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Norway Introduces New GAAR from 1 January 2020

Norway has introduced a new general anti-avoidance rule (GAAR) with effect from 1 January 2020. The new GAAR is provided in section 13-2 of the Tax Act and includes that avoidance (circumvention) exists where:

  • The main purpose of a transaction or series of transactions was to obtain a tax benefit; and
  • After an overall assessment, it is determined that the transaction(s) cannot be used as the basis for taxation.

The overall assessment includes an assessment of:

  • The intrinsic business values and economic effects of the transaction(s) other than tax benefits in Norway or abroad;
  • The size of the tax benefit and the degree of tax purposes;
  • Whether the transaction(s) is an inappropriate way of achieving the economic purpose of the transaction(s);
  • Whether the same result could be achieved in a manner not affected by the GAAR section (13-2):
  • The legal structure of the tax rules in question, including whether a rule is sharply defined in terms of time, quantitatively, or otherwise; and
  • Whether tax rules have been exploited in contravention of their purpose or basic tax law considerations.

Based on the above, if it is determined that the GAAR applies, taxation shall take place as if the transaction or series of transactions had been completed in a manner that reflects the economic substance. Where taxation is not feasible on the basis of economic substance, taxation may be effected by analogous application of relevant tax rules that are disadvantageous to the taxpayer or by a restrictive interpretation of relevant tax rules that are beneficial to the taxpayer.

In addition to Capital and Income Tax, the GAAR section (13-2) also includes that it applies to social security contributions, employer's contributions, and finance tax (the additional 5% tax on wages for financial activities). Further, a separate amendment has been made to the VAT Act to provide that the GAAR section (13-2) applies correspondingly for value added tax.

A new section 13-3 is also added, which applies for companies that have a tax position without connection to an asset or liability item, including tax positions such as deficits, even positive balances, and balances in the profit and loss account. When such a company is a party to a reorganization or may change ownership as a result of such reorganization or other transaction, and utilization of the general tax position is likely to be the predominant motive for the transaction, the tax position:

  • lapses if it represents a tax benefit; or
  • is recognized as income without the right to set off against loss if it represents a tax liability.

With the new section 13-3, the prior section 14-90 on tax positions and reorganizations is repealed.

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