guidelines deviating from the OECD TPG. Thus, guidance in the tax handbook is rarely used as legal source in transfer pricing cases.

The Tax Audit Environment

Transfer pricing cases have been high on the agenda of the NTA for many years. Within the tax authorities, transfer pricing cases are processed in teams with legal expertise normally already present during the audit period. Depending on the complexity of the case, expertise from the tax authorities’ valuation group will also be engaged in the case throughout the process from the initial audit up to the final assessment by the tax office.

In 2020, the tax authorities handled 27 cases with an aggregated proposed income adjustment of approximately NOK15 billion. In previous years, the number of cases has normally varied between 25 and 50. This shows that the tax authorities are prioritising many cases during a year and cases involving substantial amounts.

In its transfer pricing report for 2020 (the latest published), the tax authorities stated that they had established initiatives with a special focus on the following transfer pricing “risk areas”:

  • intangible property (IP)/restructurings;
  • low profitability (companies in Norway with recurring losses over time);
  • allocation to a permanent establishment;
  • pricing of loans with a lender in Norway;
  • rental of significant tangible assets; and
  • the K24 project, in which the tax authorities present their risk assessment of the 24 largest Norwegian groups, and conclude on measures once the group has provided its comments to the analyses and assessments of the tax authorities (the project does not entail that formal audits are performed).

Based on the authors’ experience in recent years, transfer pricing cases related to internal business restructurings (considered in light of Chapter 9 of the OECD Guidelines) are typically a starting point for many transfer pricing audits by the tax authorities. Transactions related to intangible property (“IP”) often appear in conjunction with an internal business restructuring, providing for complex cases with significant amounts in proposed income adjustments. Such cases often involve significant costs, resources and time for taxpayers due to a comprehensive set of facts and circumstances which must be explained to the tax authorities, often in many written submissions.

There are many transfer pricing cases related to intangible property, often due to Norwegian companies being acquired by third parties and undergoing a business restructuring soon after the acquisition. The NTA seemingly has a strong focus on IP, as questions often arises during an audit process as to whether IP could be involved in the transactions to some extent.

Within the oil and gas sector, transfer pricing cases often involve financial transactions such as loans, thin capitalisation, and captive insurance premiums. Additionally, the oil and gas sector involves the use of significant tangible assets, which also provides for transfer pricing cases concerning rental and leases with complex valuation questions.

Key trends in tax audits

Although the tax authorities have broad authority to perform physical inspections at the premises of a taxpayer, the audits are often in written form with substantial exchange of information via letters and email. Generally, transfer pricing documentation is always requested by the tax authorities. The amount of information provided in the taxpayers’ transfer pricing documentation may vary depending on the complexity and volume of the intercompany transactions (due to the above-mentioned principle of proportionality).

It is rarely the case that the transfer pricing documentation is – in itself – sufficient for the tax authorities to reach a conclusion on the matter. Since the taxpayer has an extensive obligation to provide the tax authorities with information once an audit is opened, the tax authorities normally request additional information from the taxpayer, which can include information from prior years and information that may seem, to the taxpayer, peripheral to the topics concerned.

The kinds of information taxpayers may refuse to provide is, to a quite limited extent, established in the law. Thus, there are sometimes disputes between the tax authorities and the taxpayer regarding the amount of and the specific information to be provided. That being said, most taxpayers co-operate with the tax authorities in a constructive manner early on in the audit process to ensure a transparent and efficient process.

Furthermore, the formal aspects of the tax audit processes; ie, the procedural rules applicable in a tax audit and reassessment process, are still highly relevant and have probably become an area of increased focus for taxpayers. Specifically, this often refers to questions regarding the application of rules on statute of limitations and whether adjustments for certain income years are time-barred, or rules on the processing of cases.

When it comes to the material discussions in transfer pricing cases, there seems to be a trend that disputes often arise due to the taxpayer and the tax authorities differing on which transfer pricing method is appropriate to use in specific transactions. This often involves discussion of the application of a gross margin compared to a net margin method, or the use of a profit split method compared to a net margin method. The validity of benchmarks performed by taxpayers has also attracted the attention of the NTA in recent years and been the subject of several court cases.

This development is further supported by the tax authorities’ interpretation of the articles in the OECD Guidelines related to “delineation” of the actual transactions. In certain cases, the tax authorities have used the guidelines on “delineation” to propose the use of an alternative pricing method or that “delineation” of the transaction is some sort of pricing mechanism in itself. This is a topic in relation to which there are likely to be further developments and which will likely contribute to an increase in disputes.

Tax audits related to transfer pricing are time consuming, with a lot of formal written submissions and frequent exchanges of information in writing. It normally takes two to five years before a transfer pricing audit is concluded by the NTA. Although the process is characterised by a lot of written submissions, the taxpayer is given the possibility to provide comments to the tax authorities’ view throughout the process before a formal reassessment is made. The taxpayer is normally given the opportunity to comment both upon the notice of the proposed reassessment and on the draft decision of reassessment before the tax office in the first instance concludes on a final reassessment. As such, the taxpayer is given the possibility to challenge the outcome throughout the process.

In certain complex cases or complex business operations, both the taxpayer and the tax authorities may take the initiative to hold meetings during the audit process to clarify misunderstandings regarding the facts of the case. Such meetings do not follow a specific set of rules but can sometimes be constructive for the development of the case.

Appeals and Court Cases

After the establishment of the national Tax Appeal Board in 2016, there has been a decline in tax cases brought before the courts. In recent years, there have been few transfer pricing cases brought before the courts. Instead, most of the formal reassessments with respect to transfer pricing made by the tax office in the first instance are appealed to the Tax Appeal Board or the Appeal Board for Oil Taxation.

The Tax Appeal Board consists of members with expertise within tax, in comparison to the courts where judges are generalists. Consequently, most transfer pricing cases are appealed to the Tax Appeal Board before taxpayers consider bringing them to court.

The appeals process is usually more cost-efficient for taxpayers than a court case proceeding, but the time spent to handle and conclude a case at the Tax Appeal Board is significant. Once a transfer pricing case has been appealed it can often take between two and four years before it is concluded by the Tax Appeal Board. In the meantime, the taxpayer must pay the reassessed tax amount shortly after they have received the formal reassessment from the tax office. Thus, in cases involving substantial amounts of income adjustments and a significant amount of payable tax, taxpayers should make strategic consideration as to whether prompter treatment in the courts is preferable.

There are annual statistics of transfer pricing cases handled by the TP section at the NTA, the Tax Appeal Board and in the courts. Generally, the statistics show that taxpayers are far more successful when they appeal to the Tax Appeal Board compared to the courts. In 2020, taxpayers won, in part or in full, four out of six cases handled by the Tax Appeal Board. In comparison, the tax authorities won six out of nine transfer pricing cases considered in the courts in 2020.

The Impact of the COVID-19 Pandemic

Currently it is too early to conclude how the COVID-19 pandemic has affected the tax authorities’ work and whether it will change focus areas within transfer pricing. As of March 2022, taxpayers have so far only submitted their tax return for 2020 which likely are still undergoing control by the tax authorities. Based on the authors’ experience, the NTA works in strict accordance with the OECD TPG, and we would expect them to follow the transfer pricing guidelines provided by the OECD in relation to COVID-19 as well.

Digitalisation of the NTA

Although many of the data analytics tools that the tax authorities use in their risk assessments, within transfer pricing or for the election of taxpayers to audits and control, are not publicly available, it is a known fact that the NTA has several ongoing initiatives when it comes to using technology in their work.

The NTA is undergoing a digital transformation, with several projects underway. The NTA has been proactive in digitalisation of, for example, the review and enhancement of digital tax returns (SIRIUS and MEMO) and processes towards taxpayers. Incorporation and use of SAF-T is also increasing. Overall, the tax authority is very active with respect to digitalisation, and several of these initiatives are likely to be relevant for analysing taxpayers and potential transfer pricing cases.

Outlook

It is expected that transfer pricing will continue to be one of the top priorities of the NTA for many years to come. The complexities and amounts in many transfer pricing cases will likely increase as the digitalisation of the global economy, value chains and business operations continue to evolve. It should also be expected that the regulatory and compliance requirements related to transfer pricing documentation and county-by-county reporting will to some extent be revised and amended.

The NTA is close to and involved in the international work and developments within the OECD, and there is every reason to believe that the tax authorities will follow up any new developments from the OECD diligently.

Ernst & Young Advokatfirma AS

Oslo Atrium, Postboks 20
NO-0051 Oslo
Norway

+47 24 00 24 00

+47 24 00 24 01

www.EY.no
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Law and Practice

Authors



Ernst & Young Advokatfirma AS fields one of Norway’s largest corporate tax practices and Norway’s largest transfer practice; hiring lawyers, auditors and economists and specialising in Norwegian and international taxation of corporations and individuals, transfer pricing, indirect taxes, customs, and duties. The firm has approximately 20–25 people frequently working with transfer pricing-related matters, covering operating-model effectiveness, transfer pricing model design, controversy, and dispute resolution. The transfer pricing team covers both lawyers and economists, serving a broad range of sectors and international clients. Ernst & Young Advokatfirma AS has a growing team focusing on tax controversy and dispute resolution, with several of the partners in the firm being admitted to the Norwegian Supreme Court and lawyers capable of acting as litigators for the firm’s clients. The firm houses further expertise in tax matters arising from corporate transactions, with growing experience in blockchain and cryptocurrency matters.

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Authors



Ernst & Young Advokatfirma AS fields one of Norway’s largest corporate tax practices and Norway’s largest transfer practice; hiring lawyers, auditors and economists and specialising in Norwegian and international taxation of corporations and individuals, transfer pricing, indirect taxes, customs, and duties. The firm has approximately 20–25 people frequently working with transfer pricing-related matters, covering operating-model effectiveness, transfer pricing model design, controversy, and dispute resolution. The transfer pricing team covers both lawyers and economists, serving a broad range of sectors and international clients. Ernst & Young Advokatfirma AS has a growing team focusing on tax controversy and dispute resolution, with several of the partners in the firm being admitted to the Norwegian Supreme Court and lawyers capable of acting as litigators for the firm’s clients. The firm houses further expertise in tax matters arising from corporate transactions, with growing experience in blockchain and cryptocurrency matters.

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