4 November 2007
The National Budget for 2008 was presented by the government on 5 October 2007. Under the Budget, both the corporate income tax rate and the flat tax rate on general income received by individuals will remain unchanged at 28%. Details of the Budget, which unless otherwise indicated will apply from 1 January 2008, are summarized below.
(a) CFC legislation. The Ministry of Finance proposes to limit the scope of the current CFC legislation in Norway. The proposal implies that the CFC legislation may not be applied to controlled companies that are actually established in a European Economic Area (EEA) country and actually perform economic activity there. Whether the company is actually established in an EEA country and actually performs economic activity there must be based on an overall evaluation. In the Budget document, the Ministry of Finance lists elements which are important in this overall evaluation.
The Norwegian shareholder must provide evidence to the Norwegian tax authorities, which proves that the company is actually established in an EEA country and actually performs economic activity there. In addition, if there is no tax treaty with an exchange of information article in force between Norway and the EEA country, the company must present a statement from the tax administration in its country of establishment that the information provided is correct.
(b) Participation exemption method. Similar to the CFC legislation, the Ministry of Finance proposes that the participation exemption method may, in relation to companies resident in an EEA country, only be applied where the company is actually established in an EEA country and actually performs economic activity there. Whether this is the situation must be based on the same overall evaluation as mentioned above.
This is also the situation for the exemption from withholding tax on dividend distributions by a Norwegian company to a corporate shareholder in another EEA country. The corporate shareholder may only be exempt from Norwegian withholding tax insofar as the corporate shareholder is actually established in an EEA country and actually performs economic activity there.
(c) Emigration of SE company. Under the current rules, there is uncertainty regarding the taxation of SE companies in case the SE company terminates its Norwegian residency and becomes resident in another EEA country. The Ministry of Finance proposes to clarify the legislation related to this as follows. The unrealized gain in the SE company's assets should be considered as realized the day before the Norwegian tax residency terminates, either according to the domestic law or under the relevant tax treaty. The gain or loss should be determined as the difference between the input value and the market value at the day of emigration and will be taxable/deductible in Norway.
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