The decision may provide withholding tax refund opportunities for EEA-registered limited partnerships.
Read a related discussion of the Hydro K/G case: TaxNewsFlash-Europe: Norway - Limited partnerships / hybrid entities
Withholding tax on dividend distributions
Under the Norwegian participation exemption method, out-bound dividends from Norwegian companies received by corporate shareholders that are residents in the EEA will be exempt from Norwegian withholding tax, provided that the shareholders meet the “ substance test”—i.e., that the entities are genuinely established and carry on genuine business in the EEA.
In relation out-bound dividends received by foreign hybrid entities registered in the EEA, the Norwegian tax authorities issued a ruling (November 2011) finding that in order for such entities to qualify as EEA residents and to be exempt from withholding tax, all partners / shareholders must separately qualify (i.e., be corporate entities that are residents in the EEA).
Also, the general partnership must meet the “substance test” (which was not addressed in the Hydro K/G case because it was introduced later). Note, however, that limited partnerships that are organized and established in accordance with the current regulations of the country of registration must also meet the substance test.
According to the Supreme Court’s decision, out-bound dividends from Norwegian companies that are received by EEA-registered limited partnerships would be exempt from withholding tax—regardless as to where the partners are residents and regardless as to whether the partners are corporations or individuals.
In addition, the general partnership must meet the substance test (which was not contested in the Hydro K/G case because this test was introduced later). However, tax professionals in Norway find there are good arguments supporting a position that limited partnerships organized and established in accordance with the current regulations of the country of registration ought to satisfy the substance test.
Limited partnerships which in previous years paid Norwegian withholding tax on dividends may file a claim for refund of Norwegian withholding. Normally, the Norwegian tax authorities will accept refund claims for a three-year period—i.e., refund claims for withholding tax that relates to dividends distributed in 2009 must be filed in 2012, although this has not yet been confirmed by the Norwegian tax authorities.
For more information, contact a tax professional with the KPMG member firm in Norway (KPMG Law Advokatfirma DA)
Thor Leegaard, Tax Partner
+47 4063 9183
Erik Landa, Senior Manager
+47 4063 9768