International Tax Planning and Transfer Pricing Planning: Norway from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
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Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The high tax country Norway in the OECD context
    • 2.3 Transfer pricing rules of Norway
      • 2.3.1 Country-per-Country (CbC) reporting
      • 2.3.2 Laws and rules
      • 2.3.3 Arm's length principle
      • 2.3.4 Transfer pricing methods
      • 2.3.5 Definition of related companies
      • 2.3.6 Reporting requirements
      • 2.3.7 Documentation requirements
      • 2.3.8 Cost sharing
      • 2.3.9 Business restructuring
      • 2.3.10 Interaction between customs valuation and transfer pricing
      • 2.3.11 Dispute Resolution
    • 2.4 Calculation of the case studies in international tax planning between Norway and the USA
      • 2.4.1 Design of the tables
      • 2.4.2 The treaty Norway-USA in brief
      • 2.4.3 BEPS Project progress
      • 2.4.4 Norway in brief
      • 2.4.5 Design of case studies
      • 2.4.6 Case study 1: Dividends from Norway to the US
      • 2.4.7 Case study 2: Interests from Norway to the US
      • 2.4.8 Case study 3: Royalties from Norway to the US
      • 2.4.9 Case study 4: Management and technical service fees from Norway to the US
      • 2.4.10 Case study 5: Capital gains with Norway as asset country to the US as seller country
      • 2.4.11 Case study 6: Dividends from the US to Norway
      • 2.4.12 Case study 7: Interests from the US to Norway
      • 2.4.13 Case study 8: Royalties from the US to Norway
      • 2.4.14 Case study 9: Management and technical service fees from the US to Norway
      • 2.4.15 Case study 10: Capital gains with the US as asset country and Norway as seller country
    • 2.5 Concluding remarks
  • 3 Notes
Abstract tax planning

According to the International Monetary Fund, Norway confirms in 2016 with a gross domestic product (GDP) of US$ 376,269 million the thirteenth-highest GDP of Europe. In Norway, corporate income is taxed at a rate of 25%. There is a reduction in the standard corporate and individual tax rate from 25% to 24% in 2017 and a further reduction to 23% in 2018. Thus, Norway is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. Norway has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, in Norway, economic growth will strengthen gradually until 2018 supported by higher private consumption and a rebound in non-oil investment, helped by better global prospects and a weaker currency. The pace of decline in petroleum investment is set to slow. The unemployment rate should peak in 2016, whereas inflation will edge down as the impact of the exchange rate depreciation abates and economic slack continues. Monetary policy has been very accommodative and fiscal policy expansionary, which has supported activity. However, sustained low interest rates have fueled a protracted housing boom. Additional fiscal stimulus, rather than a further easing of monetary policy, should be used to support activity as long as slack remains in the economy. Reforms to improve the business environment, to strengthen competition and to enhance skills and education outcomes are key for raising growth potential and maintaining inclusiveness. Norway is using its fiscal space to assist the economic recovery. Recent tax reductions, including in corporate taxation, will improve competitiveness. This chapter provides a survey on the actual tax law frame conditions in Norway and practical support in international tax planning and transfer pricing planning between Norway and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing Norway applies the arm’s length principle and follows the OECD Guidelines, the following transfer pricing methods are applicable: the comparable uncontrolled price method (CUP), the resale price method, the cost-plus method, the profit split method, and the transactional net margin method. When sufficient information is available, the CUP method is preferred. Documentation provisions apply to related companies, in general when the following conditions are met: one company controls or owns at least 50% of the other company and the companies have; more than 250 employees; an annual turnover of more than NOK 400 million; or a balance sheet value of more than NOK 350 million. There are reporting and documentation requirements. Cost sharing is allowed and business restructuring possible according to OECD standards. There is interaction between customs valuation and transfer pricing. Norway has no regulations on advance pricing agreements.

Introduction

International tax planning and transfer pricing planning between Norway with the second-highest GDP per-capita among European countries (after Luxembourg), and the sixth-highest GDP (PPP) per-capita in the world, that ranks as the second-wealthiest country in the world in monetary value, with the largest capital reserve per capita of any nation, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2016 3rd place of the most populous countries in the world (4.40% of the world population).

According to the International Monetary Fund, [1] Norway confirms in 2016 with a gross domestic product (GDP) of US$ 376,269 million the thirteenth-highest GDP of Europe. In Norway, corporate income is taxed at a rate of 25%. There is a reduction in the standard corporate and individual tax rate from 25% to 24% in 2017 and a further reduction to 23% in 2018. Thus, Norway is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. Norway has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD, [2] in Norway, economic growth will strengthen gradually until 2018 supported by higher private consumption and a rebound in non-oil investment, helped by better global prospects and a weaker currency. The pace of decline in petroleum investment is set to slow. The unemployment rate should peak in 2016, whereas inflation will edge down as the impact of the exchange rate depreciation abates and economic slack continues. Monetary policy has been very accommodative and fiscal policy expansionary, which has supported activity. However, sustained low interest rates have fueled a protracted housing boom. Additional fiscal stimulus, rather than a further easing of monetary policy, should be used to support activity as long as slack remains in the economy. Reforms to improve the business environment, to strengthen competition and to enhance skills and education outcomes are key for raising growth potential and maintaining inclusiveness. Norway is using its fiscal space to assist the economic recovery. Recent tax reductions, including in corporate taxation, will improve competitiveness. Additional public investment should be considered, even though it must be made judiciously as in some areas, such as in education, ensuring spending efficiency and high social returns has proved challenging.

According to Orbitax, [3] (Daily Tax News Digest of 23 December 2016),

on 22 December 2016, the Norwegian Ministry of Finance published an overview of tax rule changes for 2017 following the completion of the budget process in parliament on 20 December. The main changes include:

  • A reduction in the ordinary income tax rate for individuals and companies from 25% to 24%, and an increase in the rates and brackets for the progressive individual income surtax as follows: up to NOK 164,100 - 0%, over NOK 164,100 up to 230,950 - 0.93%, over NOK 230,950 up to 580,650 - 2.41%, over NOK 580,650 up to 934,050 - 11.52%, over NOK 934,050 - 14.52%.
  • The elimination of the supplementary initial depreciation of machinery;
  • The introduction of a financial activity tax that is comprised of a 5% wage-based tax on gross salaries paid and a 25% ordinary tax on income of financial undertakings (i.e., remain subject to 2016 rate) - an exemption applies for companies where financial activities are less than 30% of total activities or at least 70% of the financial activities are otherwise taxed;
  • The introduction of Country-by-Country reporting requirements (previous coverage); and
  • An increase in the maximum deductibility basis cap for the Skattefunn R&D incentive scheme from NOK 20 million to 25 million for internal R&D costs, and from NOK 40 million to 50 million for costs incurred for outsourced R&D.

Click the following link for the overview (Norwegian language). [4]

According to Orbitax, [5] (Daily Tax News Digest of 15 November 2016,

Norway has published an updated list of low-tax jurisdictions for tax purposes. The list applies primarily in relation to the application of Norway's CFC rules and the exemptions provided for dividends received and capital gains on shares.

The updated list of low-tax jurisdictions includes:

Andorra; Anguilla; Bahamas; Bahrain (exception for taxable oil sector companies); Belize; Bermuda; BES Islands; Cayman Islands; United Arab Emirates; Hong Kong; Isle of Man; Virgin Islands (US); Virgin Islands (British); Channel Islands (Jersey, Guernsey, and others); Kosovo; Liberia; Macao; Marshall Islands; Maldives; Mauritius; Micronesia; Moldova; Monaco; Montenegro; Nauru; Oman (exception for taxable oil sector companies); Paraguay; Palau; Qatar (exception for taxable oil sector companies); St. Barthelemy; Serbia; St. Kitts and Nevis; St. Vincent and the Grenadines; Uzbekistan; and Vanuatu.

The list of non-low-tax jurisdictions, except for companies that are taxed at a reduced rate, includes:

Australia; Canada; Chile; India; Japan; China; New Zealand; South Africa; and the United States.

Click the following link for the regulation of the list (Norwegian language) [6], which is effective from 1 January 2017.

According to Orbitax, [7] (Daily Tax News Digest of 7 October...

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