Information on the Norwegian Government’s position following the withdrawal of its appeal in the Fokus Bank ASA case

Reference is made to your letter of 9 February 2006 to the Norwegian Mission to the European Union. In this letter the Authority raises three issues to which the Norwegian Government is invited to give statements as to how these issues are considered.

Issue No. 1

With reference to i.a. press release No. 8/2006 from the Norwegian Ministry of Finance the Authority requests a clarification of the position of the Norwegian Government regarding the relationship between EEA law, the Norwegian EEA act and the Tax act with its appurtenant yearly tax decisions of the Parliament.

As a consequence of a thorough renewed assessment of the issues in the Fokus Bank ASA case, the Ministry of Finance has reached the conclusion that the fundamental freedoms of EEA law, also in relation to the field of taxation, should be considered implemented into the Norwegian legislation in a manner which implies that it may be relied upon by the taxpayers with respect to their tax assessment. The Ministry of Finance has clarified the consequences of this renewed assessment in a letter of 30 March 2006 to the Norwegian Directorate of Taxes.

In a letter of 6 March 2006 to the Norwegian Directorate of Taxes, the Ministry of Finance has given further guidelines indicating the consequences of this renewed law assessment with respect to tax assessments which concerns the taxation of in- and outbound dividends within the EEA area. The same guidelines will apply in respect of other cases where the Norwegian tax legislation is found to be incompatible with EEA law.

Issue No. 2

The Norwegian Government acknowledges, in view of the decision of the Court of Justice of the European Communities in C-42/02 Lindman, that section 5-50 of the Norwegian tax act might not have been in conformity with Norway’s obligations under the EEA treaty. Thus, section 5-50 was amended in December 2003. The amendment entered into force 1 January 2003.

In the event that there are tax payers whose lottery prizes has been taxed in violation of EEA law, the Directorate of Taxes has been instructed, by letter of 10 March this year, to rely on EEA law, as it is laid down by the Court in Lindman, when handling complaints made by the tax payer. However, the complaint must have been filed within the time-limits set in the Tax Administation Act (TAA) Chapter 9. In this respect, we refer to the account given in the subsequent paragraphs.

Issue No. 3

Cases pending before the tax authorities on an administrative level and before the national courts

In the letter of 6 March 2006 to the Norwegian Directorate of Taxes, the Ministry of Finance has given further guidelines regarding reassessment which concerns the taxation of in- and outbound dividends within the EEA area. These guidelines will apply in cases pending before the tax authorities on administrative level and cases pending before the national courts.

In cases pending on administrative level, the tax authorities will allege for the competent tax board, that the fundamental freedoms of EEA law should be considered implemented into Norwegian legislation in a manner which implies that it may be relied upon by the taxpayer. In cases that are pending before national courts, the tax authorities, based on the same view regarding the fundamental freedoms of EEA law, will seek to reach out-of-court settlements when the general terms of instituting legal proceedings have been fulfilled by the taxpayer.

Reassessment of withholding tax paid by non-resident shareholders

Under issue no. 3 second paragraph the Authority invites the Norwegian Government to provide information on how the reassessment is to be conducted of withholding tax paid by foreign shareholders, who do not appear to have been accorded procedural rights when the tax authorities were assessing and reassessing the withholding tax. Further, the Authority refers to the advisory opinion of the EFTA Court in case E-1/04, Fokus Bank ASA vs. The Norwegian Government.

In the Fokus Bank ASA case Frostating lagmannsrett i.a. referred the following question to the EFTA Court:

“2. Is it consistent with the EEA Agreement that a Member State deals solely with the distributing company when assessing and reassessing dividend tax (withholding tax) in those cases where the assessment decision for the foreign taxpayer is based on the assumption that the owner for tax purposes is someone other than the person who (1) is the owner under the private law; (2) is registered in the VPS register as owner; and (3) is stated as owner to the tax authorities, without either the owner for tax purposes or the VPS-registered owner under private law having been made aware of the reclassification?” (We refer to paragraph 7 in the advisory opinion.)

In paragraph 45 in the advisory opinion the EFTA Court concluded:

“The court therefore holds thatin a situation such as the one at issue in the main proceedings, it is not consistent with the EEA Agreement that a Contracting Party deals solely with the distributing company when assessing and reassessing the withholding tax without notifying the shareholders.” (Emphasis added).

Based on the referred question and the quoted statement of the EFTA Court, the Norwegian Government interprets that the EFTA Court’s advisory opinion regarding the shareholders’ procedural rights as merely concerning cases where the owner for tax purposes is someone else than the person who is owner under the private law or the person who is registered in the VPS-register as owner (cases of reclassification for tax purposes).

In cases similar to the one issued in the main proceeding in the Fokus Bank ASA case (cases of reclassification for tax purposes), the Norwegian Directorate of Tax subsequently has notified the foreign shareholders about the reclassification of ownership of the shares and their procedural rights to challenge the reclassification.

To the Norwegian Government’s knowledge, there are not many pending cases regarding withholding tax and reclassification of ownership of the shares for tax purposes. However, the tax authorities are seeking to close these cases based on the view on the EEA law as referred above.

Thus, soon all pending cases, including complaints that are put forward by taxpayers after the withdrawal of the appeal in the Fokus Bank ASA case, will be ordinary cases regarding reassessment of withholding tax where the taxpayer has been considered owner of the shares both under the private law and for tax purposes.

Nonetheless, the Norwegian Government has taken actions to ensure non-resident shareholders opportunities to claim reassessment. We refer to the following paragraphs on this matter.

The general time limit for filing an administrative complaint against the tax assessment is set out in the TAA section 9-2 subsection 4 first sentence which holds (unofficial translation):

“Complaint against the tax assessment must be filed within three weeks from the tax assessment is made public.”

If a resident or a non-resident taxpayer has failed to make a complaint against the assessment within the time limitation, he is not entitled to handling of his complaint. However, in such a situation the competent tax authority shall decide what shall be the consequences of the taxpayer’s failure to keep the time limit. The competent authority may either decide to dismiss the complaint on a formal basis or deal with the material aspects of the case. We refer to TAA section 9-2 subsection 8 with further reference to the TAA section 9-5 subsection 7.

When making its decision according to TAA section 9-2 subsection 8, the competent tax authority i.a. shall take into consideration circumstances on the taxpayer’s side, the significance of the specific case, available information about the specific case and the period of time that has passed since the assessment that is challenged occurred.

However, under any circumstances a taxpayer can not claim reassessment more than three years after the ending of the income year when the reassessment is due to the fact that the tax authorities change their interpretation of the tax legislation. We refer to the TAA section 9-6 subsection 2 with further reference to subsection 1.

The Ministry of Finance has published general guidelines of 26 January 1984 for the tax authorities when making their decision according to the TAA section 9-2 subsection 8, with further reference to section 9-5 subsection 7. In the guidelines The Ministry of Finance i.a. states that a taxpayer through his right to file a complaint against the tax assessment has an opportunity to protect his interests. If the taxpayer fails to use this right, for instance if he exceeds the time limitation for filing a complaint; it shall not be simple to achieve reassessment.

However, in cases regarding reassessment of withholding taxation where the assessment is found incompatible with the EEA law, the Ministry of Finance has instructed the tax authorities to fully use their opportunity to reassess the tax assessment three years backwards in time according to the TAA section 9-2 subsection 8, with further reference to section 9-5 subsection 7 and section 9-6, when such reassessment is claimed by the shareholder. We refer to the letter 6 March 2006 on this matter.

Please find the three letters mentioned above from the Ministry of Finance to The Directorate of Taxes enclosed.

Yours sincerely,

Knut Erik Omholt
Deputy Director General

Jon Tingvold
Deputy Director General

Enclosure:

• Copy of letter of 6 March 2006 from the Ministry of Finance to the Norwegian Directorate of Taxes
• Copy of letter of 10 March 2006 from the Ministry of Finance to the Norwegian Directorate of Taxes
• Copy of letter of 30 March 2006 from the Ministry of Finance to the Norwegian Directorate of Taxes

Copy:

The Norwegian Ministry of Foreign Affairs