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September 23, 2021
2021-5987

Norwegian Government proposes amendments to tax rules applicable to cross-border restructurings

Executive summary

On 22 September 2021, the Norwegian Ministry of Finance (the Ministry) issued a public consultation paper proposing amendments to the conditions for a tax neutral cross-border restructuring.

The current rules provide for the possibility of carrying out a cross-border restructuring, including mergers, demergers and certain exchanges of shares, without triggering Norwegian taxation on a company or shareholder level, subject to certain conditions. One of the general conditions is the transaction is carried out in accordance with the principle of tax continuity in the countries involved and that all tax positions are unchanged for the shareholders and the companies that are part of the restructuring.

The application of the tax continuity condition abroad may be challenging and burdensome for both taxpayers and tax authorities. Due to this the Ministry has already established exceptions to this condition, not requiring tax continuity in the foreign country in certain cases. Through this consultation paper the Ministry is evaluating this condition again and proposing to abolish it for some types of cross-border restructurings.

It is proposed that the rules shall be effective from 1 January 2022. Comments to the proposal must be submitted by 22 December 2021.

Detailed discussion

With effect from 2011, Norway introduced rules on the taxation of companies and shareholders in connection with certain types of cross-border restructurings, providing for the possibility of carrying out these transactions without triggering immediate taxation, subject to certain conditions.

One of the conditions for tax neutrality is that the transaction is carried out in accordance with the principle of tax continuity at the company and shareholder level. In general, this implies e.g., that an acquiring company must take over all fiscal values, as well as dates of acquisition for all transferred assets and liabilities. The fiscal values and dates of acquisition of the disposed shares in the transferring company must be relocated to the received shares of the acquiring company. This condition aims at ensuring neutrality, as taxation of any unrealized gain or loss obtained by the company and/or its shareholders is deferred to a later triggering event.

The application of the tax continuity condition abroad requires an assessment of foreign legislation. In the view of the Ministry, experience has shown that this condition is difficult to fulfil in practice and that extensive work may be required to assess its application or to demonstrate that it has been fulfilled both for the taxpayer and the tax administration.

Due to the above, the Ministry has proposed amending the rules and not requiring tax continuity abroad for the following types of cross-border restructurings:

  • Exchange of shares in a Norwegian company for shares in a foreign company or exchange of shares in a foreign company for shares in a Norwegian company
  • Merger, demerger or exchange of shares between foreign companies
  • Mergers and demergers between a Norwegian acquiring company and a company resident within the European Economic Area

The objective of the proposal is to simplify the rules and to facilitate cross-border restructurings. The Ministry is of the view that these amendments will not affect the Norwegian tax basis, as income and wealth that are earned in Norway will still be subject to taxation in Norway.

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For additional information with respect to this Alert, please contact the following:

EY Norway, Oslo

 
 

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