Norway proposes VAT amendments for cross-border services

Remotely deliverable services are defined as services where the execution or delivery, by the nature of the service, cannot or can hardly be linked to a specific physical location. Examples include consulting services, IT services, legal services, etc.

• Equal Treatment: Implementing measures to ensure that both international and domestic companies are subject to the same VAT obligations when acquiring services for use in Norway.
   
• OECD Recommendations: Aligning Norwegian VAT regulations with OECD guidelines to promote fair competition and prevent tax avoidance strategies employed by multinational corporations.
   
• Input VAT Deduction Expansion: Extending the right to deduct input VAT on remotely deliverable services used outside Norway, preventing unintended tax burdens on international enterprises for services consumed abroad. This is in light of the principle of symmetry in VAT law.
   

The Ministry of Finance proposes to amend Section 3-30, second paragraph of the VAT Act, to ensure that services used in Norway are taxed in Norway, even if the service is acquired by or delivered to a recipient domiciled outside Norway.

For instance, if a Swedish head office acquires external services wholly or partially for use in the Norwegian branch, VAT should then be calculated on the portion used by the Norwegian branch. According to the proposed amendment, it should be assumed that an externally acquired service is for use by the Norwegian branch even if the service is processed internally in the Swedish head office before it is used in the Norwegian branch. Thus, Norwegian VAT should be calculated where externally acquired services are changed, processed, or constitute input factors in the Swedish head office's production of services for use by the Norwegian branch. The tax base is limited to the value of the externally acquired service. This means that the added value created internally in the Swedish head office through the change or processing should be excluded from the tax base. Costs that are not directly related to the production of a specific service or product, but more indirectly, such as costs for IT, financial and accounting services, and HR services, should also be subject to Norwegian VAT.  Services that are exclusively produced by the Swedish head office will, according to the proposal, not be subject to taxation in Norway. 

The proposal will not have any impact on fully VAT-taxable businesses that have the right to fully deduct input VAT. Thus, the proposed changes will primarily impact the financial sector, such as banking and insurance, which are exempt from VAT. The VAT exemption for financial services is broad in scope, primarily encompassing the core areas within banking, insurance, and securities trading. The Norwegian VAT exemption for financial services is largely structured in the same way as the corresponding exemption in the EU, although the EU VAT regulations are not binding on Norway under the EEA Agreement. The VAT exemption implies that VAT represents a cost element with regard to goods and service inputs used in the production of financial services.

The Ministry of Finance also proposes to introduce a provision to tax cross-border financial services to Norwegian customers. It is noted that the situation seems to be particularly relevant for financial services provided within the EEA, as most types of financial institutions are subject to common EEA rules that allow for direct business operations across borders without requiring establishment in the country where the customer is located. The Ministry refers to Article 169(c) of the EU VAT Directive, which allows EU financial institutions to deduct input VAT for goods and services used to supply financial services to customers established outside the EU, in this case, Norway. Therefore, the Ministry proposes a special rule to contribute to the goal of increased neutrality, cf. the proposal for the new Section 3-30(a) of the VAT Act. The Ministry will also further assess whether the proposal raises specific issues in relation to the EEA Agreement. 

The Ministry of Finance estimates that these changes could generate approximately NOK 800 million in annual revenue. The deadline for submitting feedback on the proposal is 21 June 2025. 

The proposed legislative changes are set to take effect from 1 January 2026. However, the taxing of cross-border financial services is proposed to enter into force from the time determined by the King. 

The suggested rules differ from those in the EU, thereby causing a risk of double taxation. Businesses that would be affected should start planning how to limit the negative impact.