Proposed amendments to the Norwegian interest deduction limitation rule
In a memorandum issued 4 May 2017, the Norwegian Ministry of Finance proposed significant amendments to the current Norwegian interest deduction limitation rule in Section 6-41 of the Norwegian Tax Act, which governs deductibility for interest payments on debt among related parties.
The current rule limits tax deductibility for interest payments on loans among related parties (internal interest payments) in cases where net interest expenses (internal and external interest) exceed 25 % of the taxpayer's "taxable EBITDA". The amendment proposal is two-tiered and the most important points are as follows:
1. For taxpayers that are part of a group
In order to prevent profit shifting, it is proposed that the current rule, which only limits deductions for internal interest payments, is broadened to include also interest payments on loans to unrelated parties (external interest payments).
As the proposed broadening of the interest deduction limitation rule is not meant to limit interest payments made on ordinary business loans that represent no risk of profit shifting, the Ministry proposes an exemption rule, pursuant to which the taxpayer may deduct in full its net interest expenses if the financial accounting equity ratio is not lower than the financial accounting equity ratio in the consolidated financial statements of the group (global level). Under certain conditions, however, deductions for internal interest payments to related lenders outside the group may still be limited.
This proposed interest deduction limitation rule will apply only if net interest expenses in the income year exceed NOK 10 million.
2. For taxpayers that are not part of a group
The current interest deduction limitation rule for internal interest payments is proposed to apply going forward.
This rule will apply only if net interest expenses in the income year exceed NOK 5 million.
The Ministry proposes that the amendments shall enter intro force from and including the income year 2018. The deadline for interested parties to comment on the Ministry's memorandum is set to 3 August 2017.
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