Proposal for significant changes to the rules on tax related paid-in capital on shares

The rules on tax related paid-in capital on shares have been described as somewhat complicated. In the consultation paper, the Ministry points out that both taxpayers and the Norwegian Tax Administration have called for simplifications, and two public tax committees have highlighted the need for regulatory changes. The Scheel Committee (NOU 2014:13) stated that in many cases the rules are almost impossible to apply in practice and impose an unnecessarily heavy administrative burden on both taxpayers and tax authorities. The Tax Committee (NOU 2022:20) stated that the rules are complicated, unclear and difficult to apply in practice, and that the rules allow for adjustments.

One of the main challenges with the current rules is that the tax position of tax related paid-in capital follows the share, not the shareholder. This means that the tax position is transferred to new shareholders when the shares are transferred, regardless of how much the new shareholders have paid for the shares (the shareholders' input value). Particularly where shares have been traded several times, or there have been reorganisations, it is difficult for shareholders to keep track of and document paid-in capital on individual shares. It is also difficult for the Tax Administration to verify. The fact that the tax position is transferred to new shareholders also leaves room for what the Tax Administration considers to be undesirable tax planning.

The Norwegian Tax Administration has reported that the total amount of changes in cases related to the control of distributions of paid-in capital from companies to shareholders and the control of the input value/tax shield basis of shares amounts to approximately NOK 14.4 billion in the period 2014-2024.

The Ministry presents two alternative proposals, both of which involve limiting the tax exemption for repayment of tax related paid-in capital to the shareholder's own input value, in contrast to the current scheme where the tax position follows the share regardless of what the new shareholder has paid or contributed.

One option involves introducing an upper limit on the paid in capital equal to the input value of the share but otherwise continuing with the current law. In this case, the input value of the share will set the upper limit for how much can be repaid tax-free, but the paid in capital can be lower than the input value.

The advantages of this option are that it will counteract undesirable adjustment opportunities by making it impossible in the future to obtain a negative input value for shares, and the solution will only be a tightening for those who have a lower input value than the paid-in capital on their shares. This can be considered a "minimum solution" that will counteract undesirable adjustments. A disadvantage is that the share-for-share principle will remain in place, and the solution will therefore not, in principle, solve the current documentation problems or contribute to making the rules less complicated than they are today.

This solution means that shareholders can receive a tax-free distribution of up to the input value of the share (i.e. up to the amount the shareholder has invested in the share), regardless of what has previously been paid for the share. Distributions that are less than or equal to the input value of the share can thus be exempt from taxation. In practice, this means that the tax position of paid-in capital is liquidated and will no longer be a factor in the taxation of the shareholder.

Under this solution, the input value of the share shall also be reduced by the amount exempt from taxation. Since the input value follows the shareholder (and not the share, as paid-in capital does under the current rules), it is natural that the shareholder's classification of the distribution should be decisive. In order for the distribution to be treated as a tax-free distribution, the shareholder must claim such an exemption in their tax return for the distribution year.

The Ministry believes that this alternative will largely solve the current practical and administrative challenges and contribute to a significant simplification of the regulations, provide investment flexibility and predictability for shareholders, and counteract undesirable opportunities for adjustment by removing the incentive to purchase shares with high paid-in capital at a low price in order to defer or avoid tax on future dividends. 

It is proposed that amendments will not come into force until the income year of 2027. The consultation deadline is set for 15 January 2026. In the Ministry's assessment, a generous period between the consultation and the date of entry into force will provide good predictability for taxpayers and ensure that there will be no need for transitional rules.

The proposal will have a particularly significant impact on shareholders with shares where the paid-in capital exceeds the input value. These shareholders will no longer be able to receive tax-free repayments in excess of their input value and should therefore consider utilising their existing position before any rule changes come into effect.

The amendment may also have implications for shareholders with shares where the input value exceeds the paid-in capital. If option 2 is implemented, these shareholders will have increased opportunities for future tax-free distributions.

Generational changes and reorganisations should be carefully planned in light of the new rules.

The new rules will also apply to distributions to foreign shareholders. Companies with foreign shareholders should assess the effects of the changes on their withholding tax obligations, given the applicable tax treaties.

We recommend that

• Affected parties consider submitting a consultation response by the deadline of 15 January 2026 
   
• Shareholders review their share portfolios to assess the relationship between paid-in capital and input value
   
• Planned distributions and reorganisations are considered in light of the proposed changes
   
• Generational changes that are being planned are reviewed with regard to the timing of implementation
   

Schjødt's tax department is happy to assist with assessing the consequences for your share portfolio, preparing consultation responses, planning distributions and reorganisations, and advising on generational changes. For more information, please contact our tax law specialists.