Is it possible to avoid paying taxes in Norway by holding the board meeting outside the country's borders?
That very question has become the crux of the matter in connection with a tightening of Norwegian taxation rules, which has caused tanker carrier DHT Holdings to move its headquarters from Norway to Singapore, while several other carriers are also considering moving departments and functions out of Oslo.
From the beginning of this year, an amendment in the law examines companies' residency in greater detail. This means that foreign companies performing effective management from Norway will be considered tax residents in the country. Thus making the companies liable to pay tax on their global income in Norway.
With the previous legislation some companies may have thought that as log as board meetings were held outside Norway, they weren't Norwegian
The new tighter tax regulations provide Norway more opportunities to determine whether, for example, a shipping company registered abroad is liable to pay tax in the country. The tightening also means that Norway will follow the same standards as the OECD in terms of determining a company's residency.
And that is an "important clarification" of Norwegian law, states Norwegian lawyer and tax expert Christian Svensen to ShippingWatch. He represents the international and maritime law firm Simonsen Vogt Wiig, which in addition to offices in Norway's largest cities is also present in Singapore.
Board meetings outside Norway
Before the tax law was changed one detail in particular played a significant role in the determination of a company's residence, says Svensen, who is specialized in taxation of companies and company owners.
"With the previous legislation some companies may have thought that as long as board meetings were held outside Norway, they weren't Norwegian," Svensen tells ShippingWatch and continues:
"It is not certain that this has been the right interpretation of the law, but the tax authorities has so far not been able to verify the companies' residencies, because it is difficult to clarify. The new provision outright states that a company is Norwegian if it is effectively managed in Norway. In that assessment, it is necessary to look at management from a board level and daily management level, but also other circumstances about the company's organization. With the rule change, it is now an overall assessment of the company."
The lawyer elaborates that he knows of companies where a "significant share" of management takes place in Norway, but where emphasis has been put on ensuring that board meetings are held abroad.
"Among advisors there has also been a common opinion that one must be aware about where board meetings are held," says Svensen.
Relocation may lead to relocation tax
The changed regulations have already caused a stir and led to action in the shipping indsutry. DHT Holdings has already taken the consequence and decided to move its senior management with co-CEOs Svein Moxnes and Trygve P. Munthe from Oslo to Singapore, informed the tanker carrier recently.
CEO of the Norwegian Shipowners' Association, Harald Solberg, has since told ShippingWatch that the association knows of other carriers that have either carried out or are considering carrying out organizational changes as a direct result of the new regulations. This includes relocating functions outside of Norway.
And the determination of where a company belongs is something Svensen characterizes as "a first step toward deciding whether the company is liable to pay tax," while the second step is to determine where business is actually conducted.
He also believes it is possible that other companies will take the same consequence as DHT Holdings and examine whether an organizational change is necessary.
However, there could be significant extra costs if some opt to move central functions such as management out of Norway and with the new rules owe tax in Norway, says the lawyer.
"I believe that there are several companies which will likely reevaluate under the new rules," says Svensen to ShippingWatch, adding:
"But if they haven't already moved, they should absolutely rethink it. Because what will happen if a company, which suddenly becomes Norwegian, later decides to move? In that instance we have rules around an exit-tax in Norway, which could create problems for the given companies if they have not decided in time."
English Edit: Ida Jacobsen & Lena Rutkowski