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Norwegian Tax Appeals Board Rules on Deduction of Losses Following Acquisition

The Norwegian Tax Administration has published a Tax Appeals Board ruling on the deduction of losses of an acquired company (case 01 NS 9/2019). The case involved a Norwegian company (Company B) that had acquired a pharmaceutical company (Company A), which had a tax loss of over NOK 85 million at the time of acquisition, with a nominal tax value of nearly NOK 24 million based on the 28% corporate tax rate at the time (2012).  

After the acquisition, Company B claimed the tax loss as a deduction in its return but was denied by the tax authority. While Company B claimed the acquisition was business motivated based on the potential of Company A's IP, the tax authority held the acquisition was predominantly tax motivated, resulting in the denied deduction. This was appealed.

In the ruling, the Tax Appeals Board sided with the tax authority. In particular, the ruling highlights the amount of the loss as opposed to the consideration paid for the shares, which was approximately NOK 14.3 million, including cash and receivables of NOK 11.3 million and the IP rights valued at NOK 3 million. Given that the loss position appeared to be the largest value in the pharmaceutical company at the time of acquisition and Company B was unable to overcome this presumption, its appeal to being denied the loss deduction was rejected.

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