Background and current law
The purpose of the interest deduction limitation rules is to discourage profit shifting in multinational groups, so that a disproportionately large part of a group's debt is not allocated to Norwegian companies within the group. The rules shall therefore prevent the group from receiving a disproportionately larger part of the group's overall interest deduction in Norway, and thus reduced Norwegian tax costs.
The Ministry argues that rental and leasing agreements have similarities with loan financing in an economical sense. In the same way that multinational groups can allocate a disproportionate amount of debt to Norwegian group companies, such groups can choose to operate with a greater degree of rented and leased operating assets in normal tax countries, such as Norway, and thereby obtain disproportionately high deductions and a low degree of equity financing in such countries. Therefore, the Ministry of Finance believes that the part of rent and leasing payments which in an economic sense corresponds to interest costs, should be covered by the interest deduction limitation rules in the same way as ordinary interest costs.
The Ministry proposes in the consultation paper that it will become relevant to calculate an interest element for lease agreements where the lease object must be recognised in the balance sheet and deducted in the income statement as depreciation and interest costs, either the taxpayer uses NRS 14 or IFRS 16 as the accounting standard.
It is further proposed that the part of the leasing cost that is to be considered interest costs, shall be the interest as in the company's submitted income statement, if the calculation of the interest is in line with NRS 14. Therefore, where there is a discrepancy between the interest element in the submitted financial statements and what can be determined as the interest element according to NRS 14, a new assessment and calculation of interest must be made in accordance with the principles in NRS 14. This will also apply regardless of whether the taxpayer is subject to the exception for small enterprises – as long as the company exceeds the proposed threshold of NOK 1 million in total leasing costs from financial leasing agreements in the tax year.
The Ministry has considered whether the general rules for taxable ownership also should be amended, in order to coincide with the proposed rules for when the interest element is to be calculated in financial leasing according to the interest deduction limitation rules. The Ministry has concluded in the consultation paper that it is not desirable to put forward such a proposal at this time. However, they ask for input from the consultation bodies on this topic.