On October 18, 2016 the Norwegian Supreme Court made its decision in the IKEA case. The question was whether interest on inter-company debt, established as part of an inter-company reorganization could be denied for tax purposes pursuant to the anti-avoidance rule in section § 13-1 of the Tax Act (arm’s length principle), and/or the non-statutory anti-avoidance rule.
Summary of the case
In 2007, the IKEA group reorganized its real-estate portfolio in Norway. Ingka Pro Holding BV – which is the Dutch parent company of Ikea Handel og Eiendom AS – established a new holding company named Ikea Eiendom Holding AS and seven separate – "single purpose" – companies that should own one property. The properties were then demerged from Ikea Handel og Eiendom AS. The shares in the seven property companies were transferred from Ingka Pro Holding BV to Ikea Eiendom Holding AS as a non-cash capital contribution.Ikea Handel og Eiendom AS acquired Ingka Pro Holding BV's shares in Ikea Eiendom Holding AS for NOK 2 132 530 000. The acquisition was financed by an inter-company loan.
The Supreme Court ruled that, based on the non-statutory anti-avoidance rule, the parent company could not obtain a tax deduction for the interest on the inter-company loan, as the main objective of the reorganization was deemed to be tax savings. The anti-avoidance rule in section 13-1 of the Tax Act was not applicable to this case.
An important takeaway is that, in contrast to the judgement of the Court of Appeal, the Supreme Court stated that the anti-avoidance rule in section §13-1 is not a general anti-avoidance rule, but limited to transfer pricing and thin capitalization cases. Thus, section §13-1 is not applicable on equity transactions that are lawfully carried out in accordance with Norwegian company legislation.
Following the judgment additional consideration should be made to the commercial purpose of a restructuring involving debt pushdown transaction into Norway – other than to save tax.
PwC has engaged the government-authorized translator Mrs. Alison Sollie LLB MSTF to translate the judgement to English language.
Jeg heter Eivind Faafeng Falck-Ytter og er advokat i Advokatfirmaet PwC. Min jobb er å finne gode løsninger for næringslivet, hovedsakelig knyttet til internasjonal selskapsbeskatning, internprising og grenseoverskridende restruktureringer.
Skatteverdenen blir stadig mer internasjonal og kompleks. Ved kjøp og salg av varer og tjenester utenfor Norges grenser må norske virksomheter håndtere skatteregler både i utlandet og i Norge. PwC har kontorer i de fleste land og vi har et unikt nettverk av skatterådgivere som kan bistå med spesialkompetanse på de fleste områder. Jeg håper mine innspill kan gi deg en alternativ innfallsvinkel til ulike temaer enn hva tradisjonelle nyhetsbrev gir.
My name is Eivind Faafeng Falck-Ytter, and I work as a lawyer in PwC Tax & Legal Services. I assist clients in finding solutions mainly within international corporate taxation, transfer pricing and international restructurings.
I hope my contribution to the blog can provide alternative perspectives as a supplement to traditional newsletters.
If you have any questions, comments or input, feel free to contact me!