The Supreme Court concluded that judicial review of discretionary assessments made by the Norwegian tax authorities of a taxpayer’s related-party transactions is limited to findings that the factual basis for the assessment is correct and that the assessment is not unreasonable or arbitrary.
The Supreme Court's decision, HR-2012-01296-A, (Case No. 2011/1861) (Norwegian) was issued 25 June 2012.
Norwegian tax law allows the tax authorities to reassess taxable income when the taxpayer is found to have a “reduction in taxable income” due to transactions with related parties.
The issue before the Supreme Court was whether the courts in Norway have authority to review fully such assessments (i.e., de novo review), or whether the courts are limited to reviewing whether the factual basis for the assessment is correct, and that the assessment was not unreasonably or arbitrarily performed.
Supreme Court’s decision
Noting the absence of case law addressing this issue, the Supreme Court turned to case law relating to other, similar provisions of the tax law from which it drew analogies.
The Supreme Court found that the type assessment at issue in this case had most in common with assessment in which the tax authorities had, using their discretion, assessed a taxpayer for not filing tax returns. The case law under those discretionary assessment provisions limits the courts’ authority for review to examining whether the factual basis for the assessment is correct, and whether the assessment is unreasonable or arbitrary.
Accordingly, the Supreme Court held that the tax authorities’ assessment with respect to related-party transactions could only be overturned by the Norwegian courts if the factual basis for the assessment was incorrect, or if assessment was unreasonable or arbitrary. Because the assessment in the present case was found to be sound, the Supreme Court held for the tax authorities.
The Supreme Court essentially stated that it will not interfere with the tax authorities’ assessments, except in situations when the factual basis for the assessment is incorrect or when the assessment is unreasonable or arbitrary.
As a result of this decision, it will not be sufficient for a taxpayer to offer up proof of a “better” assessment concerning related-party transactions. Tax professionals believe that the Supreme Court’s refusal to allow for full examination of the material aspects of the tax authorities’ assessments represents a weakening of the legal safeguards that were put in place to protect taxpayers.
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services Group in Norway:
+47 406 39 183