Should Norway Follow International VAT Best Practices More Closely?
Norwegian VAT law continues to deviate from international standards on neutrality and the destination principle. This selective approach creates uncertainty, double taxation, and unnecessary burdens for businesses. We believe it is time for a comprehensive reform that brings Norway in line with international best practice.
Summary
Norwegian VAT (merverdiavgift, MVA) law and its interpretation diverge from international sources, particularly EU law and OECD guidelines, on fundamental principles such as neutrality and the destination principle. We question whether these divergences are due to ignorance, arrogance, or both, and call for greater alignment with international standards.
Where Norway Gets VAT Wrong
Norwegian VAT rules and interpretations often do not sufficiently align with international sources, especially regarding the neutrality and destination principles. This misalignment is attributed to a narrow Norwegian interpretation of input VAT deduction, unique criteria for business activity, and specific rules on the place of taxation for goods and services.
International Principles Norway Can’t Afford to Ignore
The Norwegian VAT system has been influenced by OECD, EU, EEA, GATT/WTO, and ECHR. However, only the latter three are legally binding for Norway. EEA law does not require harmonization of indirect taxes, but Norway must ensure its VAT rules comply with the four freedoms and state aid rules.
EU VAT law is not part of the EEA Agreement, but Norway has voluntarily harmonized its VAT system with the EU on several occasions, especially in the context of potential EU membership and subsequent reforms.
Cherry-Picking EU and OECD Sources
There is inconsistency in Norwegian courts and government practice regarding the use of EU law and OECD VAT Guidelines as a source for interpreting Norwegian VAT law. Sometimes EU law is used as a persuasive source, especially where Norwegian and EU rules are materially similar, but often it is disregarded, especially when not in the state’s favor.
This selective approach calls for more systematic and principled use of EU and OECD sources in Norwegian VAT interpretation.
Key Areas of Divergence
- Input VAT Deduction: Norwegian practice is more restrictive than EU law, particularly regarding deduction for transaction costs and in the start-up phase of businesses. EU law provides broader rights to deduction, emphasizing neutrality regardless of profitability or the nature of the asset (e.g., shares).
- Definition of Business Activity: Norwegian authorities often deny VAT registration and deduction in start-up phases unless profitability is likely, contrary to EU law, which focuses on economic activity regardless of outcome.
- Place of Taxation for Services: Norway uses the concept of “remotely deliverable services” as a criterion for where and how services should be taxed, which is not used in OECD or EU and leads to confusion and double or non-taxation in some cases.
Read more: Brækhus Nominated for «Indirect Tax Firm of the Year» by ITR EMEA Tax Awards
OECD Guidelines: The Global Consensus Norway Disregards
OECD’s “International VAT/GST Guidelines” (MVAR) are not binding but represent international consensus and are recommended for use by member states. They emphasize the destination principle and neutrality, advocating that cross-border B2B services should be taxed where the customer is located, not where the service is consumed or performed.
Norwegian rules and interpretations often diverge from these guidelines, particularly regarding registration requirements for foreign businesses and the place of taxation of certain services.
Case Law: Missed Opportunities to Align With Europe
In Norwegian Supreme Court cases such as Norwegian Claims Link, there is an inconsistent and incorrect use of international sources, and in Telenor and Skårer Syd the results are in contradiction with EU law. This approach leads to double or inappropriate taxation and/or denial of input VAT deduction contrary to international principles.
Anchoring Norwegian VAT in International Standards
The state should adopt a consistent and principled approach to the use of EU and OECD sources, and courts should perform more thorough comparative analyses when interpreting Norwegian VAT law bearing in mind core principles of VAT; the neutrality and destination principles.
We call for a comprehensive VAT reform in Norway, guided by an expert committee with strong VAT expertise as some of the previous committees has lacked VAT expertise, to align Norwegian law more closely with international principles.
Read more: Brækhus’ expertise in tax and VAT
Our team welcomes further discussion on Norwegian VAT law. For questions or comments, please contact:
