New VAT rules for cross-border services in Norway affecting the financial sector

MLEs often structure their procurement so that services are purchased by one establishment (for example, the head office in Sweden), whilst the services are for use by other establishments within the same MLE (for example, a Norwegian branch of a Swedish MLE).

The transfer of services between different geographical establishments within an MLE is not considered taxable revenue. Where the foreign establishment purchases services from the head office, no tax burden abroad occur, and the result is non-taxation. This creates unequal tax burdens between MLEs in Norway and wholly domestic businesses, which face a tax burden when purchasing equivalent services for use in VAT exempt activities.

The amendments align Norwegian VAT law with the destination principle as articulated in the OECD VAT/GST Guidelines, which establishes that the right to tax should lie with the jurisdiction where goods or services are ultimately consumed or used. The rules are based on the OECD's Recharge Method from the 2017 VAT/GST Guidelines. During the consultation process, the new VAT rules received broad support from the consultation respondents.

Whilst the amendments implement internationally recognised principles, the new VAT rules differ materially from those in other jurisdictions, including the EU and create challenges such as:

• Increased complexity: Businesses operating across multiple jurisdictions must navigate different VAT rules and requirements in each territory.
   
• Double taxation risk: The Ministry recognises that unconditional VAT liability could lead to double taxation and therefore proposes to maintain a safety valve.
   
• Increased administrative burden: MLEs will need to maintain separate compliance processes, documentation and reporting systems for different jurisdictions.

Remotely deliverable services¹ purchased by MLEs² located outside Norway will be subject to VAT by reverse charge in Norway when:

• The service is purchased by an establishment of the MLE located outside Norway;
   
• The service is intended for use (either fully or partially) by the MLE in Norway; and
   
• The service, if supplied in Norway, would not be exempt from VAT under Norwegian law.
   

The main assessment criterion is whether the service is for use in the Norwegian VAT area. This must be interpreted broadly, covering both direct use (e.g. IT services used by employees in Norway) and indirect use (e.g. group services that benefit Norwegian operations):

• Direct use includes services purchased specifically for consumption by the Norwegian establishment, such as consulting services, software licences, and marketing services for the Norwegian market.
   
• Indirect use includes: (i) input factors in internal production (e.g. IT services purchased abroad used as a component in creating a tailored IT solution for use in Norway); and (ii) support functions that benefit the Norwegian establishment (e.g. HR and recruitment services, accounting and financial management services, legal and compliance services, and corporate administration services).

Tax basis for VAT calculation

The basis for calculating Norwegian VAT will be the remuneration paid by the MLE to the third-party service provider. When a service is purchased for partial use in Norway, the proportionate share attributable to Norwegian use will be subject to VAT. The allocation must be based on the MLE's best estimate and any available data such as accounting records, cost allocation systems, income tax records, transfer pricing documentation, operational data on resource utilisation, and historical usage patterns.

Any value added through internal amendments, processing, or enhancement of the service within the MLE is excluded from the tax basis. The VAT applies only to the value of the service as purchased from the third party, ensuring that the VAT liability is limited to the cross-border acquisition of services.

Calculating VAT on partially used services – example

The Ministry of Finance provides an example in the preparatory works to illustrate how VAT should be calculated when a service is used across multiple jurisdictions:

"an MLE headquarters in Sweden purchases an IT service for 200, used 30 % in Finland, 40 % in Sweden, and 30 % in Norway. The Norwegian establishment must account for Norwegian VAT on 60 (30 % of 200) through the reverse charge mechanism. This applies even if the MLE adds value to the service internally before it is used by the Norwegian establishment. The VAT base is limited to the proportion of the external purchase price attributable to Norwegian use, excluding any internal value addition."

Allocation methods and tax point

Recognising practical challenges, the Ministry will issue regulatory provisions (likely in the second quarter of 2026) allowing businesses to use the value of the intra-group transfer as the calculation basis. Businesses must make a commercially sound assessment of expected use based on "fair and reasonable estimations" and may carry out ongoing VAT treatment based on budgeted figures, with subsequent correction required no later than the deadline for submitting annual accounts. This allows businesses to align VAT treatment more closely with existing cost allocation procedures for accounting and income tax purposes.

The Ministry intends to circulate for consultation a proposal for this special rule regarding the tax point for VAT. The purpose of the special rule is simplification. The special rule will allow businesses to base their ongoing tax treatment to a greater extent on existing procedures for cost allocation within the enterprises.

The VAT liability will not apply where: (i) the service is purchased for use by MLEs that would be entitled to full input VAT deduction if the VAT were charged in Norway (though where only partial deduction applies, the full VAT liability is triggered); or (ii) the MLE can document that it has incurred VAT on the service in a foreign jurisdiction and can demonstrate that such foreign VAT is non-deductible, requiring a professionally sound review of the foreign jurisdiction's rules.

^{[1] "Remotely deliverable services" under Norwegian VAT law are defined as services where the performance or delivery of the service, due to its inherent nature, cannot or can hardly be linked to a specific physical location. These are typically intangible services that can be provided and consumed without the service provider and recipient being in the same physical location. Common examples include IT-services, consulting and advisory services, administrative and back-office support services, and data processing and analysis services.}

^{[2] An MLE is defined as a single legal entity with permanent establishments in two or more countries.}