The Scandinavian Approach: Transfer Pricing in Norway

Transfer Pricing in Oil and Gas
The Scandinavian
Approach:
Transfer Pricing in Norway
Regine Vastvedt
Director, Central Office - Foreign Tax Affairs
Norwegian Tax Administration
Transfer Pricing in Oil and Gas
Introduction
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The Norwegian transfer pricing regime: Legal framework
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Main issues, developments, trends
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Organization of the TP work in Norway
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Effective TP procedures
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Overcoming disputes and finding solutions
MAP/Bilateral APA
The prospect of APAs in Norway
Arbitration
The legal framework (1)
Arms Length Principle (ALP): Tax Act sec 13-1
Limited administrative guidelines
Reference to OECD TPG in Statute
Special TP documentation rules 2008 Tax Act sec 4-12
Limitation of interest deduction rules 2014
Limited interest deduction for oil companies
Norm prices for the sale of crude oil
The legal framework (2)
Binding rulings on sales of natural gas
No safe harbour legislation
Not party to the EU Arbitration Convention
Treaty policy
Article 9 (2)
Article 25
Arbitration
Article 7
Appropriate adjustments to relieve double taxation
Mutual Agreement Procedures (MAP)
DTA UK and NL
Permanent Establishments attribution of profits
Main issues, developments, trends (1)
1970s (ALP used domestically)
1970 => Increasing activities on the Continental Shelf
• cross border transactions
• oil companies and petroleum related activities offshore (drilling, laying of pipelines, anchor
handling subsea and diving operations etc)
• OTO; financing; thin capitalisation, interest rates
80s/90s=>
• leasing of rigs, vessels and highly specialised equipment (COFTA)
• allocation of fixed costs to a temporary PE (COFTA)
• captive insurance (OTO)
Main issues, developments, trends (2)
90s =>
• Management fees / services
• Royalties - intellectual property (IP)
• Intercompany financing: Interest free debt financing foreign subsidiaries; guarantees
• Restructurings:
• Conversion into commisionnaire, toll manufacturer
• Transfer of intangibles
• TP – sale of natural gas or LNG (OTO)
Transfer Pricing in Oil and Gas
Organization of TP work (1)
Ministry of Finance (MoF) - legislation, policy
Directorate of Taxes - coordinating and guiding
Local level:
5 regions in the Tax Administration - 4 dealing with TP issues
3 special Tax Offices - all dealing with TP issues
Oil Taxation Office (under MoF)
Central Office - Foreign Tax Affairs (COFTA)
Central Tax Office for Large Enterprises
Transfer Pricing in Oil and Gas
Organization of TP work (2)
Transfer Pricing Project (2014-2015)
Participants:
4 regions
Central Office - Foreign Tax Affairs (COFTA)
Central Tax Office for Large Enterprises
Oil Taxation Office does not participate in Transfer Pricing Project
Participates in recently established Transfer Pricing Board
Participates in TP training, seminars, etc
Transfer Pricing in Oil and Gas
Organization of TP work (3)
Transfer Pricing Project - Objectives:
Prevent base erosion by the use of OECD Compliance Model
Develop TP Training & expertise (competence)
Connecting key personell/TP specialists in various units in the Tax Administration
Establishment of Transfer Pricing Board
Local working parties on the following TP risks:
Intercompany services (incl. bare boat)
Intellectual property (IP) - transfer of intangibles
Intercompany financing
Valuation
Benchmarking
Transfer Pricing in Oil and Gas
Effective TP procedures
Audits
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Process of information gathering
Transfer pricing documentation rules
Process of document examination - volumes of material
Communication between tax administration and taxpayers
The role of advisors
MAP as Dispute Resolution Mechanism (1)
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Legal arrangement established under DTA to ensure correct application of DTA
Trend: Governments dedicate more resources to MAP
Bilateral resolution – double taxation eliminated
International effort to make MAP more efficient
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OECD manual on effective MAP procedures (MEMAP) 2007
OECD require statistics from governments (from 2008)
http://www.oecd.org/tax/dispute/
MAP Forum OECD (established 2013)/Forum on Tax Administration
Introduction of arbitration clauses
• Norway and other nordic countries active in OECD MAP Forum
MAP as Dispute Resolution Mechanism (2)
Conditions for opening of MAP
• MAP provision in the relevant DTA
• OECD mod art 25 (1)
• Taxpayer consider that the actions of one or both states will result for him in taxation “not
in accordance with the provisions of the Convention”
• MAP request to taxpayer’s state of residence
• Many, but not all DTAs contain a time-limit
• 3 years from “the first notification”
MAP as Dispute Resolution Mechanism (3)
Introduction of arbitration clauses
• EU’s arbitration Convention, effect from 1995 (not Norway)
• Introduction of arbitration clause in OECD Mod, revision 2008
• Extension of MAP, OECD Model Tax Convention art 25 (5)
• If MAP issue not resolved within 2 years (from the presentation of the case to the other competent
authority)
• Taxpayer may require arbitration of unresolved issues
• Policy of Ministry of Finance regarding arbitration
• Norway: New treaties with UK and the Netherlands have arbitration clause
• OECD Base Erosion and Profit Shifting (BEPS)
• Increasing number of disputes
• BEPS Action 14: Make dispute resolution mechanisms more effective
Organization of TP MAP/APA work
• Establishment of MAP/Bilateral APA unit 1. January 2015 at Central Tax Office for
Large Enterprises 2015
• Competent Authority function in MAP/bilateral APA regarding art. 9 and art. 7
• Ministry of Finance + Directorate of Taxes still competent authority in other MAP cases
• TP - MAP/Bilateral APA team:
• Normally 3-4 persons: 1-2 from MAP/APA unit, and 1-2 from the local tax office
Transfer Pricing in Oil and Gas
Advance Pricing Agreements (APA)
The prospect of APAs in Norway:
• No APA regulation, but allowed under treaty
• New MAP/APA unit: open for APA on a regulary basis
• Previously: only a few pilot cases accepted
Transfer Pricing in Oil and Gas
Advance Pricing Agreements (APA)
Bilateral APA
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5 applications received per 2014
4 agreed, 1 yet in process per 2015
2 foreign enterprises with subsidiary/PE in Norway – oilservice companies
1 Norwegian enterprise with subsidiary abroad
Companies subject to the Norwegian special tax on petroleum income: MoF will
probably not open for BAPA unless OTO find it practical
Combined MAP and BAPA
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MAP with roll forward, BAPA with roll back possible
Contact information
MAP/APA unit:
Sentralskattekontoret for Storbedrifter
Otto Sverdrups plass 3
1337 Sandvika
Norway
Head of unit:
Arthur Kristoffersen
Arthur.Kristoffersen@skatteetaten.no
Skatteetaten.no
Contact information:
Regine H. Vastvedt
Director
Central Office - Foreign Tax Affairs
Norwegian Tax Administration - Stavanger
Lagårdsveien 46
4010 Stavanger
Norway
regine.vastvedt@skatteetaten.no
Skatteetaten.no