The court thoroughly reviewed the practice of the EU Court of Justice, which has delivered a number of verdicts on various tax consolidation schemes meant to ensure a balanced distribution of taxation competence between states, as well as to discourage tax evasion. The court interpreted the practice so that a combination of two different rules could result in a restriction on the freedom of establishment, which had to be justified separately.
Further, the court noted that group contributions are included in taxable income when calculating the allowance for interest deductions under Section 6-41 of the Tax Act. Hence, the company receiving group contributions would be able to increase its deductible interest costs. The group contribution rules could thus reduce or remove the consequences of the interest deduction limitation rules in Section 6-41 so that the company would be able to deduct a larger proportion of its interest costs on debt to related parties.
However, this option is reserved for companies that are taxable in Norway, as only such companies can receive group contributions, cf. Section 10-4 of the Tax Act. If the parent company in the case at hand had been tax resident in Norway, it could thus have given a group contribution and thereby increased the deduction limit for the Norwegian subsidiary, which in turn would have increased the interest deductions and reduced the tax burden for the company.
The court further noted that the EU Court's practice was to be interpreted so that the consolidation of deficits and profits could rightfully be reserved for domestic groups. Based on the consideration of a balanced distribution of taxation competence, the states could not be required to allow cross-border transfer of fiscal deficits. However, denying tax advantages other than such transfer of profits and losses in cross-border situations requires a separate justification. The court thus concluded that the group contribution rules and the interest deduction limitation rules combined constituted a restriction on the freedom of establishment that had to be justified separately.