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Time limits for going to court for tax paid in error – reclaim of Norwegian dividend tax

On 19 October 2006, the Norwegian Supreme Court gave its decision in two similar cases concerning the issue as to whether a statute of limitations applies to claims for damages under civil law on the ground that a tax assessment was wrong because the EEA Agreement was not properly implemented (Edquist case (HR-2006-01795-A, Case No. 2006/543) and Canica case (HR-2006-01796-A, Case No. 2006/1284)).

(a) Background. In 1994, the EEA Agreement was concluded between the EFTA countries and the European Union, and in effect, makes the EC Treaty applicable to Norway, Iceland and Liechtenstein as regards the four freedoms and non-discrimination. Thus, ECJ cases on discrimination are applicable in Norway in the same manner as they are for EU Member States. This follows from Art. 3 in the statutes of the EFTA Court.

The Norwegian government, in a press release dated 27 January 2006, accepted that Norwegian withholding tax on dividends paid to shareholders in the EEA area (including the European Union) violated the EEA Agreement and EC law, in light of the EFTA Fokus Bank case of 23 November 2004 (E-1/04), and the ECJ Manninen case (C-319/02). The government also accepted that taxation of inbound dividends violated the EEA Agreement and the inbound dividends should be exempt from tax.

Accordingly, the Norwegian government agreed to refund withholding taxes paid in 2003 and later years by EU residents, provided that the request was filed with the tax office. Requests for a refund of withholding taxes paid in 2003 must be filed prior to 31 December 2006, and claims for 2004 must be filed before 31 December 2007. Accordingly, Norway denied the refund of withholding taxes paid in 2002 and prior years. Based on the two Supreme Court decisions, shareholders resident in a EU Member State may file for a civil claim against the Norwegian tax office for a refund of Norwegian withholding tax paid wrongfully during the years 1994-2002.

(b) Facts. In the Edquist case, a Norwegian individual shareholder, Mr Edquist, received dividends from a Swedish company in the period 1997-2001. In the Canica case, Canica received dividends from a Swedish company in 2000. Both taxpayers were taxed with 28% Norwegian tax, but credit was given for the Swedish withholding tax paid at 15%. However, the taxation was discriminatory, as Norwegian dividends would have been tax free due to domestic law (full imputation system).

The state denied the correction of the assessment for 2002 and prior years, insofar it argued that the claims did not fall within the scope of the statute of limitations under tax law.

Under Norwegian tax law, the taxpayer must file a complaint on the assessment within 3 weeks after receipt. He may also file for a civil court claim "testing the assessment" within 6 months after the assessment is received. In the two cases before the Supreme Court, the 6-month time limit had expired. The two taxpayers argued that the 6-month rule for filing a civil claim did not apply to (i) a claim for damages and (ii) a claim for refund of money unduly paid, i.e. refund of money illegally collected by the state.

In contrast, for a damage claim under ordinary civil law, a court claim must be filed within a 3-year period after the claimant should reasonably have known that he had a claim. For a claim for refund of money wrongly paid, the statute of limitations is 1 year. The state argued that Edquist and Canica were circumventing the 6-month limitation by filing a claim for damages/refund in a case that in reality was challenging a tax assessment.

(c) Issue. The issue before the Court was whether the 6-month statute of limitations applied to a civil case under which damages were claimed on the grounds that the tax assessment was wrong because the EEA Agreement was not properly implemented.

(d) Decision. The Supreme Court ruled unanimously in favour of Edquist and Canica. According to the Court, the claim for damages and refund is a different kind of claim than testing the assessment, namely arising from the state's unwillingness to amend the tax law. The claims were not about testing a wrong tax assessment but rather the liability of the Norwegian state for failure to comply with its EEA obligations. Thus, the statute of limitations under ordinary civil law applied (1 or 3-year period) to the cases at hand, and not the statutes of limitations provided under tax law (6-month period).

The Court did not rule on whether the claims from the two taxpayers were effectively within the 1 or 3-year statute of limitations for a civil claim. This will now be decided upon by the lower court.

In addition, the Court did not decide on the statute of limitations in respect of damages claim or refund of money wrongly paid. However, it may be argued that taxpayers would potentially be entitled to get a refund back to the year 1994, which is the year where the EEA Agreement entered into force, and damages back to 1997, which is the year when the state was made aware of discriminatory elements in the tax law.

Budget for 2007 – adopted

On 1 December 2007, the Budget proposals for 2007 were adopted by the parliament. The adopted Budget is generally in line with the Budget proposals. The new rules apply from 1 January 2007

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