Transfer Pricing Regulations in Norway

Transfer Pricing Regulations in Norway

Norway is currently working with the transfer pricing framework, and at the current state, the regulations in the field are limited. While the Petroleum Tax Act, of 1975, contains specific legislation that is relevant from a transfer pricing perspective, the formal introduction of transfer pricing (TP) regulations into Norwegian legislation began with the 1999 Norwegian Tax Act (Skattelove). Besides this statutory provision, in 2007 special transfer pricing reporting and documentation rules were enacted in articles §8-11 of the Tax Administration Act (Skatteforvaltningsloven).

Arm’s Length Principle

The arm’s length principle, based on Article 9 of the OECD Model Treaty, was included in Norwegian law through Article 13§1 of the Tax Act and serves as a key tool for the tax authority in handling transfer pricing cases. This provision ensures that cross-border related-party transactions are conducted at market terms (arm’s length) to prevent artificial profit shifting or wealth reduction, as summarized below:

Article 13§1 ensures that businesses and individuals with close relationships, like related companies or connected parties, conduct transactions at fair, market-based terms (arm’s length principle) to prevent unfair tax reductions. If income or wealth appears artificially lowered due to these relationships, the tax authorities can adjust the numbers. Furthermore, special rules apply for connections outside Norway or the EEA, where the tax office may assume unfair tax practices unless proven otherwise. International guidelines, like those from the OECD, are used to maintain fairness and consistency, especially in cross-border dealings.

Related Party Definition

Under § 13-1 of the Norwegian Tax Act, “related parties” refer to individuals, companies, or entities that have direct or indirect connections influencing financial or commercial transactions. This connection is called “interessefellesskap” (shared interests), and it plays a key role in determining whether income or wealth has been unfairly reduced for tax purposes. The article provides two categories of parties’ relationship”:

  1. Direct vs. Indirect Relationship (§ 13-1 (1)) – If a taxpayer’s income or wealth is lower because of their connection with a related party, the tax authorities may intervene. This relationship could be direct (e.g., a parent-subsidiary company) or indirect (e.g., through shared ownership or influence).
  2. Cross-Border Relationships (§ 13-1 (2)) – If the related party is outside the EEA, the law assumes that any reduction in income or wealth is due to this relationship unless the taxpayer can prove otherwise. The same presumption applies to EEA relationships if Norway cannot access sufficient financial information due to a lack of international agreements.

Transfer Pricing Methods

The methods that can be used to determine the arm’s length price in Norway are determined in compliance with the OECD guidelines, as follows:

  • Comparable uncontrolled price method
  • Resale price method
  • Cost plus method
  • Transactional net margin method
  • Profit split method

Norway does not have a preferred method, rather the choice is dependent on the method that is most appropriate to the case, and in accordance with the arm’s length principle.

Comparability Analysis

An important part of the transfer pricing compliance is the comparability analysis. Below is a summary of the main points regarding comparability analysis in Norway:

Norway’s TP comparability analysis emphasizes the use of domestic comparables due to readily available financial data through the Norwegian National Register of Company Accounts. However, these records are not electronically searchable, so databases like AMADEUS and Orbis are often used. Norwegian tax authorities prioritize Norwegian comparables but allow for pan-European ones when domestic data are insufficient, ensuring they align with OECD comparability guidelines.

Documentation Requirements

Documentation requirements are governed by Chapter 8 of the Tax Administration Act, and the 2007 amendment which provides – respectively, general and special requirements.

General Reporting Requirements

  • Taxpayers must submit correct and complete information in their tax returns and related business statements, including net wealth, income, and deductible expenses. From 2024, tax returns must be filed through a standardized annual report system.
  • Taxpayers must provide enough detail for tax authorities to evaluate compliance, including information about related-party transactions, if applicable. Obligations may extend to submitting contracts, financial records, and correspondence upon request.
  • Compliance is measured by whether the submitted information reasonably allows authorities to assess tax liability. Norwegian Supreme Court rulings emphasize balancing taxpayer obligations and authorities’ investigative responsibilities.

Special Documentation Requirements

  • Introduced in 2007, these rules apply to both cross-border and domestic related-party transactions, focusing on conformity with the arm’s length principle. Thresholds exempt entities with annual controlled transactions below NOK 10 million or outstanding accounts below NOK 25 million.
  • Taxpayers must file a TP form as part of their tax return, including details on related entities, transaction values, and pricing methods. Documentation, required upon request, must describe the business, transactions, and functional analysis, and justify pricing methods with reference to OECD Guidelines.
  • Documentation may be in Norwegian, Danish, Swedish, or English.

Country-by-Country Reporting

Norway implemented CbC reporting in 2016, and it applies to multinational enterprises (MNEs) with income exceeding NOK 6.5 billion in the prior year. The CbC report includes group-wide details, such as revenue distribution, taxes paid, and the economic activities of each entity. It must be filed in XML format via the Altinn Portal.

The requirement primarily targets Norwegian-resident ultimate parent entities. However, local subsidiaries must also file if the parent’s jurisdiction does not require CbC reporting, lacks an agreement with Norway for report exchange, or fails to exchange reports as expected. Reports are due by December 31 of the year following the fiscal year, and a notification of the reporting entity’s details must be included in the tax return filed by May 31.

CbC reports are confidential, and supported by Norway’s agreements for automatic exchange, including with the U.S.

Norway Pricing Agreements (APA) and Mutual Agreement Program (MAP)

Norway uses both APA and MAP to manage and resolve international tax disputes, in compliance with OECD guidelines. APAs are agreements made between the taxpayer and the tax authorities, in advance, to avoid tax disputes regarding transfer pricing methodology.

The authority regulating the agreements is the Norwegian Tax Administration, which determines how tax law will be applied to a specific situation or transaction that has not yet occurred from a tax perspective. Given that Norway lacks domestic APA legislation or specific guidelines, bilateral or multilateral APAs based on the Mutual Agreement Procedure (MAP) provisions in tax treaties.  Unilateral APAs are generally not available, and Norwegian tax authorities rarely issue non-binding rulings on intra-group pricing.

Introduced as a pilot in 2011, bilateral APAs have since expanded, including complex cases, with increasing demand leading to more resources being allocated. They are typically valid for five years, with renewal possible if circumstances remain unchanged. Pre-filing meetings with the Norwegian Competent Authority are encouraged but not anonymous. The Competent Authority reviews and negotiates APA terms with the counterpart state, involving tax offices for specialized cases, and forwards the final terms to the taxpayer for acceptance.

In Norway, the Mutual Agreement Procedure (MAP) allows taxpayers to resolve disputes related to the interpretation or application of tax treaties, particularly for double taxation cases. The process involves negotiations between competent authorities of the treaty countries to eliminate double taxation. Taxpayers must submit a written request for MAP, including relevant documentation, and the procedure does not guarantee a specific outcome but aims to provide a fair and timely resolution.

Approach to Transfer Pricing Audits

Norway’s tax administration has adopted a risk-based strategy for auditing transfer pricing, a high-priority area. Since 2019, a dedicated Transfer Pricing Section within the Large Business Department has handled these cases, leveraging a new automated analysis platform launched in 2022. This platform uses the latest data to assess risks at group, entity, and transaction levels, improving efficiency and accuracy. Audits are not conducted following fixed patterns; they may cover general operations or focus on specific transactions.

Penalties

Norwegian legislation provides two types of penalties that are applied in case of non-compliance with transfer pricing regulations.

Enforcement Fee

  • It is applied when taxpayers fail to submit required information or forms, including tax returns, appendices like the transfer pricing form (RF 1123), or the CbC report, by the deadline.
  • The fee is charged daily at NOK 1,243 (from January 1, 2023), up to a maximum of NOK 62,500 (50 days).

Additional Tax

  • The additional tax is an administrative penalty imposed when taxpayers provide incorrect or incomplete information, omit required details, or fail to disclose information that could lead to a tax advantage. Exceptions apply if the failure is deemed “excusable.”
  • The standard rate is 20% of the tax advantage gained. For willful misconduct or gross negligence, increased rates of 40% or 60% may apply.

 

Taxation at a Glance

The official name of Norway’s tax authority is the  Norwegian Tax Administration. The table below provides a summary of the main taxation rates related to businesses:

Tax Type

Tax Rate

Corporate Tax

22%, 25%

VAT

25%

Withholding tax on dividends to non-residents

25%

Withholding tax on interest to non-residents

N.A

Withholding tax on royalties to non-residents

N.A

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