Dividends distributed from a Swiss subsidiary – assessment of what is a low-tax jurisdiction (LB-2023-130797)

by Helena Lyssand Mjelde, Carina Raa and Cecile Amdahl


Businessmen outside

On 22 March 2024, Borgarting Court of Appeal made a decision in the case between Elopak ASA and the government and concluded that dividend distributed from a Swiss subsidiary would not be covered by the exemption method due to Switzerland being considered a low-tax jurisdiction outside of the EEA.

The Norwegian company Elopak ASA received dividends from its Swiss subsidiary, Elopak Systems AG ("ESYS"), in the period from 2010 to 2014 of about NOK 800 million in total. The subsidiary qualified under the Mixed Company Regime, a regime for companies with predominantly foreign business activities. 

ESYS was taxed under the Mixed Company Regime until the end of 2009. The effective tax rate under the Mixed Company Regime for ESYS in this period was approximately 10% of net income. From 2010, ESYS opted out of the Mixed Company Regime and became subject to federal and communal taxes, leading to an effective tax rate of approximately 20%. 

Borgarting Court of Appeal assessed whether ESYS was resident in a low-tax jurisdiction, with the consequence that the dividend from the Swiss subsidiary would not be covered by the exemption method. 

Based on an interpretation of the legislative preparatory works, the Court of Appeal concluded that the assessment of whether a company is resident in a low-tax jurisdiction should involve a general comparison of the effective income rates on corporate net income. If specific rules or regimes are available for certain types of companies, businesses, or income, such as the Mixed Company Regime, these rules should serve as the basis for the assessment – regardless of whether a company actually is taxed under these special rules. 

In the Court of Appeal’s assessment, there was no basis to disregard the Mixed Company Regime as it was considered a general tax scheme for a specific type of companies. It was emphasized that the company qualified for the regime in the period from 2010 to 2014, and consequently it was irrelevant that the company itself had opted out of the regime, setting aside Elopak's main argument that the assessment should be based on the factual taxation of ESYS and not what the taxation could have been. 

Furthermore, the Court of Appeal considered whether it would be contrary to the EFTA Convention Articles 23 and 28 if the dividend distributed from ESYS was not covered by the participation exemption method. The Court of Appeal concluded that the EFTA Convention only includes host state obligations, not home state obligations. Thereby, the Court of Appeal concluded that Articles 23 and 28 of the EFTA Convention do not prevent Norway's taxation right on dividends distributed from the Swiss subsidiary to Elopak ASA. 

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