Planned amendments to the VAT act to further implement the destination principle of taxation

by Carina Raa and Trond Larsen


People in different floors

In the report to the Parliament no. 2 (2023-2024) in connection with the Revised National Budget, the Government informs on ongoing work to close the VAT gap in connection with cross-border services between different establishments in the same company (between head office and branches). The goal is to achieve a greater degree of destination taxation and neutrality, and possible solutions are therefore being investigated to prevent the outcomes seen today.

The destination principle is based on the fact that the right to tax is vested in the country where the consumption of the goods or services takes place. The destination principle was partly implemented in Norwegian VAT Act with effect from 1 January 2023, when general VAT liability was introduced on all remotely deliverable services from abroad to recipients in Norway / the Norwegian VAT area.

The current rules have been interpreted and practiced so that enterprises can procure services abroad and use the services in Norway without the obligation to calculate and report VAT in Norway. The Ministry of Finance believes this violates the destination principle.

The Ministry of Finance therefore sees a need to investigate various alternatives for VAT treatment of cross-border services between different geographical establishments in the same legal entity, for example a company with its head office in Sweden and a branch in Norway. This will especially have an impact on companies in the financial sector.

The Ministry of Finance aims to submit an amendment proposal for consultation in the autumn of 2024.

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