Norwegian tax commission proposal for reform – changes affecting international investments

On 19 December 2022, a tax commission appointed by the Norwegian government presented a proposal for a partial reform of Norwegian regulations. The commission recommends that the participation exemption and other fundamental building blocks should not be amended. The proposals primarily conclude with a number of tax rate adjustments, but not for the corporate income tax, as well the (re)introduction of inheritance tax and a new tax on householding’s real estate.

However, the proposal includes certain changes designed to increase the effectiveness of Norwegian dividend withholding tax, extended application of withholding tax on payment of interest, royalty and leases to affiliated companies, as well as to abandon the tonnage tax regime.

Withholding taxation on liquidation proceeds

Under current rules, foreign shareholders are not taxed in Norway on liquidation proceeds realized upon the liquidation of a Norwegian company. The commission suggests that Norway changes the domestic tax legislation so that liquidation proceeds are considered dividends rather than capital gains. Liquidation proceeds paid to foreign shareholders will then be subject to Norwegian dividend withholding taxation at 25%, before any reduction under an applicable double tax treaty or under EEA/EU regulations.

Changes to regulation on return of capital

A return of paid-in capital is exempt from tax. This includes exemption from dividend withholding tax. Under current rules, the tax position “paid-in capital” has been connected to the historical amount paid-in to the company for each individual share, unaffected by the current owner’s acquisition price for the share. The tax commission proposes to change this, so that any tax-exempt return of paid-in capital on shares will be limited to the current shareholder’s acquisition price for the share.

Expansion of current rules on withholding taxes for interest, royalties, and lease payments for certain tangible assets (rigs, vessels, aircraft)

Under current rules, which were introduced in 2021, withholding tax is only applicable where the recipient of such payments is an affiliated company resident in a low tax jurisdiction (taxed at less than 2/3 of the effective Norwegian tax rate). The commission proposes to remove the latter condition, so that it is no longer a requirement that the recipient is resident in a low tax jurisdiction in order for the withholding tax to apply.

Further, under current rules, there is an exemption made for companies genuinely established within the EEA. The tax commission proposes that this exemption is removed, and that recipients genuinely established within the EEA shall instead have a right to claim taxation on a net basis, to allow deductions for relevant costs in the basis for withholding tax.

Such changes will expand the scope of the Norwegian withholding tax on such payments to the extent they are not limited by an applicable double tax treaty.

Tonnage tax regime

Ship-owning companies qualified for the Norwegian tonnage tax regime are exempt from ordinary corporate income tax and pay a (marginal) tax based on the net tonnage of their vessels. The commission proposes to abolish the tonnage tax regime so that ship-owning companies will become subject to ordinary corporate income tax, alternatively to increase the net tonnage-based tax.***

The deadline for presenting comments in the hearing process is 15 April 2023. Possible changes to the tax law will be followed up in separate law proposals to the Parliament.