On 15 December 2006, the Ministry of Finance proposed amendments to the Norwegian rules on unilateral relief for double taxation. If approved, the new rules will become effective on 1 January 2007; however, the rules on carry back of foreign tax credit will become effective on 1 January 2008. Details of the proposal are summarized below.

The existing principles on unilateral relief for double taxation (ordinary credit) remain unchanged, but additional rules on unilateral relief will be introduced.

It is proposed to implement a basket system (three different types of baskets) for calculating the tax credit for foreign tax paid in another country. The proposed baskets are (i) income from CFC and foreign partnerships, (ii) income from foreign petroleum activity and (iii) other foreign income. Under the basket system, the taxpayer will only be granted a credit for foreign tax calculated on income in one basket against Norwegian tax calculated on income in the same basket.

According to the proposal, a foreign tax credit that cannot be credited against domestic tax during the income year may be carried forward for 5 years. Furthermore, under certain circumstances, foreign tax may also be carried back 1 year insofar as the taxpayer does not enter into a tax position in Norway during the following 5 years. It is for the taxpayer to prove that the foreign tax credit cannot be credited against domestic tax during the income year.

In respect of the Norwegian CFC rules, it has been proposed that tax paid by a CFC in a third country may be credited against Norwegian tax calculated at the shareholder level of the CFC. However, the tax credit is limited to the credit that Norway would have been obliged to grant under the tax treaty between Norway and the third country in question. Similar rules are proposed for partnerships that are treated as a transparent entity in Norway and as a non-transparent entity in the other country.

It has been proposed that resident shareholders of a CFC should be entitled to foreign tax credit for withholding tax on dividends paid by the CFC irrespective of whether the dividend is taxable for the CFC or not. Similar rules will apply for dividends received by Norwegian partners of a partnership that is treated as a transparent entity in Norway, but as non-transparent entity in its home state.