Letter of formal notice concerning the Norwegian rules on taxation of companies and shareholders when companies are exiting or merged with non-resident EEA companies, and the tax treatment of mergers between Norwegian limited companies and Norwegian SE-co

Reference is made to EFTA Surveillance Authority’s (hereinafter referred to as “the Authority”) letter of formal notice dated 10 March 2010 (Event No 542580) concerning the Norwegian rules on taxation of companies and shareholders when companies are exiting or merged with non-resident EEA companies, and the tax treatment of mergers between Norwegian limited companies (AS/ASA etc.) and Norwegian SE-companies.

The Norwegian Government maintains its opinion on the compatibility of the said taxation rules. Reference is made to the Ministry’s letters of 4 February 2008 and 7 April 2009.

However, as mentioned under item VII below, the Ministry will consider possible amendments with relevance to the questions raised in the Authority’s letter of formal notice in connection with the follow-up of a public hearing of a discussion paper on the Norwegian Tax rules on restructuring of businesses.

In the following, we would like to make a few additional comments in connection with the Authority’s letter of 10 March 2010.

I.
Under item 5.1.2 the Authority refers to the ECJ decision in Cartesio (C-210/06). In its obiter dictum in paragraph 112 of the decision, the ECJ makes a distinction between transfer of seat-situations where there is an attendant change as regards the law, which governs the company and transfer of seat-situations where there is no such change. The obiter dictum in paragraph 112 seems to cover only the transfer of seat-situation where there is an attendant change as regards the law, which governs the company, cf. paragraph 119-120.  This means that even if one should be of the opinion that the obiter dictum in paragraph 112 in the Cartesio case may be of significance to national Tax Law matters, it is in any case relevant only to situations where the real seat of a company is moved to a state that allows the company to transform into a legal entity of that state.

This, however, does not seem to be reflected in the conclusion under item 5 in the letter of formal notice, where it is stated that exit tax on companies that transfer their seat to another EEA state is contrary to the EEA Agreement. As far as the Ministry can see, there is no explanation in the letter of the grounds by which the Authority finds the distinction in the Cartesio case obiter dictum incorrect or irrelevant.

II.
In its letter of 7 April 2009, the Ministry called the attention to the fact that the decision in the Cartesio case involves questions regarding national company legislation with no reference to national tax legislation, and the fact that the statement in paragraph 112 does not form part of the ratio decidendi of the case and is not mentioned in the court’s conclusion. The Ministry also pointed out that in articles published on the issue; the decision in general has been criticized of being vague. These views are not explicitly commented on in the letter formal of notice.

III.
In its letter of formal notice the Authority observes that companies that are taken over by non-resident EEA companies, exiting companies and their shareholders may be granted a deferral of taxation by application to the Ministry of Finance, cf. Section 11-22 of the Norwegian Tax Act.

According to Section 11-22 of the Tax Act, tax deferral may be granted to companies that are undergoing a restructuring process, with the purpose of improving the efficiency of operations. This condition will be fulfilled when a company is taken over by a non-resident EEA company or exiting to another EEA state.

The Authority points out that the tax relief in these cases does not follow directly from the law, but requires an application, which may in itself have a deterrent effect on companies that wish to exit from Norway. However, it has been the understanding of the Ministry that the Authority shared the Ministry’s view that the system under which tax payers must opt for tax relief by a special application is not contrary to Community law. Reference is made to the Ministry’s letter of 7 April 2009, and to our letter dated 24 September 2002 (ref. no. 02/3213 with reference to your letter dated 16 August 2002 ref. no. CFS.808.000.005).

On page 6, item 3.5, in the letter of formal notice the Authority refers to the annual report to the Parliament on the application of the tax exemption provision of the Tax Act section 11-22 (Prop. 1 L (2009-2010). As mentioned in chapter 19.4.2 of the report, a merger of two foreign companies was not approved for tax exemption by the Ministry of Finance. In that case, however, the companies in question were resident of a non-EEA territory. For mergers involving non-EEA companies, other considerations apply. For mergers and involving companies resident in the EEA, the conditions will be considered fulfilled.

IV.
On page 4, under footnote 7, in the letter of formal notice the Authority expresses doubt on whether the right of 5-year deferral under section 9-14 of the Tax Act can be applied to a situation comprised by section 10-71 of the Tax Act. We can confirm that the 5-year tax deferral will not be applicable in connection with exit tax according to the Tax Act section 10-71.

V.
In a discussion paper submitted on public hearing 18 January 2010, the Ministry of Finance proposes changes to the Norwegian Tax rules on restructuring of businesses. According to the proposal, in cases of mergers by which Norwegian companies are taken over by non-resident EEA companies, and in cases where a SE or SCE ceases to be taxable to Norway as a resident company, a tax deferral will follow directly from the Tax Act. In both cases, the deferral is conditioned by the values of the transferring company being effectively connected with a permanent establishment of the receiving company in Norway.

The dead line for the public hearing of the discussion paper is 1 June 2010. In connection with the follow-up of the hearing, the Ministry will consider the proposals mentioned above, as well as other possible amendments relevant to the taxation of companies and shareholders when companies are exiting or taken over by non-resident EEA companies, and to the tax treatment of mergers between Norwegian limited companies (AS/ASA etc.) and Norwegian SE-companies.

The Ministry will keep the Authority informed on the follow-up of the public hearing.

Yours sincerely,
Bjørn Berre
Deputy Director General
                                                                  Beate Bentzen
                                                                  Legal Adviser