Norway breached a taxpayer's right to freedom of establishment in another EEA state (The EU, Norway, Iceland and Liechtenstein) and freedom of capital and discriminated against it on grounds of nationality by cutting the amount of the taxpayer's foreign tax credit, the EFTA Court has ruled.
The Court said Norway's Skattedirektoratet (Directorate of Taxes) was wrong to reduce the credit allowance for tax on income which Seabrokers' division in Aberdeen in Scotland had paid in the UK
Seabrokers is a Norwegian private company with two divisions: a real estate business in Norway that develops and rent out properties, and ship broking business in Aberdeen.
The company paid £235,375.20 tax in the U.K. in 2002 and claimed a credit allowance in Norway of NOK2 635 023 for the U.K. tax paid. The Stavanger Tax Assessment Office denied the full amount, coming up with a figure of NOK1 667 373 instead. It used a 1999 regulation, which made an exception in tax legislation regarding the maximum credit allowance for tax paid in a foreign state, to justify its decision.
Seabrokers appealed to the
Higher Assessment Appeal Board and lost and appealed again to the court in Stavanger, which referred three questions to the EFTA Court about using debt interest and group contributions to foreign income to calculate the maximum credit allowance.
The Court ruled that companies that have debt interest expenses or make group contributions to subsidiaries should receive the same tax treatment, even if one of them also has a branch abroad, so the Norwegian tax authorities decision had breached article 4 of the Agreement on the European Economic Area (EEA) on prohibition of discrimination on grounds of nationality, article 31 on the freedom of establishment and article 40 on free movement of capital in the EEA.
