Taxing authority and tax law
Tax authority: The Norwegian Tax Authority (NTA)
Tax law: The arm’s length principle is stated in the Taxation Act (1999) §13-1, and the transfer pricing filing and documentation requirements are stated in the Tax Administration Act (1980) §4-12
Relevant regulations and rulings
In June 2007, the Norwegian Parliament adopted new transfer pricing regulations (Tax Administration Act §4-12). The requirements became effective as of January 2008. The transfer pricing requirements consist of two specific parts: filing and documentation requirements.
The Ministry of Finance also published guidelines to the Norwegian Documentation requirements in 2007. These guidelines outline specific requirements to include in the Norwegian Documentation.
OECD guidelines treatment
The NTA has a long history of following the OECD Transfer Pricing Guidelines (OECD TPG). The Norwegian regulations follow OECD principles, and documentation prepared in line with the OECD TPG will generally meet the Norwegian requirements.
The Taxation Act §13-1 gives the OECD TPG a strong and formal status under Norwegian tax law. However, OECD TPG chapter IV (Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes) and chapter V (Documentation) are not included. The status of the OECD TPG is limited to that of guidance, and they do not constitute binding rules.
We have also seen that the principles outlined in OECD TPG chapter IX on the Transfer Pricing Aspects of Business Restructurings are being applied by the NTA. Recent tax audits and court cases have shown that the principles described in the OECD TPG chapter IX are applied in practice.
Priorities/pricing methods
The OECD pricing methods are accepted by the NTA. The traditional transaction methods (CUP, RPM and Cost Plus) are generally preferred to the transactional profit methods (TNMM and Profit Split). There seems to be increasing support for the applicability of the profit methods under certain circumstances.
There is no specified priority under Norwegian tax law. As stated by the Norwegian Supreme Court, the Taxation Act §13-1 allows for the use of several transfer pricing methods, including methods not described by the OECD TPG, provided those methods will provide arm’s length results.
Transfer pricing penalties
Transfer pricing penalties (surtax) is 30% of the tax adjustments, provided that the tax authority concludes that incomplete or incorrect information has been provided by the tax payer. If complete and correct information has been provided, no penalty will be imposed. In case of gross negligence, a surtax of up to 60% may be levied. However, the normal surtax rate is 30%. Additionally, a non-deductible interest charge will apply per year.
Failure to comply with the filing requirement (described below) will carry the same penalties and risk as failure to complete the annual tax return. The same is applicable if the documentation is not submitted by the deadline.
Penalty relief
A 30% penalty is normal; however, the risk of a penalty being imposed may be reduced if proper documentation has been prepared.
Disclosure in the tax return may in principle relieve penalties, as the tax authority will then have been informed and may further investigate the transfer pricing case. The application of penalties is, however, becoming increasingly common.
Documentation requirements
The transfer pricing requirements consist of two specific parts: filing and documentation requirements.
The filing requirement is an attachment to the annual tax return (RF-1123), which includes a listing of all intercompany transactions. The form will serve as a basis for the NTA when targeting transfer pricing tax audits. The filing requirements are applicable for all transactions reported in the tax return.
In addition, covered taxpayers are obliged to prepare transfer pricing documentation that describes how the transfer prices have been established between associated enterprises. The documentation needs to include sufficient information that would enable the NTA to evaluate the arm’s length nature of the transfer prices applied between associated enterprises. Both cross-border and domestic transactions are covered. Specific requirements worth mentioning are:
- Key Financial figures on all transaction parties to the Norwegian Entity
- Description of how the transfer price on a transaction is computed
- The level of detail required will depend on the complexity of the transaction and in particular, if the transaction is of high value, intangibles are involved, and/or there may be a tax motivation for pricing the transaction on non-arm’s length conditions
Documentation deadlines
The transfer pricing documentation must be submitted within 45 days after a request by the NTA. All documentation must be retained for 10 years. The tax authority assumes that documentation is made on a contemporaneous basis, and will accordingly, not allow for extensions.
Statute of limitations on transfer pricing assessments
The general statute of limitations for tax assessments in Norway states that issues regarding the tax return cannot be raised more than 10 years after the end of the income year. Transfer pricing documentation must therefore be retained and stored for at least 10 years.
The deadline is three years for changes of the tax return based on the tax authority’s discretionary assessments, or the interpretation of the tax legislation, if the tax return filed is correct and complete.
The statute of limitations is two years if any tax adjustment is against the taxpayer, provided the taxpayer has not given incorrect or incomplete information to the tax authority.
Return disclosures/related-party disclosures
The filing requirement is an attachment to the annual tax return (RF-1123), which includes a listing of all intercompany transactions. The form will serve as a basis for the NTA when targeting transfer pricing tax audits. The filing requirements are applicable for all transactions reported in the tax return.
Audit risk/transfer pricing scrutiny
The risk of transfer pricing issues being reviewed during an audit is high. The tax authority has a strong focus on intercompany transactions and has established an in-house transfer pricing network where the major tax offices, including the Directorate of Taxes, are members. The introduction of the 2007 transfer pricing documentation and filing requirements exemplifies the increased transfer pricing focus. The NTA has launched a transfer pricing audit campaign against Tax Effective Supply Chain Management (TESCM) conversions, and the first cases have been brought to court. Situations especially targeted by the tax authority are limited risk distributors or commissionaires with low margins and those that have recently experienced reduction in margins.
In addition, the transfer pricing of intangible property and finance-related transfer pricing (loans, etc.) is expected to be a focus area for the NTA going forward.
APA opportunity
APAs on transfer pricing assessments are currently unavailable. There is one exemption for the transfer pricing on the sale of gas under the Petroleum Taxation Act.
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