Complaint against Norway - Handling of claims of repayment of witholding tax levied contrary to EEA law

Complaint against Norway - Handling of claims of repayment of witholding tax levied contrary to EEA law

We refer to Your letter of 22 June 2006 to the Norwegian Mission to the European Union regarding a complaint against Norway concerning handling of repayment of withholding tax levied contrary to the EEA law. We also refer to subsequent correspondence, latest Your e-mail 31 August 2006.

Issue No. 1 and 3:

Under issue No. 1 the Authority requests information on how the assessment and reassessment of withholding tax is conducted for non-resident shareholders. Further, under issue No. 3 the Authority requests information on whether or not non-resident shareholders are notified of the assessment and/or reassessment of withholding tax, and if so, how the notification takes place and if it in any way is different from the way resident shareholders are notified.

Withholding tax is, pursuant to the Tax Payment Act of 21 November 1952 No. 2 (TPA) chapter II, deducted and paid by the Norwegian dividend distributing company when dividend is distributed to non-resident shareholders. Consequently, the shareholders are aware of the deduction and the payment of withholding tax, when receiving their dividend. The non-resident shareholders of a Norwegian company are assessed jointly (as a group) at the same time as the Norwegian company is assessed, normally in October in the year after the income year. We refer to the Tax Act of 26 March 1999 No. 14 section 10-13. The assessment is based on information provided by the company enclosed in its tax return. This implies that non-resident shareholders, as opposed to all other taxpayers, on a general basis are exempted from the duty to file a tax return, cf. the Tax Assessment Act of 13 July 1980 No. 24 (TAA) section 4-2 subsection 2 a, and – correspondingly – so far non-resident shareholders have not received any additional notification about the regular tax assessment.

If the assessed withholding tax exceeds the correct rate of withholding tax, the principal rule is that a non-resident shareholder may file a complaint to the Norwegian tax authorities in the same way as resident shareholders and request repayment of excess tax.

In addition, non-resident shareholders have the possibility to claim repayment before the regular tax assessment has been settled. Resident shareholders are generally not entitled to repayment of excess tax payments before the regular tax assessment is settled. Thus, in this respect non-resident shareholders are accorded more extensive procedural rights to claim repayment of tax than resident shareholders.

Cases where the owner for tax purposes is someone else than the person who is the owner under private law or the person who is registered in the VPS-register as the owner, differs from the ordinary cases of repayment of withholding tax. In cases similar to the one issued in the main proceeding in the Fokus Bank ASA case, the original position was that the non-resident shareholder did not receive any information at all about the reclassification of the dividend for tax purposes from the Norwegian tax authorities. As mentioned in our letter 30 March 2006, the Norwegian Directorate of Tax subsequently has notified the shareholders about the reclassification of ownership of the shares.

The conditions under which non-resident shareholders may challenge an assessment or reassessment of withholding tax will be treated more fully under issue No. 2, 4 and 5.

As far as resident taxpayers concerns, dividend taxation is a part of the regular income taxation. The dividend distributing company does not carry out tax deduction in the dividend distributed to resident taxpayers. However, the received dividend is included in the expected net income that forms the base from which the tax authorities calculate the ordinary advance tax which is paid during the income year. Generally, resident taxpayers can not claim repayment of deducted and paid tax before the assessment has been settled.

Issue No. 4:

Under issue No. 4 the Authority requests information on whether or not non resident shareholders are accorded individual rights to challenge the assessment and/or reassessment of withholding tax, both on an administrative level and before the national courts. Further, in the letter the Authority points out that the complainants have alleged that non-resident taxpayers are prevented from having direct contact with the Norwegian tax authorities or the courts. Instead they have to turn to the dividend distributing company and rely on that the company, on their behalf, takes the matter up with the tax authorities or courts.

Non-resident shareholders are accorded the same individual rights as resident shareholders to challenge an assessment or reassessment of withholding tax on an administrative level and before the national courts.

Previously, in cases regarding dividends from a Norwegian subsidiary to a foreign shareholder that qualifies as a parent company pursuant to a relevant tax treaty, the Norwegian Directorate of Tax stated that a claim for refund on an administrative level had to be put forward by the distributing company. It was assumed that this arrangement, both for the shareholder and the tax authorities, represented a practical method of handling such claims, and that it in practise did not affect the non-resident company’s possibility of ensuring their material rights. This practise will now be amended. In new guidelines that recently have been published by the Norwegian Directorate of Tax, it is stressed that all non-resident parent companies have individual procedural rights to challenge an assessment or reassessment in the same way as other shareholders.

Issue No. 5 and 2:

Under issue No. 5 the Authority requests information on the conditions (time limits etc.) under which non-resident shareholders can exercise their rights and whether or not these conditions in any way are different than for resident shareholders. Under issue No. 2 the Authorities requests information on what specific events trigger the three-week/six-month time limits for non-resident tax-payers to have administrative complaints filed and cases brought before the competent national courts.

Non-resident taxpayers are subject to the same time limits as resident shareholders under which they can exercise their rights to challenge an assessment or reassessment. This implies that administrative complaints have to be put forward within three weeks after the tax lists are made public or within three weeks after they have been notified about a reassessment. A writ challenging an assessment has to be issued within six months from the tax assessment is made public, or six months from the point in time when the notification of a reassessment was sent to the taxpayer. We refer to the TAA section 9-2 subsection 4 and the TPA section 48 subsection 5 on these matters.

Assuming that the dividend is distributed during the first half of the income year, the three-week time limit for challenging the regular tax assessment expires approximately a year and a half after the distribution of the dividend. Correspondingly, the time limit for issuing a writ challenging the regular tax assessment expires approximately two years after the distribution of the dividend.

If a taxpayer has failed to make an administrative complaint against the assessment or reassessment within the time limit, the main rule is that he is not entitled to handling of his complaint. However, in such a situation the tax authority shall decide what shall be the consequences of the taxpayer’s failure to keep the time limit. The competent authority may either decide to dismiss the case or deal with the material aspects of the case. When making this decision, the competent tax authority i.a. shall take into consideration circumstances on the taxpayer’s side, the significance of the specific case, available information about the specific case and the period of time that has passed since the assessment that is challenged. We refer to the TAA section 9-2 subsection 8 with further reference to section 9-5 subsection 5 on these matters.

According to the TAA section 9-6 subsection 2, neither a tax payer nor the tax authorities can claim reassessment more than three years after the ending of the income year when the reassessment is due to wrongful interpretation or application of the tax legislation. The three-year time limit is absolute and applies both in situations when the legal provision that is reinterpreted follows from the Tax Act or an international treaty, for instance the EEA Agreement.

As referred in our letter 30 March 2006, generally it shall not simple to achieve reassessment when a taxpayer has failed to file a complaint within the time limit.

However, to the Ministry of Finance’s knowledge, the tax authorities to a high extent have carried out repayment of withholding tax although claims have been put forward after the expiration of the three week time limit.

None the less, in cases regarding reassessment of withholding tax where the assessment is levied contrary to EEA law, the Ministry of Finance on a general basis has instructed the tax authorities to reassess tax assessments three years backwards in time. We refer to our letter to the Norwegian Tax Directorate 6 march 2006 and our letter to the Authority 30 March 2006 on this matter.

Assuming that the dividend is distributed during the first half of the income year, the three-year time limit for reassessing a tax assessment expires more than three and a half years after the distribution of the dividend.

Issue No. 6:

Under issue No. 6 the Authority requests information about whether or not Norwegian companies are under any obligation to act on behalf of their non-resident shareholders, to which they have distributed dividends, and represent them before the tax authorities and/or the national courts.

As referred under issue No. 4 it is the non-resident shareholders that are accorded procedural rights to challenge an assessment or reassessment of withholding tax. However, a shareholder may choose to be represented by the Norwegian company before the tax authorities in accordance with general provisions regarding authority of representation.

The company is not obligated to represent its shareholders.

Issue No. 7:

Under issue No. 7 the Authority requests information on how it is compatible with EEA law, if in fact it is the case, that non-resident recipients of dividends are not notified of assessments and/or reassessments and/or not accorded individual rights to challenge the assessments or reassessments on administrative level and/or before the national courts.

It follows from the statements above that non-resident shareholders are accorded the same individual rights as resident shareholders to challenge an assessment or reassessment of dividend tax both on an administrative level and before the national courts. Further, non-resident taxpayers are subject to the same time limits as resident shareholders under which they can challenge an assessment or reassessment of withholding tax after the regular assessment is settled.

Assessment of withholding tax differs from the way resident shareholders are assessed as non-resident shareholders do not receive a personal notification from the tax authorities about the regular assessment.On the other hand, as described under issue No. 1, non-resident shareholders are exempted from filing a tax return. Further, non-resident taxpayers are made aware of the tax deduction and the payment of the withholding tax as the dividend is distributed, and they have a special opportunity to claim repayment of excess deducted withholding tax before the tax assessment is settled.

Issue No. 8:

Under issue No. 8 the Authority requests information on how it is compatible with EEA law for the Norwegian authorities to reject claims for repayment with the argument that the claims were not brought forth before the respective three week or six month limits expired. Further, in the letter the Authority points out that it is alleged by the complainants that claims of repayment of withholding tax has been rejected with the argument that the non-resident shareholders has failed to comply with the three week time limit to file administrative complaints.

The Ministry of Finance is not aware of any cases where claims of repayment have been rejected merely because the taxpayer has failed to comply within the three week time limit. However, with reference to the above referred instruction to the tax authorities to reassess tax assessments where withholding tax has been levied contrary to EEA law within the last three years, we wish to emphasize that such rejection would not be in accordance with instructions given by the Ministry of Finance.

Finally, we would like to mention that the Ministry of Finance considers initiating a general review of the provisions and forms of procedure which applies to withholding taxation of non-resident shareholders. However, a definite subject and the time-frame of a possible review have not been settled.

Yours sincerely,

Knut Erik Omholt
Deputy Director General

Rino S. Lystad
Legal Adviser