Norwegian advance tax ruling on taxation of demerger

On 28 June 2023, the Tax Administration issued an advance tax ruling that a triangular demerger would not trigger taxation for a taxpayer according to the former Tax Act Section 10-70 ninth paragraph letter c. The Tax Administration's conclusion was provided that deferred taxation according to the former Tax Act Section 10-70 ninth paragraph is a tax position which shall be maintained with tax continuity after the completed reorganisation, and that all the companies involved are Norwegian limited liability companies. The advance tax ruling has not been published.

Section 10-70 of the Tax Act ninth paragraph letter c read as follows, until it was repealed on 20 December 2022:

"The tax liability lapses if the taxpayer has not realized the share or share within five years after the tax liability ceased pursuant to Section 2-1 third paragraph or a tax treaty with another state."

The taxpayer had moved abroad less than five years before the provision in question was repealed. The question presented to the Tax Administration was if the demerger would be considered a realisation and trigger taxation. The planned demerger was structured in a way that the taxpayer would receive remuneration from the receiving company by attributing the shares. As a main rule, this would entail taxation of any gains at the taxpayer's hands according to Section 10-31 of the Tax Act. The question was therefore whether deferred taxation is a tax position that is covered by the rules on tax continuity in Section 11-7 fourth paragraph of the Tax Act.

Both the Tax-ABC and legal theory are based on an extended interpretation of Section 11-7 of the Tax Act at the shareholder level. The tax continuity rules will then indicate that the deferred tax liability will materialise if and when a future taxable realisation of the shares occurs.

The Tax Administration therefore concluded that the deferred tax position that is granted upon exit from Norway is a tax position that is continued on the consideration shares with continuity, cf. Section 11-11 fourth paragraph of the Tax Act. The demerger would therefore not trigger taxation for the taxpayer according to the former Tax Act Section 10-70 ninth subsection letter c.