Norway - Taxation of cross-border mergers and acquisitions
Taxation of cross-border mergers and acquisitions for Norway.
Taxation of cross-border mergers and acquisitions for Norway.
Norway’s tax system and tax framework for cross-border mergers and acquisitions (M&A) has been relatively stable in recent years, although new rules and amendments have been introduced. Effective 1 October 2021, Norway will introduce a limited withholding tax (WHT) on interest, royalties and asset lease payments to related parties residing in low-tax jurisdictions.
Withholding tax on interest, royalties and asset leases
Effective 1 October 2021, Norway will introduce domestic legal authority for WHT on interest, royalty and certain asset lease payments to related entities resident in low-tax jurisdictions.
The objective of the WHT provisions is to counteract the possibilities for related-party transactions that result in base erosion and profit shifting (i.e. tax planning strategies that exploit gaps and mismatches in tax rules to avoid paying tax). Withholding tax is also seen as an important instrument to prevent double non-taxation when the recipient is not taxed in its jurisdiction of residence.
A 15 percent WHT rate will apply on the gross payment on interest, royalties and certain lease payments. The WHT rate may be reduced or fully exempted under an applicable tax treaty and when the recipient is genuinely established and conducts real economic activity in a European Union (EU) Member State or European Economic Area (EEA) Member State.
In the context of the WHT provisions, entities would be considered related when there is a direct or indirect ownership or control that reaches a threshold of at least 50 percent.
The low tax standard that applies under the Norwegian-controlled foreign corporation (CFC) legislation will also apply when assessing whether an entity is resident in a ‘low-tax jurisdiction’ for WHT purposes. Under this standard, an entity is generally considered resident in a low-tax jurisdiction if the effective tax rate of the entity's profits is less than two-thirds of what it would have been if it were a resident in Norway (roughly 14.7 percent).
The definition of interest and intellectual property rights is proposed to be in line with the definition of these terms in current Norwegian tax law. For financial lease transactions, this implies that such payments would only be subject to WHT if the interest element of the lease payment qualifies as interest for tax purposes.
Physical assets subject to the WHT are vessels, rigs, airplanes and helicopters. The WHT obligation is not limited to a specific type of leasing contract, as this could encourage tax planning. When the lease contract includes more than the asset itself (e.g. services or crew), it would be assessed on the specific facts for the part of the payment that is to be deemed to constitute payment for the asset itself and this amount would be subject to withholding tax.
Taxes should be withheld by the entity making the interest, royalty or lease payment. The entity with the withholding obligation is also responsible for assessing whether the WHT provisions encompass the payment in question and which tax rate is to apply (e.g. if a lower rate is available under an income tax treaty). If the recipient's tax status is unknown, 15 percent of the payment would be withheld. The duty to withhold taxes is not limited to ordinary cash payments, but also include interest, royalty and lease payments accrued or settled in different manners.
If the withheld tax exceeds the statutory rate or the WHT rate under an applicable tax treaty, it would be possible to claim a refund. To file a refund claim, an appeal would have to be filed within the 3-year statutory deadline.
Asset purchase or share purchase
An acquisition in Norway usually takes the form of a purchase of the shares of a company, rather than its business and assets, as the sale of shares may be exempt. Thus, it can be useful to purchase entities by setting up a Norwegian purchasing entity so the investor may exit without any major tax costs and reinvest in another Norwegian entity.
Acquisition of a Norwegian company may be carried out either through a share purchase or asset purchase, or by a merger. (See ‘Choice of acquisition vehicles’ section.)
A number of aspects related to asset acquisitions are discussed here, followed by a discussion of share acquisitions.
Purchase of assets
A purchase of assets would generally result in an increase in the tax base, both for capital gains taxation and depreciation purposes. This increase is likely to be taxable for the seller, so a seller would thus normally prefer to sell shares in order for the exemption method to apply. An asset purchase would enable the purchaser to avoid assuming potential historical tax risks and tax attributes and may thus be preferred from the buyer’s perspective.
The purchase price must be allocated among the individual assets, and this allocation determines the tax bases for future depreciations.
The business value (acquired goodwill) may be depreciated for tax purposes at 20 percent on a declining-balance basis. Time-limited intangible rights, such as leasing contracts, rights of use or patents, are depreciated on a straight-line basis over the lifetime of the asset.
Non-time-limited intangible rights, such as a company name or brands, are only depreciable where there is a clear decrease in value, in which case the right is amortized over the asset’s projected lifetime.
The seller is taxed on any gain on intangible assets and goodwill. The gain could be deferred and taxed at 20 percent on a declining balance through the company’s gain and loss account. A higher amount could be entered as income.
All assets used in the business are depreciable if they are either listed in the following depreciation groups or are documented as having lost value over time. The rates for different depreciation groups are as follows:
- office equipment: 30 percent
- acquired goodwill (business value): 20 percent
- trucks, trailers, buses, taxis and vehicles for disabled persons: 24 percent
- automobiles, tractors, machinery and equipment, tools, instruments, fixtures and furniture, etc.: 20 percent
- ships, vessels, drilling rigs, etc.: 14 percent
- aircraft and helicopters: 12 percent
- plant and certain machinery for the distribution of electric power and electro technical equipment for the production of electric power: 5 percent
- buildings, hotels, restaurants, etc. including but not limited to cleaning plants, cooling systems, pneumatic systems, and similar technical and auxiliary plants and installations: 4 percent
- office buildings: 2 percent
- permanent technical installations in buildings, including sanitary installation, elevators, etc.: 10 percent.
Plant and buildings with an estimated lifetime of 20 years or less may be depreciated at 10 percent, rather than 4 percent. However, the increased depreciation rate of 10 percent does not apply to plant and machinery used in petroleum activities outside the EU/EEA.
Automobiles, tractors, machinery and other assets covered by category (d) may be depreciated with an additional 10 percent in the year of acquisition (for a total of 30 percent in the acquisition year). The same applies if an investment or upgrade is made to an asset in category (d).
All the tangible assets listed and acquired goodwill are subject to the declining-balance method of depreciation. Assets in groups (a) to (d) are depreciated on an aggregate (pool) basis. Each asset in groups (e) to (i) must be depreciated separately. Assets in group (j) must be depreciated on an aggregated basis per building.
Value Added Tax
Value Added Tax (VAT) is levied on any sale of assets, unless it can be deemed a transfer of a going concern. Sales of shares do not trigger VAT, but it is important to check whether the acquired company was part of a VAT group. Further, the continued business activity needs to be de-registered or re-registered for VAT purposes.
The disposal of operating assets or shares as part of the transfer of a business, or part of a business, to a new owner can take place without triggering VAT. One condition is that the new owner continues the activity within the same industry. If there is evidence of purchasing with the intention of closing down the business, a VAT liability is triggered.
Purchase of shares
A share sale is normally the seller’s preferred choice as a Norwegian corporate seller benefits from the exemption method and does not remain liable for the business.
There are no immediate Norwegian tax consequences for a foreign company when it acquires shares in a Norwegian company. Thus, where goodwill is included in the value of shares, depreciation for tax purposes is not permitted.
Apart from the carry forward of losses, as described later in the report, the tax position of the acquired Norwegian company remains unchanged. Thus, there is no possibility of a tax-free step-up in the tax base of the assets of the acquired company.
An acquisition of shares can be restructured in such a way that the purchaser obtains tax benefits (see later in the report).
It is not possible to obtain assurances from the tax authorities that a potential target company has no tax liabilities, or advice as to whether the target is involved in a tax dispute. It is therefore recommended that the purchaser carries out due diligence prior to an acquisition. A normal part of the due diligence process involves a review of the potential target company’s tax affairs.
Financing costs are generally considered as ordinary operating costs and should be deductible when incurred. However, costs for legal assistance, other consultancy costs and costs for due diligence, etc., related to the purchase of shares, are treated as part of the shares’ cost price and should be capitalized on the shares. Due to the exemption method, the cost is not deductible for a Norwegian corporate shareholder.
Tax indemnities and warranties
Indemnities and warranties are commonly used in Norwegian transactions, and the parties may freely agree upon terms and conditions.
Losses of any kind may be set off against income from all sources and capital gains, and they may be carried forward indefinitely. Changes in ownership do not change the right to carry forward, provided that it is not likely that the exploitation of the losses was the main motive for the transaction.
Dividend payments are taxable for the recipient, regardless of whether the dividends are paid before or after the transaction, or whether the payment is made to the old or new shareholder.
Norway does not levy transfer taxes, except for registration of new legal owners of cars and real estate. Stamp duty on real estate is 2.5 percent of the fair market value. Stamp duty for real estate is not payable when shares are transferred in a corporation holding real estate or the real estate is a part of a demerger.
It is possible to get pre-clearance from the tax authorities on transactions, usually in 1–3 months, provided the facts are clearly presented.
Choice of acquisition vehicle
The following vehicles may be used to acquire the shares and assets of the target:
- local holding company
- branch of a foreign company
- subsidiary of a foreign company
- treaty country intermediary
- joint venture.
Generally, the advantages and disadvantages of the different acquisition vehicles must be considered case-by-case.
Local holding company
There is no consolidation of groups for tax purposes, but relief for losses may be claimed within a group by way of group contributions. Group contributions are deductible for the contributor and taxable income in the hands of the recipient. The holding requirement for group contribution purposes is 90 percent. The parent company must hold, directly or indirectly, more than 90 percent of the shares and the voting rights of the subsidiary. The ownership requirement must be met at the end of the fiscal year.
Note that group contribution (with tax effect) may not be given or received with respect to income subject to the Norwegian petroleum taxation regime.
The tax deduction for a group contribution is conditional on the contribution not exceeding the taxable income of the contributor, and the requirements for contributions under the Limited Companies Act (LCA) must be met. Under the LCA, any contribution from a company to a shareholder, except for the repayment of the share capital, must conform to the rules concerning dividends. Both the contributor and the recipient must affirm that the required conditions are fulfilled at the end of the income year in an enclosure to the tax return for the year of contribution.
Group relief is available between Norwegian subsidiaries of a foreign parent as long as the 90 percent ownership requirement is fulfilled by 31 December. This applies to foreign companies resident within the EU/EEA that are considered comparable to Norwegian companies, as long as they are taxable to Norway through a permanent establishment and the group relief is taxable to Norway. This includes distributions against unused loss carryforwards in the foreign EU/EEA company also after the permanent establishment has ceased its activity in Norway.
Also, under non-discrimination clauses of tax treaties, group relief is available for contributions made from a branch of a foreign resident company to a Norwegian subsidiary of the same tax group.
Foreign resident company
A non-resident company acquiring assets in Norway would generally be deemed to have a permanent establishment. The taxation of a permanent establishment is normally the same as the taxation of a company. However, the company is free to remit the profit without awaiting completion of the formalities, such as approving the annual accounts or deciding a dividend distribution, and there is no requirement that distributions are within distributable equity.
Non-resident intermediate holding company
Norway has comprehensive tax treaties with more than 90 countries, including all industrialized countries and most important developing countries.
A non-resident company normally carries on business in Norway through a Norwegian corporation (subsidiary) or through a registered branch. The corporate tax rate of 22 percent applies to both subsidiaries and branches.
Although the choice of the legal form of an enterprise should be determined case-by-case, the following tax issues should be considered:
- Profits of a branch are currently taxed in Norway (the source country) as well as in the home country (where the source country tax is normally credited against the home country tax unless an exemption applies), while profits of a subsidiary are taxed in Norway only. If distributed, the dividend taxation of the owner must be examined separately for each situation.
- No branch profits tax is withheld in Norway. Likewise, distributions from a Norwegian subsidiary are normally not subject to withholding tax, but each case must be examined separately.
- Subsidiaries and branches are not subject to net wealth tax.
- Filing requirements are more extensive for subsidiaries than for branches.
No special tax legislation applies to joint ventures.
Choice of acquisition funding
Interest on loans is normally deductible for the purposes of calculating the net profits from business activities where the loan is taken out for the purpose of acquiring shares. The deduction is made on an accrual basis.
Limitations of tax deductibility for interest expenses
Earnings stripping rules may however reduce the deductibility of net interest expenses on both related and unrelated party debt, limited to 25 percent of the borrower’s tax EBITDA.
The basis for the calculation is the taxable income, adjusted for group contribution. Tax losses carry forward, tax depreciation and net interest expenses are added back to the taxable income, which constitutes tax EBITDA. Tax-exempt income, such as certain dividends and gains on shares, does not increase the basis for deductions.
The maximum deductible interest is capped at 25 percent of this amount.
The rules only apply if the borrower is part of a consolidated group (or would have been under IFRS principles) and the Norwegian entities in the Borrower’s consolidated group have, in aggregate, net interest expenses of more than 25 million Norwegian kroner (NOK).
Equity escape provisions
Taxpayers may claim relief for all net interest expenses if they qualify for the ‘equity escape provisions’. Broadly, the provisions seek to establish whether the borrower (or the Norwegian subgroup as a whole) is over-indebted relative to the worldwide consolidated group.
The taxpayer can claim relief for interest in excess of the EBITDA threshold provided the ratio of the taxpayer’s equity to total assets is equal to or higher than the corresponding ratio of the worldwide consolidated group.
Alternatively, the test can be applied at the level of the Norwegian consolidated subgroup.
The financial statements of the Norwegian consolidated subgroup must be adjusted according to the principles set out above.
The ratio of equity to total assets is considered ‘equal to or higher than’ the worldwide group ratio provided it is no more than 2 percentage points lower than the worldwide group ratio.
The consolidated group
In order to apply either exception under the equity escape provisions, the group must have qualifying consolidated financial statements available for the comparison.
Companies that are not part of a group
Companies that are not part of a group may nevertheless be subject to the earnings stripping rules. However, for companies that are not part of a group, only the deductibility of interest on related-party debt may be disallowed.
For in-scope entities, deductibility is similarly restricted to 25 percent of ‘Tax EBITDA’ but only related-party interest in excess of the limitation is denied deductibility. The threshold for application of the rules is NOK5 million.
Related parties are entities that directly or indirectly control (≥50 percent) or are controlled by the borrower, and entities controlled by the same direct or indirect parent as the borrower. If debt to a third party is guaranteed by a related party, it is considered related-party debt. Specific exceptions apply, for example, upstream guarantees from the subsidiaries of the borrower, and guarantees in the form of a simple pledge over the shares in the borrower.
These rules may also apply for companies that are part of a group (even if the before-mentioned exceptions apply) if the company has debt to a related party which is nevertheless outside of the consolidated group.
The financial sector and the petroleum industry are currently exempt from the rules.
Notwithstanding the above, where a Norwegian company is deemed thinly capitalized, the tax authorities may deny the deduction of part of the interest, or part of the interest might be considered a dividend distribution to the foreign parent company.
The statutory dividend WHT rate is 25 percent, unless a lower rate applies under an applicable tax treaty. There is no WHT on dividend payments to corporate shareholders that are genuinely established and conduct real economic activity in an EU/EEA Member State (see below concerning the exemption method).
Effective 1 October 2021, Norway will introduce 15 percent WHT on interest, royalty and certain type of asset leases. The scope of the WHT is limited to such payments to related parties resident in low-taxed jurisdictions. The WHT rate may be reduced or fully exempted under an applicable tax treaty and when the recipient is genuinely established and conducts real economic activity in an EU/EEA Member State. The definition of interest and intellectual property rights is in line with the definition of these terms in current Norwegian tax law. Physical assets subject to the WHT are vessels, rigs, airplanes and helicopters.
Checklist for debt funding
When funding a Norwegian entity, the following questions should be asked:
- Will the earnings stripping rules limit the deductibility of interest expense under the applicable financing arrangement?
- Is there a business reason for setting up a Norwegian purchasing entity? If not, the anti-avoidance rules may apply and the interest be deemed void for tax purposes.
- Is the interest set at fair market value? If so, are the market conditions well documented (e.g. similar types of loan, similar market, similar security, etc.)? For subordinated loans, interest could be challenged if the situation of the company is such that the interest poses a threat to the equity.
- Is the lender a resident a related party in a low-tax jurisdiction outside the EU/EEA, or a lowly taxed EU/EEA resident with limited substance?
There is no capital duty of any kind on contribution to equity.
The form rather than its substance usually determines the tax treatment of a financial instrument. No single characteristic is decisive, but the following characteristics are considered to be typical of debt:
- There is an obligation to repay the capital, possibly with the addition of interest.
- There is an agreement governing interest, date of maturity and the loan’s priority in relation to other creditors.
The following characteristics are considered to be typical of equity:
- A right is granted for a share in surplus liquidity and any dividend in the intervening period.
- The equity must take a certain form and be subject to certain restrictions and obligations regarding repayment of the provider of capital.
- The equity is intended to cover ongoing losses, and the yield is conditional on the company’s performance.
Any settlement that permanently reduces the company’s obligation to make payments or reduces its claims against third parties is accepted as income/loss at the time of settlement, as long as the settlement is made with third parties. Any settlement within a group must be documented as a fair market action, or the tax authorities will likely challenge it.
Concerns of the seller
The seller normally prefers a sale of shares, because this frees them from responsibilities and historical risk and attracts more favorable tax treatment. However, the tax benefit is normally part of the purchase price discussions, which makes the choice less crucial for both parties.
Company law and accounting
In Norway, labor laws are protective and favor employees, who are entitled to have all their earned rights transferred with them. Norwegian legislation also makes all contracts valid after a sale of shares, unless there are specific changes of control clauses or a change of ownership is clearly a breach of important explicit and implicit conditions.
For the dissolving entity, a formal merger is not considered liquidation. The company is regarded as a fully continuing corporation in all legal aspects unless the contracts state otherwise.
For accounting purposes, a purchase of assets is considered as a transaction, and the purchase price must be allocated. Only transactions within a group, without change of control, are treated as continuous transactions, provided the consideration is shares in the purchasing company.
There is no consolidation of groups for tax purposes, but relief for losses may be claimed within a group by way of group contributions. Group contributions are deductible for the contributor and taxable income for the recipient. The holding requirement for group contribution purposes is 90 percent.
The parent company must hold, directly or indirectly, more than 90 percent of the shares and the voting rights of the subsidiary. The ownership requirement must be met at the end of the fiscal year.
Group contribution (with tax effect) may not be given or received with respect to income subject to the petroleum tax regime.
Group contribution is available between Norwegian subsidiaries of a foreign parent as long as the 90 percent ownership requirement is fulfilled at year-end. The same applies to foreign companies resident within EU/EEA, which are considered comparable to Norwegian companies regarding group relief as long as they are taxable in Norway through a permanent establishment and the group relief is taxable in Norway. Also, under non-discrimination clauses of tax treaties, group relief is available for contributions made from a branch of a foreign resident company to a Norwegian subsidiary of the same tax group.
Mergers/demergers and exchanges of shares
If a foreign company wishes to gain control over a business run by a Norwegian limited company, the foreign company can either purchase all the shares in the Norwegian company or purchase the business activity. Takeovers may also be carried out as mergers.
Mergers and demergers
The formal rules for mergers and demergers of companies are set out in the Limited Companies Acts. A proposal for a merger agreement is drawn up by the boards of the two companies and presented to the general assembly of both companies. The resolution of the general assembly of both companies must be reported to the National Registry of Business Enterprises within 1 month. If not, the merger is not effective. When the merger resolution has been registered, the registrar will publish the resolution and notify the companies’ creditors that they must report their claims to the companies within 2 months from the date of the last announcement if they intend to object to the execution of the resolution. Corresponding rules apply to demergers.
Tax treatment of mergers and demergers
Mergers and demergers may be treated neutrally for tax purposes. The companies may also carry tax losses forward after the merger, subject to anti-avoidance provisions. A prerequisite for tax neutrality is that there is continuity in the involved tax positions before and after the transaction.
Further, the Ministry of Finance may, on application, grant a tax reduction or relief from tax on group reorganizations that would otherwise not qualify for neutral treatment. However, the application procedure may be lengthy and the application must be made in advance of the planned transaction.
Conversion of a Norwegian registered company into a branch of a foreign company
The conversion of a Norwegian registered company into a branch of a foreign company resident within the EU/EEA may be carried out by way of a merger of the Norwegian company into the foreign company. This type of merger or demerger may be carried out on a tax-neutral basis.
Further, such a conversion may be carried out by way of liquidation of a Norwegian company held by a non-resident company. For tax purposes, the liquidation will entail a full realization of the assets and liabilities of the Norwegian company. As a general rule, gains on the realization of assets are taxable at a rate of 22 percent. Losses are deductible. Under certain conditions the shareholders may apply for tax deferral, which is often granted.
Cross-border mergers/demergers and exchanges of shares
Cross-border mergers and demergers may be carried out between Norwegian and foreign limited liability companies (resident within the EU/EEA area), without triggering taxation on a company or shareholder level.
Cross-border intragroup transfers of assets and liabilities can also be carried out tax neutrally, if the transfers are:
- from a limited liability company to a foreign limited liability company within the same group
- from a Norwegian partnership to a foreign partnership within the same group.
However, if assets, rights or liabilities are taken out of Norwegian tax jurisdiction, the general exit tax rules will apply. The legislation also allows for the tax-neutral exchange of shares, when transferring at least 90 percent of the shares in a Norwegian transfer or private limited company/public limited company in consideration for shares in a foreign resident company. The same applies when the transferee company is resident in Norway and the transfer or company (limited liability) is resident in another country. These rules apply both within and outside the EU/EEA area.
A general condition for tax-free cross-border mergers, demergers and exchanges of shares is that the participating companies are not resident in low-tax countries within the EU/EEA area, unless the company is genuinely established and carries on business activities in the EU/EEA country. Exchanges of shares can also be carried out outside of the EU/EEA, provided that the companies are not resident in low-tax countries.
A general condition under the rules is that the transaction is tax-neutral in all countries and that all tax positions are unchanged for the shareholders and the companies involved. There are some exceptions.
The Ministry of Finance has the authority to adopt regulations on tax-free transfers of businesses, etc., in the following cases:
- transfers of a business in a Norwegian company’s foreign branch to a limited company in the same country
- transfers of a business in a Norwegian branch of a foreign company to a Norwegian limited company
- transfers between branches of related assets, liabilities and business, provided that the foreign-owned companies constitute a part of a group.
In Norway, transfer pricing policies must be documented at the request of the tax authorities. Failing to comply with such a request leads to fines. In addition, the company must keep a documentation file that can be forwarded to the tax authorities on short notice. Transfer pricing documentation rules impose an obligation for companies to prepare specific transfer pricing documentation. Norway’s transfer pricing system is based on the OECD’s guidelines.
Dual residency is treated in accordance with a relevant tax treaty between Norway and another country. However, domestic law clearly states that a person is a Norwegian tax resident if they spend more than 183 days in Norway in any given 1-year period.
Norwegian exemption method
Corporate shareholders are exempt from taxation of dividends and gains on shares, except for a clawback of 3 percent on dividends. The clawback does not apply if the dividend is distributed within a tax group. Losses on shares qualifying under the exemption method cannot be deducted.
For individual shareholders, dividends and gains are taxed under a modified classical system.
Exemption for dividends and gains on shares in companies resident in the EU/EEA
For corporate shareholders, an exemption system generally applies to all investments within the EU/EEA. For companies resident in low-tax jurisdictions within the EU/EEA, the exemption method only applies if the investee company fulfils an additional substance requirement. In the language of the legislation, the exemption only applies if such a company is genuinely established and performs real economic activity in the relevant jurisdiction. Fulfilling this criterion is based on the particular facts and circumstances. A key factor is to consider whether the foreign entity is established in a similar way to what is normal for such entities in both the country of residence and in Norway.
If the investment qualifies, the exemption method covers dividends and gains on shares and derivatives where the underlying object is shares, regardless of the level of holding or holding period. Trading in shares and certain derivatives is thus tax-exempt when made from a Norwegian resident limited company.
Convertible bonds are not covered by the exemption method
Losses on shares in a company that is tax-resident in a low-tax country within the EU/EEA and that lack the sufficient substance are not deductible, as the shares, in the case of a loss, qualify under the exemption method, even though a gain or dividends would not.
Limitation of exemption for investments outside the EU/EEA
For investments outside the EU/EEA area, the exemption only applies if the shareholder holds 10 percent or more of the share capital and the voting rights of the foreign company. The shares must be held for a period of 2 years or more. Losses are not deductible if the shareholder, at any point during the last 2 years, has held 10 percent or more of the share capital or the voting rights of the foreign company. The exemption does not apply to investments outside the EU/EEA, where the level of taxation is below two-thirds of the Norwegian tax that would have been due if the foreign company had been resident in Norway (both a white list and a black list exist). Dividends are tax-exempt from day 1, provided that the criteria are met at a later time.
For investments outside the EU/EEA not qualifying for the exemption, dividends and gains are taxable and losses are deductible. For such investments, a credit for WHT and underlying tax is granted.
Exemption from withholding tax on dividends for EU/EEA resident corporate shareholders
The exemption method also provides for a tax exemption for shareholders resident within the EU/EEA, meaning that no Norwegian WHT is due for shareholders that are covered by the exemption method. The exemption method only applies if the shareholder fulfils a substance requirement). In the language of the legislation, the exemption applies only if the company is genuinely established in and performs real economic activity in the relevant EU/EEA country. Fulfilling this criterion is based on the particular facts and circumstances.
A key factor is to consider whether the foreign entity is established in a similar way to the normal organization of such entities in both the country of residence and Norway.
Shareholders resident outside the EU/EEA would still be charged WHT, subject to limitations under tax treaties.
Comparison of asset and share purchases
Advantages of asset purchases
- The purchase price (or a portion) can be depreciated or amortized for tax purposes.
- A step-up in the cost base for tax purposes is obtained.
- No previous liabilities of the company are inherited.
- No acquisition of a tax liability on retained earnings.
- Possible to acquire only part of a business.
Disadvantages of asset purchases
- Possible need to renegotiate supply, employment and technology agreements, and change stationery.
- A higher capital outlay is usually involved (unless debts of the business are also assumed).
- Possibly unattractive to the vendor, so the price may be higher.
- Accounting profits may be affected by the creation of acquisition goodwill.
- Potential benefit of any losses of the target company remains with the vendor.
Advantages of share purchases
- Lower capital outlay (purchase net assets only).
- More attractive to the vendor, since a capital gain is (almost) tax-free for companies
- Purchaser may benefit from tax asset and losses of the target company.
- Purchaser may gain the benefit of existing supply and technology contracts.
Disadvantages of share purchases
- Purchaser acquires an unrealized tax liability for depreciation recovery on the difference between the market and tax book values of assets.
- No deduction for the purchase price or underlying goodwill.
KPMG in Norway
Advokatfirma AS Sørkedalsveien 6,
T: +47 4063 9183
Advokatfirma AS Sørkedalsveien 6,
T: +47 4063 4526
This country document does not include COVID-19 tax developments. To stay up-to-date on COVID-19-related tax legislation, refer to the below KPMG link:
Click here — COVID-19 tax measures and government reliefs
This country document is updated as on
4 February 2021.