When planning to do business in Norway, a foreign company will always have to consider tax-related questions. In relation to this, the company might have Transfer pricing obligations. Let's take a look at what this means and how it applies to your company.
The Norwegian tax authorities have been known to focus on cross-border transactions between companies that have a community of interests where, especially when income or value leaves the country. To ensure that the Norwegian tax authorities does not invoke any sanctions, it`s important to know how the transfer pricing rules applies to your business.
What is transfer pricing?
Normally a seller and a buyer of goods or services would have different interests when deciding the price. While the seller wants the price set high, the buyer wants a low price. In a “traditional” transaction the two parties would find a middle ground.
When two parties share a community of interests, these opposite interests does not apply, and the price of the transaction might be set different than normal market conditions suggests.
To prevent such irregularities, transactions within a community of interests must be set equal to those that are regulated by the regular marked conditions. This is done using the transfer pricing methods.
There is not a one-fits-all rule within the different methods. Each type of transaction needs to be assessed to figure out which method works the best. While the government allow the companies to choose which method to use for setting the price, the method must also reflect the same price as equal goods and services through market standards.
There is a high importance of choosing the right method to the specific transaction.
Magnus Legal can assist you in assessing which method to choose to sort out any pricing issues most effectively.
Companies transfer pricing applies to
The regulation includes all communities of interest between companies. The term is broad and encompasses a wide range of companies that have common interests, and where these common interests can affect the price of the transaction. This could, for example, be subsidiaries established in Norway that make transactions with parent companies abroad or two separate companies that are controlled by a third company.
However, there are three requirements for the regulation to apply:
- There must be a community of interest between the two parties in the transaction,
- the taxable income must be reduced and
- the reduction in income must be caused by the community of interest.
Are you in doubt as to whether the company is covered by the transfer pricing regulations? Contact us to clarify your situation.
The documentation obligations apply to foreign companies and other traders who have:
- Controlled transactions with a total fair value of NOK 10 million or more in the taxation period, or
- Receivables, debts and guarantees with a total value of NOK 25 million or more at the end of the taxation period.
Companies subdued to documentation obligations will also as a main rule have to submit transfer pricing documentation. Small and medium companies with less than 250 employees and either a sales income that does not exceed NOK 400 million or a balance sheet total that does not exceed NOK 350 million are exempt from submitting the transfer pricing documentation. These limit values apply on consolidated basis.
If the Norwegian company is part of a multinational group with a consolidated income of NOK 6.5 billion or more, they are also covered by the rules on country-by-country reporting. Generally, the parent company is obliged to present the country-by-country reporting. However, other companies in the group may also be required to report in specific cases, as a so-called secondary reporting obligation.