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August 28, 2019
Norwegian Government proposes introduction of cross-border group relief rules
The Norwegian Ministry of Finance (the Ministry) issued, on 13 August 2019, a public consultation paper regarding cross-border group relief in final loss situations, i.e., when a loss-making company has exhausted all possibilities to utilize the losses incurred.
It is proposed that the rules shall be effective from the income year 2019 and comments to the proposal must be submitted by 13 November 2019.
There is no consolidation of groups for tax purposes in Norway, but relief for losses may be claimed within a tax group by way of group relief. By granting a group relief, a group company can transfer its taxable income to another group company, thus utilizing losses within the group. Group relief is deductible for the contributor and constitutes taxable income for the recipient.
Currently, the group relief rules only allow for group relief between Norwegian group companies. A tax group consists of companies’ tax resident in Norway that are owned by the same ultimate parent company holding more than 90% of equity and voting rights directly or indirectly at year end.
However, on 13 September 2017, the Court of Justice of the European Free Trade Association (EFTA Court) ruled that the Norwegian group relief rules infringe the right of freedom of establishment under Articles 31 and 34 of the Agreement on the European Economic Area (EEA). In the Norwegian Supreme Court ruling published on 28 January 2019 (the Yara case), the Supreme Court stated that a group relief made to a subsidiary tax resident within the EEA is allowed in “final loss” situations.
On this basis, the Ministry issued the public consultation paper regarding the proposal to codify cross-border group relief in final loss situations.
The proposed changes – “final loss” exception
In addition to the general requirements for rendering group relief between Norwegian group companies, the Ministry proposes the following conditions for a taxpayer to render group relief to foreign group companies:
With respect to the “final loss” requirement, the Ministry states that the term must be interpreted in accordance with the guidelines from the EFTA Court and the Court of Justice of the EU (CJEU), and clarify that the following factors are relevant:
The proposed rules also establish the rules for computing the final losses and the obligation to adjust the amount based on subsequent incidents, for example if the subsidiary derives any taxable income due to the liquidation.
The proposal codifies the possibility of carrying out cross-border group relief in final loss situations. It is expected that the scope of application of the rules will be very narrow. This is confirmed by the Ministry in the proposal, which states that the rules will not have an economic or administrative impact for the Government, as they will apply only in rare exceptional circumstances.
The proposal clearly states that the rules should not give taxpayers a wider possibility to grant group relief in cross-border situations compared to pure domestic situations. However, in domestic situations, tax losses can be carried forward indefinitely, while final losses according to the proposal cannot be carried forward but have to be used in the year they occurred. This, as well as other aspects of the proposed rules, may be considered as a restriction, which does not seem to be justified by imperative reasons in the public interest as long as the loss is final. Hence, the proposed rules might still infringe the right of freedom of establishment under Articles 31 and 34 of the EEA Agreement.
For additional information with respect to this Alert, please contact the following:
EY Norway, Oslo
Ernst & Young LLP (United States), Nordic Tax Desk, New York