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SC Rules On Corporate Shareholders Taxation
The Norwegian Supreme Court (SC) held its judgment of 12 September 2012 that shares in a German limited partnership qualifies under the Norwegian participation exemption regime, as corresponding to a qualifying Norwegian limited company. Taxand Norway explores the background proceedings of this case.
The limited partnership was set up according to German law. The general partner took care of the management and administration of the partnership, but did not hold any share or interest in the partnership, and had not made any deposits or contributions. The general partner was a German limited company in the same group as the Norwegian limited company acting as the sole limited partner. The Supreme court ruled that there was no unlimited partner in the German limited partnership, and the partnership was therefore considered as a limited company according to the Norwegian Limited Liability Companies Act.
The SC further ruled that the German partnership is to be categorised according to Norwegian company law, when applying the terms "limited company and corresponding companies" to qualify under the participation exemption regime in the Norwegian income tax Act.
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This ruling for the fiscal year 2005 falls in line with more recent tax legislation, and therefore should not cause controversy. However, there is debate in Norway on which criteria will be decisive when applying the condition "corresponding" on foreign entities. The SC held in this ruling the realities of the investors liabilities and profit sharing through the partnership as the most decisive criteria. Differences in management regulations etc. were not considered decisive. There have been discussions on whether foreign Fund vehicles correspond to Norwegian Fund vehicles. Following this ruling, both corporate taxpayers and Fund providers should revisit how a foreign entity correspond to Norwegian entities when foreign vehicles are used in their investment structures.