On 25 October 2016, the EFTA Authority (ESA) issued a reasoned opinion finding that the provisions on the limitation of intra-group interest deduction in the Norwegian Tax Act indirectly constitute an infringement of the freedom of establishment protected by Article 31 of the Agreement on the European Economic Area (EEA).
The current interest deduction rules provide that for total interest expenses over NOK 5 million, interest paid to an affiliated party that exceeds 25% of EBITDA is not deductible from taxable income. The rules do not distinguish between domestic or foreign affiliated lenders. However, the ESA has found that due to Norway's domestic group contributions rules, the interest deduction rules are in practice very unlikely to apply to wholly Norwegian groups of companies and will never apply to groups that are entitled to grant each other group contributions. Since the group contribution rules do not apply for cross border groups, the interest deduction rules will apply for non-residents to a greater extent.
ESA may bring the matter before the EFTA Court if Norway fails to take the measures necessary to comply with the reasoned opinion within two months.
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