Norway Supreme Court rules in favor of Shell subsidiary in transfer pricing dispute

By Michael Vorndran, Nord Advisory AS, Oslo, Norway

On 28 May the Norwegian Supreme Court issued a ruling in a transfer pricing case between the Shell group’s Norway subsidiary, A/S Norske Shell, and the Norwegian oil taxation office.

The case covered the 2007 to 2012 fiscal years and related to the intragroup charging of research and development (R&D) costs. The court held in favor of A/S Norske Shell.

A/S Norske Shell was involved in R&D during the income years by paying its share of costs to the Shell group’s centralized R&D center in the Netherlands and through its participation in local R&D projects in Norway.

 A/S Norske Shell charged the local R&D costs to third party license partners on its extraction projects on the Norwegian Continental Shelf.

A/S Norske Shell did not initially charge any of these local R&D project costs to other Shell group companies, despite these companies having access to the research results.

Norway’s Petroleum Tax Appeals Board ruled that a discretionary assessment could be made since they considered that a comparable company would have also charged the R&D costs to companies that received access to the R&D results.

The Norwegian Supreme Court addressed the issue of whether the Petroleum Tax Appeal Board’s ruling was valid, considering that A/S Norske Shell had already charged the costs to its partners on extraction projects.

The Supreme Court considered the relationship between A/S Norske Shell and the relevant Shell Group companies as a cost sharing agreement with no transfer of value for consideration.

Thus, the Supreme Court ruled that, consistent with cost reimbursement principles outlined in Chapter VIII of the OECD transfer pricing guidelines, the Petroleum Tax Appeals Board did not take the proper consideration in their ruling and that it would be in violation of the arm’s length principle to charge the R&D costs to Shell group companies.