Year in Review: Tax Law

| Innsikt

The United Kingdom left the European Union with a withdrawal agreement in 2020. Norway is not a member to the EU and not a party to the withdrawal agreement, however Norway and the other EFTA states concluded a separate agreement with the UK which included a transition period under which the UK was treated as if it were a member of the EU and the EEA for tax purposes. Now that we have entered 2021 this agreement has expired and below is a reminder of three important Norwegian tax aspects of Brexit in this way having taken effect.

Application of the exemption method conditional on fulfillment of requirements with regards to ownership fraction and period
The Norwegian rules regarding participation exemption have in general entailed that companies tax resident in Norway investing in companies tax resident in the UK have benefited from participation exemption rules with regards to dividends and capital gains on such shares, and the same has been the case for UK companies investing in Norwegian companies.

After expiry of the transitional agreement this tax exemption is now conditional on the Norwegian investor owning at least 10% of the shares in the UK company, and having owned these shares for at least two years. Since Norway generally applies a 25% withholding tax on dividends paid from a Norwegian company to a foreign shareholder, UK companies investing in Norwegian companies will also be affected by this change although the tax treaty entered between Norway and the UK often reduces the applicable withholding tax rate.

Application of Norwegian CFC rules
Norwegian rules regarding controlled foreign corporations (CFC) entail taxation of Norwegian participants in Norwegian-controlled companies or establishments domiciled in low-tax countries. The CFC rules are not applicable for companies genuinely established and conducting business in EEA countries. However, these rules will now in principle be applicable for companies established in the UK in cases where the UK may be regarded as a low-tax jurisdiction (defined as 2/3 of the tax that would have been applicable had the company been domiciled in Norway).

Norwegian tonnage tax regulation
The Norwegian tonnage tax regulation includes requirements as to the portion of the fleet that must be registered in the EEA. British-registered vessels registered as part of the fleet will now not be considered part of the EEA share.

This article is part of a series of articles where the different practice groups in SVW will summarize the most important regulatory happenings in Norway in 2020.