UK companies have worked in Norway for years due to its geographical proximity and links with the oil and gas industry.
However, many British firms either perform very short-term projects in Norway, whether onshore or offshore, or simply supply people to work for their Norwegian customers under “hire of labour” arrangements.
The profits from these should not be liable to Norwegian corporate income tax (CIT).
Historically, the Norwegian tax authorities conceded there was no requirement for these companies to file CIT returns reporting the income and profits from such contracts.
But we have recently become aware of the new Norwegian Tax Administration Act, which came into force on January 1 and applies to all non-Norwegian companies for calendar year 2016 onwards.
The Norwegian authorities interpret this new Act aggressively, insisting that all foreign companies they perceive are liable for CIT under domestic law must submit returns.
This applies even where it has previously been agreed by the authorities that companies’ activities in Norway are not taxable.
Many UK companies which previously had no requirement to submit report have recently received letters from the Norwegian authorities demanding the submission of 2016 returns.
We have sought clarification of this new law from a number of sources in Norway.
Their responses confirm that, since this law is new and untested in the courts, there is no alternative but to adhere to the tax authorities’ demands for returns.
Because of the 2016 CIT filing deadline of May 31, 2017, we hastily communicated with all clients we were aware had business dealings with Norwegian customers during 2016 to ascertain whether they had received demands.
Where clients indicated demands were received we immediately sought automatic one-month extensions to file, giving them until June 30 to submit returns. Receiving extensions meant avoiding late filing penalties being imposed by the Norwegian authorities.
We have now submitted a number of Norwegian returns for clients in this position.
We also decided such returns should report only Norwegian gross revenue, then reversed this out as “non-taxable” in Norway – resulting in nil profits being reported.
In addition, we also gave an explanation why the income is non-taxable in Norway. This kept costs down for our clients as a full return is more expensive to prepare and would be a futile exercise if the profits are not liable to CIT.
Following the deluge of “nil” returns likely to be submitted, we hope the Norwegian authorities will revisit this and adopt a more pragmatic approach in future.
We, therefore, recommend that any companies receiving tax return demand letters from Norway should not ignore them.
Any companies needing advice regarding their tax position in Norway, or requiring help submitting a 2016 Norwegian CIT return should contact our international tax team immediately.