Norway: Participation exemption | KPMG Global
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Norway: Participation exemption applies, dividends distributed to Irish holding company

Norway: Participation exemption

The Norwegian tax directorate published a “binding advance ruling” (BFU2/17, 4 May 2017) on application of the domestic participation exemption on dividend distributions to an Irish holding company. The ruling provides that the dividend distributions from the Norwegian company to the Irish holding company would be exempt from Norwegian withholding tax under Norway’s domestic participation exemption.


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An Irish holding company held 100% of the shares in a Norwegian company. In addition to holding the shares in the Norwegian company, the Irish holding company had several branches with a total of 800 employees (200 of which were located within the European Economic Area (EEA)). 

There were no employees in the Irish company, but the company had four members of the board of directors—of which three were residents of Ireland. Apparently, there were no employees in Ireland (but this is uncertain).

The question for the tax directorate was, whether dividends from the Norwegian subsidiary would be exempt from Norwegian withholding tax under the domestic exemption. 

Participation exemption for EEA-resident corporate shareholders

The Norwegian exemption from withholding tax applies to EEA resident corporate shareholders. It does not apply if the recipient is “lowly taxed,” unless the recipient is genuinely established in, and performs real economic activity in its country of incorporation within the EU/EEA. 

The Irish holding company was reportedly “lowly taxed.” It was therefore required to demonstrate sufficient substance in Ireland in order to benefit from the participation exemption. [The substance-criterion is essentially a test of whether the recipient is considered as a "wholly artificial arrangement." In essence, the question is whether an arrangement has no other reasonable explanation but to secure a tax advantage.]

Conclusions of the tax directorate

First, the tax directorate stated that, based on information provided by the taxpayer, the incorporation in Ireland represented a tax benefit because the ultimate shareholder was resident outside the EEA and thus outside the scope of the domestic exemption. The question was, thus, whether the incorporation of the Irish holding company was mainly “tax motivated.” According to the findings of the tax directorate, the taxpayer had demonstrated sufficient non-tax motives behind the incorporation in Ireland. 

Furthermore, the tax directorate determined that the Irish holding company, in any event, carried out genuine economic activity in Ireland based on findings that: (1) the company had an active management of the branches outside Ireland; (2) handled economic risk; and (3) the board of directors had sufficient qualifications to perform the management of the group. 

Based on these findings, the tax directorate concluded that the dividend distributions from the Norwegian company to the Irish holding company would be exempt from Norwegian withholding tax under the domestic participation exemption. 

KPMG observation

Based on the reasoning of the tax directorate, it would seem that having a board of directors with qualifications and capabilities to manage the business can be sufficient to fulfil the substance test. In this situation, it has been noted that the board only held one meeting in 2016 and two in 2015. 

Tax professionals have further noted that while the holding company had extensive operational business, although outside Ireland, this meant the board had more “over and above” administration of the entity itself. In past rulings of the tax directorate, administrative functions for a holding company having only one investment was seen as insufficient (BFU 4/15). 

In addition, while not mentioned in the reasoning of the tax directorate, the company had 200 employees in the EEA. In Fred Olsen and others (joined cases E-3/13 and E-20/13), the EFTA Court held that it was sufficient that the economic activities take effect within the EEA (para 99). It would not require a far stretch of the imagination to assume that this has been taken into account by the tax directorate in the present ruling.  


For more information, contact a tax professional with the KPMG member firm in Norway:

Thor Leegaard | +47 406 39 183 |

Ørjan Ravna Rørmoen | +47 406 39 421 |

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