Norway proposes new withholding tax on some related-party payments

By Michael Vorndran, Nord Advisory AS, Oslo, Norway

Norway’s Ministry of Finance, on February 27, proposed a 15% withholding tax on interest, royalty, and lease payments from Norwegian residents to non-resident related parties.

Parties are considered to be related if there is at least 50% direct or indirect ownership or control between them.

Many of Norway’s tax treaties provide for withholding tax on interest and royalties at less than a 15% rate.  The proposed changes would require extensive tax treaty renegotiation.

Protection of tax base

The primary objective of the proposed change is to protect the Norwegian tax base from erosion. To this extent, the proposed withholding tax on interest payments is limited to recipients in low tax countries.

Countries are considered to have low tax if their effective tax rate is less than two-thirds of Norway’s effective tax rate.

Lease payments included

The proposal includes withholding tax on lease payments for commercial and industrial equipment but respects the tax exemption for such payments under Norway’s existing tonnage tax rules.

EU/EEA compliance

Recipients of royalty, interest, and lease payments may elect between a 15% tax on a gross basis or a 22% tax on a net basis. Providing this choice maintains Norway’s compliance with EU/EEA laws. 

Effective date and deadline for comments

 Norway’s Ministry of Finance has proposed that the new rates apply to payments made from January 1, 2021.

The ministry is conducting a consultation on the proposal; comments are due May 27.

Michael Rasmusssen, Nord Advisory AS, Oslo, Norway, contributed to this article.