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Norway's Tax Blog - tax, VAT and legal matters

New requirements for applying a reduced dividend withholding tax rate

By Kim Fosshaug Advokat | Senior Manager , 08-Nov-2017 10:00:00

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On January 1 2018, Norway introduces new requirements for applying a reduced or zero withholding tax rate on dividend distributions to non-resident shareholders.  Please see below for a high level introduction and review of the new requirements and what actions that must be undertaken by you as a shareholder or distributing entity in order to meet the new requirements.

Documentation requirements

In order to benefit from a reduced or zero withholding tax rate on dividends distributed after January 1 2018, non-resident shareholders need to provide the distributing entity, their account manager or account operator with certain documents prior to the distribution.

Application to COFTA

Non-resident shareholders who have not previously obtained a refund of withholding tax or other sort of approval from the Norwegian tax authorities, must file an application to  the Central Office for Foreign Tax Affairs (COFTA) for approval to be entitled to either a reduced or a zero withholding tax rate. We recommend starting the process as soon as possible as it can be expected that COFTA will receive a high number of applications.

Some exceptions may apply

In a statement of 26 October 2017, the Directorate of Taxes clarified the scope of the new document requirements. According to the statement, the distributing entity may still in certain situations apply a reduced withholding tax rate on distributions to non-resident shareholders without having been provided with the required documents prior to distribution. Prerequisites are that the shares are held directly (i.e. not registered in the VPS registry) and that the distributing entity has positive knowledge about the non-resident shareholder’s identity and tax status. The distributing entity may however only avoid a potential liability for missing withholding tax if the requirements are met prior to distribution. Hence, considering the potential liability and the requirement to have positive knowledge about the non-resident shareholder, the opportunity to distribute dividends without having obtained the required documents seems in practice to be reserved for distributions to non-resident parent companies and other major shareholders.

COFTA or the Directorate of Taxes may release further guidelines.

Contact your local tax advisor

Either you are a Norwegian entity with non-resident shareholders or you are a non-resident shareholder, we advise you to contact your local tax advisor to get further information about the new requirements and what actions that must be undertaken in order to be compliant and to still be eligible for a reduced dividend withholding tax rate. Please also keep in mind the five year deadline for filing claims to the Norwegian tax authorities for a refund of withholding tax that has been unlawfully imposed.  

Current regime

Dividends paid to non-resident shareholders are as a starting point subject to a 25 % withholding tax rate. A reduced/ zero withholding tax rate may however apply in accordance with a double tax treaty or the Norwegian tax exemption method for non-resident shareholders resident within the EEA.

Under the current regime, the distributing entity is obliged to ensure that the conditions for applying a reduced withholding rate is fulfilled and might be held liable for any missing withholding tax. There are however no formal documentation requirements that needs to be fulfilled prior to distribution, it suffices that the distributing entity has positive knowledge about the non-resident shareholder’s identity and tax status. On the other hand, if an incorrect withholding tax rate is applied, the distributing entity may be held responsible for the tax that should have been withheld, despite having relied on information received from the shareholder or as registered in the Norwegian Central Securities Depository (“VPS”).

January 1 2018 - New requirements for applying a reduced withholding tax rate

As of January 1 2018, applying a reduced/zero withholding tax rate is as a starting point conditioned by that the non-resident shareholder has obtained certain documents that verify its identity and tax status and that a reduced/zero withholding tax rate may be applied.

The documents that must be obtained are:

  • A beneficial ownership certification; a self-declaration demonstrating that the shareholder is the beneficial owner of the dividends;
  • If a reduced withholding tax rate under a tax treaty shall be applied; a tax residence certificate issued by the tax authorities in the country of residence of the non-resident shareholder, stating that the shareholder is tax resident in the respective country in accordance with the tax treaty between Norway and the other country, or
  • If a zero withholding tax rate under the Norwegian tax exemption method shall be applied; a tax residence certificate stating that the shareholder is tax resident in an EEA-state,
  • A document demonstrating that withholding tax has been refunded for prior years, i.e. a positive refund claim or other sort of approval issued by the Norwegian tax authorities certifying that a reduced /zero withholding tax rate may be applied, e.g. a binding ruling, and
  • A self-declaration showing that the grounds for applying a reduced /zero withholding tax rate has not changed since the last refund was granted/ other sort of approval was issued by the Norwegian tax authorities

Both the tax residence certificate and the self-declaration must be renewed every third year.

Application to COFTA to achieve a reduced or zero withholding tax rate

Non-resident shareholder, who has not previously obtained a positive refund ruling or other sort of approval from the Norwegian tax authorities, must submit an application for approval to be entitled to reduced or a zero withholding tax rate. The application must be submitted to COFTA.

Information that must be included in the application

In the application, the applicant must state its full name, ID/ business registration number, address and tax residency. The tax authorities in the shareholder’s country of residence must verify the tax residency. Furthermore, the applicant must state whether the application is for approval to be comprised by a reduced withholding tax rate under an applicable double tax treaty or a zero withholding tax rate under the Norwegian tax exemption method. If the latter, the applicant must also include information about its legal nature, organizational structure, the type of business that is conducted and where the business is carried out in order to enable COFTA to assess whether the applicant is an eligible entity under the tax exemption method.

Application form issued by COFTA

Note that COFTA has issued a new form that can be used when applying for a reduced withholding tax rate. Surprisingly, the form is somewhat incomplete and COFTA has thus confirmed that further information needs to be included, particularly if applying for a reduced withholding tax rate under the tax exemption method. It is also required that the application form is submitted to the tax authorities in the country of residence of the non-resident shareholder to get the tax residency certified.

However, our experience is that foreign tax authorities often are somewhat reluctant to sign off on a form issued by the tax authorities in another country. Hence, it may be less challenging for an applicant to obtain a separate tax residence certificate from the tax authorities in its country of residence and to prepare and submit an application for a reduced withholding tax rate without the use of the application form issued by COFTA.

Where should the documents be submitted?

Said documents including the approval from COFTA must be provided to the distributing entity if the investment is held directly or to the account manager / account operator if the shares are registered on a VPS-account.  

Liability and refund possibilities

Liability for missing withholding tax

In terms of liability, as opposed to under the current regime, from January 1 2018 the distributing entity may only be held liable if it has distributed dividends with a reduced or zero withholding tax  despite not having been provided with said documents prior to distribution. Furthermore, this also entails that if the shares are registered in the Norwegian Securities Depository, the distributing entity may rely on the information appearing from the registry/ respective account without being held liable for applying an incorrect withholding tax rate (provided that the entity does not have positive knowledge that the information in the registry is wrong).

Refund of withholding tax

As under the current regime, excess withholding tax may be refunded by the receiving entity filing a refund claim to COFTA. The possibility to file refund claims is continued under the new regime. The deadline is however extended from being three years after the year the dividend was distributed into being five years after the year the dividend was distributed.

Possibility to distribute dividends with a reduced rate without having obtained the necessary documents

Shares held directly by non-resident shareholders

In a statement of 26 October 2017, the Directorate of Taxes clarified the scope of the new document requirements. According to the statement, the distributing entity may still in certain situations apply a reduced withholding tax rate on distributions to non-resident shareholders without having been provided with the required documents prior to distribution. Prerequisites are that the shares are held directly (i.e. not registered in the VPS registry) and that the distributing entity has positive knowledge about the non-resident shareholder’s identity and tax status. The distributing entity may however only avoid a potential liability for missing withholding tax if the requirements are met prior to distribution. Hence, considering the potential liability and the requirement to have positive knowledge about the non-resident shareholder, the opportunity to distribute dividends without having obtained the required documents seems in practice to be reserved for distributions to non-resident parent companies and other major shareholders.

Shares registered on a VPS-account

For shares registered on a VPS-account (directly or through a nominee), the distributing entity will need to rely on the information appearing from the register. As all existing approvals for holding a VPS-account with a reduced/zero withholding tax rate will be revoked as of January 1 2018, all non-resident shareholders must provide their account manager/ account operator with the required documents in order for the account manager/ account operator to submit a new application to register a VPS-account with a reduced/zero withholding tax.

Areas of interest: Corporate tax

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Kim Fosshaug Advokat | Senior Manager

Kim Fosshaug Advokat | Senior Manager

Jeg heter Kim Fosshaug og har vært ansatt i Advokatfirmaet PwC siden 2008. Jeg arbeider som fast advokat tilknyttet bedriftsskattegruppen, og kjernekompetansen min består blant annet av internasjonal beskatning og beskatning av finansielle instrumenter. Jeg bistår særlig nasjonale og internasjonale investeringsselskaper, finansieringsforetak og andre FS-relaterte enheter i spørsmål knyttet til internasjonal beskatning, regulatorisk jus knyttet til FS-sektoren, samt EU/ EØS-rettslige spørsmål.

Jeg bistår også generelt i saker som vedrører både nasjonal og internasjonal beskatning og selskapsrett, herunder restruktureringer, korrespondanse med ligningsmyndigheter og andre myndigheter, og ligningstekniske spørsmål .

My name is Kim Fosshaug and I have been working at PwC Tax & Legal Services since 2008.

I work as a lawyer in the Corporate tax group, and my core competence includes international taxation and taxation of financial instruments.

In particular, I assist domestic and international investment companies and other FS-related entities in issues related to international taxation, regulatory law related to the FS sector, as well as tax treaty and EU/ EEA legal issues.

I also assist on general tax issues that relate to both national and international taxation and corporate law, including but not limited to cross border and domestic restructurings, correspondence with the tax authorities and other authorities, and other technical questions.


kim.fosshaug@pwc.com
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