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EFTA Surveillance Authority

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SAM 020.500.044

200300053-25/BAL

04.06.2003

State aid - Entra Eiendom AS – document duty and registration fee – additional information

Reference is made to the EFTA Surveillance Authority’s letter of 2 April 2003.

The Authority has requested additional information regarding stamp duty and registration fee in connection with the establishment of Entra Eiendom AS.

The Authority has also requested substantial information regarding i.e. the general provisions and practice concerning stamp duty and registration fee and other issues not directly linked to Entra Eiendom AS.

The Norwegian Government was requested to answer the Authority’s letter within 20 working days of receipt. Due to the complexity of the information requested, and that various ministries are involved in the process, the Norwegian Government was not able to submit the information by 7 May 2003.

By telefax dated 7 May 2003 the Ministry of Trade and Industry requested the Authority to accept that the Norwegian Government would submit the requested information by the end of May.

By letter dated 8 May 2003 the Authority agreed to extend the time limit for submitting information to 2 June 2003.

Introduction

The statutory rules on merger and demerger are based on a so-called continuity principle. The continuity principle is an umbrella term for a number of rules that presuppose that the acquiring undertaking takes over the legal position of the transferring undertaking. The purpose of the continuity principle is to facilitate the implementation of mergers, demergers and restructurings, which is regarded as socio-economically desirable.

The continuity principle means that undertakings can perform transactions without it being necessary to obtain permission from the individual owner, the individual creditor or others who have rights in the undertaking. In this way, the continuity principle represents an exception to the usual legal rules on assets and mergers. Continuity with regard to tax and duty positions is an important aspect of the principle. Legal continuity effects are often a real precondition for the continuation of the transferring undertaking’s operations by the acquiring undertaking.

Exemption for registration fee and document duty may follow from the Registration Act construed in light of the company legislation, or from special legislation.

The Registration Act construed in light of the company legislation, implies that reorganisation of private activity in numerous cases can occur without triggering demands for registration fees and document duty. As regards e.g. mergers between state enterprises, the provision in Section 54 of the State-Owned Enterprises Act leads to the same result. In all these cases, property transfers are registered as name changes. This is a well-known and widespread technique.

To the extent that exemption from duty does not follow from the Registration Act and the company act applicable to the state enterprise in question, any duty exemption must be laid down specially by law.

The Norwegian Government fails to see any State aid implications regarding this practice. As a general rule, the tax system of an EFTA/EEA State is not covered by the EEA Agreement. This means that it is for each such state to design and apply a tax system according to its own choices of policy. In certain cases, however, a tax system may have consequences that would bring it within the scope of application of Article 61(1) EEA.

A main criterion in applying Article 61(1) EEA to a tax measure is that the measure provides in favour of certain undertakings in the EFTA State an exception to the application of the tax system. The common system applicable should thus first be determined.

As shown below, the common system is that the continuity principle determines if conversion processes, both public and private, may be done as a name change in relation to inter alia the rules on registration fee and document duty. As mentioned above, the purpose of the continuity principle is to facilitate the implementation of mergers, demergers and restructurings, which is regarded as socio-economically desirable. The special legislation is a result of the same considerations. Thus, the practice is a general measure, that according to well established case law does not constitute State aid within the meaning of Article 61 of the EEA Agreement.

Clarification on the measures used by private enterprises and the legislative measures concerning public enterprises

The questions raised by the Authority in point 2 and 3 of its letter of 2 April 2003 concerns point 1.2 - 1.4 of the letter from the Ownership Department of the Ministry of Trade and Industry dated 7 November 2002. The Department of Regulatory Affairs and Shipping requested the Ownership Department to comment on these questions.

a) The understanding of point 1.2 of the letter from the Ministry of Trade and Industry dated 7 November 2002.

We confirm that the Authority’s understanding in the letter dated 2. April 2003 point 1.2 second passage is correct regarding how a private owner of Statsbygg would have to reorganize to not release the obligation to pay registration fees or document duty.

If Statsbygg had been a private company a private owner could have de-merged under the Company Act. A private owner of Statsbygg would have to retain the title to the properties with Statsbygg, and combine a de-merger with agreements and security arrangements between Statsbygg and the receiving company. However it is not necessary to retain the ownership to the properties in Statsbygg, reference is made to our letter dated 7 November 2002 point 1.2 last bullet point.

As mentioned in our letter dated 7 November 2002 it is the transfer of title (grunnbokshjemmel) that releases the duty to pay document duty and registration fee. As the registration is not mandatory a private enterprise can avoid document duty and registration fee by simply not transferring the title. The ownership to property consists of several rights/activities. Some of the rights can be transferred to a new owner by agreements while the formal title remains with the original owner.

To let the title remain with the original owner constitutes a risk for the new owner for “holder in good faith” (godtroererverv) towards third party. However this risk is possible to eliminate by registering a ”restriction of the right of ownership” (urådighetserklæring).

A statement from one of the biggest private real estate concerns in Norway, Gjensidige NOR, is attached as an example of how private undertakings “avoid” document duty and registration fee and thereby document duty in case of de-merging and transforming processes, similar to the approach described above.

b and c) Difficulties connected with the methods mentioned in point 1.2 of the letter from the Ministry of Trade and Industry dated 7 November 2002.

The Authority seeks a clarification of the understanding of the following sentence in our letter dated 7 November 2002:

”…letting the state, represented by Statsbygg (a separate legal unity, though fully owned by the state), being the title holder to Entra Eiendom AS properties was not an option.”

The abovementioned statement in the letter of 7 November 2003 is based on both a practical and legal point of view.

First of all, Statsbygg as a public body (forvaltningsbedrift), even though a separate unit, is in legal terms a part of the State as such, and the State is both legally and economically responsible for Statsbygg's executive business. Statsbygg has on the other hand freedom to execute day-to-day business normally within the year-to-year budget. As Statsbygg is a “forvaltningsbedrift”, the Parliament (”Stortinget”) and the Ministry of Labour and Government Administration can in principle at any time intervene in Statsbygg’s day-to-day business affairs. Furthermore, the Ministry of Labour and Government Administration has the right to instruct Statsbygg, and may at any time use such authority command.

Even though the main rights of ownership are transferred to the new owner there is still a need for the titleholders to consent in some questions. This is not a problem for private enterprises in a group of companies with the same objectives and the same decision-making procedure. To remain the titles to Entra's properties in Statsbygg would imply an arrangement between to different organizational structures which would create uncertainty regarding the titleholder’s consent. For instance if Statsbygg were the titleholder, Entra Eiendom would have been dependent on approval from a public body for using the properties as security. This fact would make it more difficult for the enterprise to raise new private loans. A commercial lender will consider it more risky to lend money to a company when the register depends on consent by a public body that not only takes commercial considerations.

If the title to the properties had remained in Statsbygg this would imply that the state was both renter and formal titleholder to the properties. To have the state on both sides of the table would have a negative impact on the markets confidence to the company both upon the predictable rent level and duration of the tenancy agreements, and also a negative impact on the terms of financing.

Another legal obstruction is that the contribution in kind (“tingsinnskuddet i Entra Eiendom AS”) in accordance to The Company Act (aksjeloven) must be without political or legal reservations. The contribution in kind also has to bee irrevocable.

Real estate concerns with combined companies in a group are a common private organizational structure. A theoretical alternative for the state would be to turn the whole Statsbygg into a formal joint stock company. This was never a realistic alternative all the time the mission was to separate the commercial part and the non-commercial part of Statsbygg. A concern-connection between Statsbygg and Entra Eiendom AS, for instance trough keeping the deed title in Statsbygg, could in principle also raise questions about cross-subsidization in the lesser/lessor contracts. In connection with the establishment of Entra Eiendom AS it was of importance to prevent any doubt about the fact that the company no longer was a part of the public administration and to eliminate any doubt concerning cross-subsidization.

d) Based on our letter dated 7 November 2002 the Authority wish to clarify the understanding of: “it is common for real estate companies that buy land for development to transfer title to such companies prior to the development, thereby reducing the tax liability”.

For new buildings Entra Eiendom has bought (for example “Postgirobygget”) the company has paid document duty and registration fee. A daughter company of Entra Eiendom AS, which stocks in principle could be sold without accumulating new document duty and registration fee, now owns ”Postgirobygget”. Similar, Statsbygg has on the behalf of the state initially, when buying different new properties or undeveloped ground in the first time, paid document duty and registration fee. It is therefore correct that the structuring, or restructuring, of real property companies by initial transfer of title to single purpose companies entail document duty and registration fee. When stocks are sold to third party afterwards no document duty or registration fee will accumulate twice. The value added in the company when initially buying land will in principle reduce the tax base for document duty and registration fee.

The non-payment Does Not in any way constitute an advantage To Entra Eiendom as

a and b) Possible ways of financing registration fee and document duty to be paid and effects on the opening balance

The Ministry of Trade and Industry underlines that the capital structure of the opening balance of Entra Eiendom is composed as close as possible to the average of the competitors’ solidity in the real estate sector. Entra Eiendom was hereby established with 40% solidity. The total opening balance value of Entra Eiendom AS (concern balance sheet) was NOK 3.554.871.000,-. Simulated accumulated document duty is estimated to NOK 80 571 775,- and accrued registration fee is estimated to an amount of NOK 147.300,- (150 properties x NOK 982,-); totally NOK 80 719 075,-.

Theoretically; if document duty and registration fee were to be accrued in the opening balance sheet, the adjusted and alternative opening balance would have been as described in attachment 2 (reference is made to the table in our letter dated 7 November 2002):

The value of the contribution in kind (the properties) would have been reduced with an amount of NOK 80.719.075. Fixed financial assets would have been increased with the same amount due to activated document duty and registration fee accrued per 1.7.2000. The re-classification of the fixed assets is cause of the mortgage of the buildings per 1.7.2000. On the liability side the total equity and debt is unchanged compared to the actual opening balance sheet. The share of the total debt is though specified with short debt of an amount of NOK 80.719.075 to cover accrued document duty and registration fee.

Summed up; the capital structure, the solidity and the total values in the company would have been unchanged.

c) Regarding which of the parties that would be liable to pay the registration fee and document duty

In a transaction it is common in the business sector that the buyer of the properties pay the registration fee and document duty. This is in accordance with the Alienation Act (Avhendingsloven)§ 2-6. Even if this is not mandatory it is hardly ever any exception from this practise.

CURRENT LAW WITH REGARD TO MERGERS AND DEMERGERS AND EXEMPTION FROM THE DUTY TO PAY REGISTRATION FEE

The questions raised by the Authority in point 4 of its letter of 2 April 2003 concern the Act on Registration. The Ministry of Trade and Industry requested the Ministry of Justice to comment on the questions. The Ministry of Justice has also made some general remarks on the Act of registration and registration fee/document duty.

Legal principles

An important purpose of the registration rules is to obtain “notoriety” (A term of Norwegian law meaning the ability to establish subsequently whether a transaction has taken place and its date and true terms.) and publicity regarding rights to real property. In the first place this can be done by registration in the land register of documents that create, amend, assign, encumber, recognise or rescind a right with respect to real property, see Section 12 of Act No. 2 of 7 June 1935 on Registration. Besides this, notoriety and publicity can be achieved also for other information such as for example change of name, by notation in the land register. The Legal Fees Act provides for registration fees for documents that create, amend, assign, encumber, recognise or rescind a right with respect to real property but not for other information, see Section 21 of Act No. 86 of 17 December 1982.

The registration fee is a relatively modest amount that constitutes a Consideration for the work of the registration authorities. The document duty, on the other hand, is a tax that raises revenue for the State. It is a matter of indifference whether the registration fee and document duty are paid by the buyer or the seller.

Whether in the individual case there is a transfer of title or similar that triggers a duty to pay registration fee or document duty is determined by the registration authorities. Relevant interpretation questions are related inter alia to cases where real property is transferred in connection with a division or amalgamation of companies or other legal persons. In such cases, too, the general point of departure is that a transfer of title occurs that triggers a duty to pay registration fee and document duty. There are two exceptions to this point of departure: first that it may follow from corporate continuity principles that the transferring undertaking’s legal situation is deemed to continue in the acquiring undertaking. In this case, it follows from the Registration Act construed in light of the company legislation, that the transfer of real property is to be regarded not as a transfer of title but as a change of name. Secondly, that it may be separately laid down in special legislation that property transfers in connection with certain restructuring processes shall not be regarded as a transfer of title that involves a duty to pay registration fee and document duty.

More on mergers and demergers – the continuity principle

Inasmuch as the Authority has posed a set of questions that touch on the understanding of the merger and demerger rules, we have chosen to make some general comments on this before we deal with questions that more specifically apply to registration fee and document duty.

By merger in this context is meant that one or more undertakings are amalgamated into one by means of an undertaking taking over the assets, rights and obligations of another or several other undertakings as a whole, against the owners of the transferring undertaking receiving interests in the acquiring undertaking. By demerger is understood that an undertaking’s assets, rights and obligations are to be apportioned between the undertaking itself and one or more acquiring undertakings, against the owners of the transferring undertaking receiving interests in one or more of the acquiring undertakings. As a demerger is also counted cases where the transferring undertaking is to cease to exist in connection with this distribution, and its assets, rights and obligations are to be apportioned between two or more acquiring undertakings, against the owners of the transferring undertaking receiving interests in one or more of these.

Rules have been promulgated on mergers and demergers in Chapters 13 and 14 of Act No. 44 of 13 June 1997 on Limited Companies, in Chapters 13 and 14 of Act No. 45 of 13 June 1997 on Public Limited Companies and in Chapter 8 of Act No. 1 of 24 May 1961 on Savings Banks. Such rules are also to be found elsewhere in the legislation, for example Section 3 of Act No. 4 of 25 June 1936, Certain Provisions Regarding Dairy Companies; Section 10-5 of Act no. 39 of 10 June 1988 on Insurance Activities; Section 54 of Act no. 71 of 30 August 1991 on State-Owned Enterprises; and Section 53 of Act No. 59 of 15 June 2001 on Foundations (the last has not yet entered into force).

The statutory rules on merger and demerger are based on a so-called continuity principle. The continuity principle is an umbrella term for a number of rules that presuppose that the acquiring undertaking takes over the legal position of the transferring undertaking. The purpose of the continuity principle is to facilitate the implementation of mergers, demergers and restructurings, which is regarded as socio-economically desirable. The continuity principle means that undertakings can perform transactions without it being necessary to obtain permission from the individual owner, the individual creditor or others who have rights in the undertaking. In this way, the continuity principle represents an exception to the usual legal rules on assets and mergers. Continuity with regard to tax and duty positions is an important aspect of the principle. Legal continuity effects are often a real precondition for the continuation of the transferring undertaking’s operations by the acquiring undertaking.

Circular G-37/90

For real property, it is in practice assumed that formal conveyance is not demanded for mergers of limited companies and savings banks. The same must apply to mergers between public limited companies and mergers between other undertakings that are made pursuant to merger rules based on continuity principles. The Ministry of Justice’s circular G-37/90 says, “It must be sufficient that the merger is registered in the land register with a certification that the undertaking has been merged into another one. The Register of Business Firms can issue such a certification on enquiry.” In these cases the formal transfer of title is regarded as not having taken place, by virtue of the continuity principles described above. There is thus no need to register a document as described in Section 12 of the Registration Act, and so no need to pay registration fee and document duty either.

As regards demergers, the circular states:

“In connection with demergers in which real property is transferred to the unbundled company, the principle is that there should be a formal conveyance to the unbundled company. This is considered a transfer of title. For this reason, both document duty and registration fee are payable in connection with this.

In connection with mergers, the Ministry of Justice would remark that a pure change of name is considered to be present when it is the continued company that is to be title-holder and not the unbundled one, and the unbundled company has the same name as the original company. A pure change of name is not deemed to be a transfer of title and does not trigger registration fee. The decisive aspect is not the name, but the reality of the ownership, that is, that it is the continued company that gets the title to the properties.”

For divisions of undertakings that are conducted on the basis of rules that are built on discontinuity (for example, division of general partnerships or cooperatives), there is no reason to question the solution prescribed in the circular. After the circular was issued in 1990, the legislation has, however, been augmented with new provisions on demergers based on the continuity principle. Examples are the rules in Chapter 14 of the Limited Companies Act and of the Public Limited Companies Act, the rules in Section 10-5 second paragraph second period of the Act No. 39 of 10 June 1988 on Insurance Activities and Section 54 of Act No. 59 of 15 June 2001 on Foundations (the last is not yet in force). If real property is transferred as a part of a demerger under the provisions of these acts, the question arises whether registration of a document should still be required as an expression of transfer of title. The question is under consideration in the Ministry of Justice. If an exemption from registration of a document that expresses a transfer of title cannot be enshrined in the Registration Act with appurtenant case law, an exemption must be enshrined in a special law. Section 3 of Act no. 11 of 18 February 2002 on conversion of part of the property activities of the Directorate of Public Construction and Property ( Statsbygg) into a limited company is an example of such a law.

Point 4 of the AUTHORITY’s letter

a) The Authority asks whether the legal consequences of the registration of a transaction as a change of name are the same as the legal consequences of a formal transfer of title.

If the acquirer has land register title through registration of a change of name, it is doubtful whether the acquirer can invoke purchase in good faith if there are competing rights to the property. In addition, a registration of change of name does not carry an obligation to pay the registration fee. Another aspect is that there are a number of differences between acquisition of real property by a bill of sale and a merger or demerger agreement; there are differences in the law of contract and also fiscal differences, see the description of the continuity principle in section 1.2 above.

b) The Authority asks why registration of a change of name is in reality considered sufficient for transactions such as the conversion of the Directorate of Public Construction and Property ( Statsbygg).

The registration of change of name is regarded as sufficient, because it follows from the Act No. 11 of 18 February 2000, in the same way as registration of change of name is regarded as sufficient in cases where this follows from the Registration Act construed in light of the company legislation. In both cases the purpose of the statutory provisions is to facilitate the implementation of restructuring processes.

c) The Authority asks whether the regulatory system applicable to restructuring of public enterprises are to be interpreted as meaning that transfer of title is not necessary in these cases.

As mentioned in the account in Section 1.1, an exemption for registration fee and document duty may follow from the Registration Act construed in light of the company legislation, or from special legislation. To the extent that exemption from duty does not follow from the Registration Act and the company act applicable to the state enterprise in question, any duty exemption must be laid down specially by law. If not, registration fee and document duty are also payable when state bodies or enterprises transfer real property to private legal entities.

d) The Authority asks whether similar legal techniques with regard to registration fee and document duty have been used previously with regard to reorganisation of public or private companies.

As mentioned under Section 1.2 above, the Registration Act construed in light of the company legislation, implies that reorganisation of private activity in numerous cases can occur without triggering demands for registration fees and document duty. As regards mergers between state enterprises, the provision in Section 54 of the State-Owned Enterprises Act leads to the same result. In all these cases, property transfers are registered as name changes. This is thus a well-known and widespread technique. The technique is also used in the Act No. 6 of 29 January 1999 on Intermunicipal Companies, see Section 40 fifth paragraph and Section 41 sixth paragraph; in Act No. 45 of 24 June 1994 on conversion of the administrative enterprise Televerket to a share company, see Section 4; in Act No. 65 of 22 November 1996 on the state post office company, see Section 73; and in Act No. 66 of 22 November 1996 on the state railway company, see Section 73.

The use of similar legal measures

The Authority has requested the Norwegian Government to provide a list of all the Acts concerning reorganisation of public bodies and publicly owned enterprises with provisions similar to section 3 of Act of 18 February 2000 No. 11. The Ministry of Trade and Industry has requested all ministries to give information on reorganisations of enterprises under their responsibility with similar provisions.

Based on the information submitted by the ministries, similar legal measures have been used in the following reorganisations since 1994:

Posten AS

Section 73 of Act of 22 November 1996 No. 65: Lov om statens postselskap and section 4 of Act of 21 June 2002 No. 43 Lov om omdanning av statens jernbanetrafikkselskap (NSB BA) og statens postselskap (Posten Norge BA) til aksjeselskaper.

Please find a copy of the relevant pages of Odelsting Proposition No. 2 (1996-1997) and No. 82 (2001-2002) attached.

NSB AS

Section 73 of Act of 22 November 1996 No. 66: Lov om statens jernbanetrafikkselskap and section 4 of Act of 21 June 2002 No. 43 Lov om omdanning av statens jernbanetrafikkselskap (NSB BA) og statens postselskap (Posten Norge BA) til aksjeselskaper.

Please find a copy of the relevant pages of Odelsting Proposition No. 2 (1996-1997) and No. 82 (2001-2002) attached.

MESTA AS

Section 3 of Act of 13 December 2002 No. 84: Lov om omdanning av Statens vegvesens produksjonsvirksomhet til statlig aksjeselskap.

Please find a copy of the relevant pages of Odelsting Proposition No. 6 (2002-2003) attached.

AVINOR AS

Section 3 of Act of 13 December 2002 No. 85: Lov om omdanning av Luftfartsverket til aksjeselskap.

Please find a copy of the relevant pages of Odelsting Proposition No. 14 (2002-2003) attached.

TELENOR AS

Section 4 of Act of 24 June1994 No. 45: Lov om omdanning av forvaltningsbedrifta Televerket til aksjeselskap.

Please find a copy of the relevant pages of Odelsting Proposition No. 61 (1993-1994) attached.

Health enterprises

Section 50 and 52 of Act of 15 June 2001 No. 93: Lov om helseforetak m.m.

In June 2001 the Norwegian Storting (parliament) resolved that central government should take over responsibility for all public hospitals. The hospitals are to be operated as health enterprises and will be wholly owned by central government. The reform forms part of the government’s objective of modernising the public sector. The reform is based on the basic values of the welfare state: equality, justice and solidarity. The take-over of responsibility for all hospitals by central government breaks with a more than 30-year tradition of hospitals being owned and run by the counties. Even though the reform is often called a hospital reform, it also includes all other county councils specialist health services – within both somatic and psychiatric health care and the ambulance service.

The two tenets of the reform are that:

  • Ownership of the hospitals where transferred to the State represented by the Regional Health Enterprises (RHF). The five RHF’s are owned by the State.
  • The hospitals where organised as enterprises. This means that they have become separate legal subjects and are thus not an integral part of the central government administration. Principal health policy objectives and frameworks will be determined by central government and will form the basis for management of the enterprises.

Ownership to the hospitals was transferred from the County councils to the health enterprises according to the Act on Health Enterprises (Lov 15. juni 2001 nr. 93 om helseforetak). The Act § 52 gave exemption from some fees and duties including document duty and registration fees for the original take over. The Act § 50 provides for a similar exemption for subsequent reorganisations within the group of health enterprises.

Point 6 of the AUTHORITY’s letter

The questions raised by the Authority in point 6 of its letter of 2 April 2003 concern the Circular on document duty from the Ministry of Justice. The Ministry of Trade and Industry requested the Ministry of Justice to comment on the questions. The Ministry of Finance has commented Point 6j).

a) Circulars G-37/90 and G-137/90 are annexed. The Authority’s request for Circular 13/90 is assumed by the Ministry of Justice to be a typo, as no such circular exists.

Mergers

b) TheAuthoritywrites that pursuant to Section 1.2 of the circular on document duty, registration of property rights in real property as regards mergers between limited companies under the Limited Companies Act is deemed to be a change of name. The same applies to savings banks. TheAuthorityasks for a logical explanation of this.

The purpose of the continuity principle is, as explained, to facilitate the implementation of restructuring processes, which is regarded as desirable for socio-economic reasons. The continuity principle contributes to rational organisation of undertakings by removing actual and legal barriers to restructuring.

c) The Authority asks whether it is correct that the acquiring company in a merger is regarded as continuing in the transferring company in the cases described.

It is correct that the transferring company is regarded as continuing in the acquiring company inter alia in relation to the rules on registration fee and document duty. The reason for this is the continuity principle explained above. This is why it was found in Circular G-37/90 that it could be assumed that this was a change of name for the owner and not a change of ownership.

d) The Authority asks whether the interpretations mentioned are applicable for all mergers under the Limited Companies Act, irrespective of what merger model is used.

For all mergers undertaken on the authority of the Limited Companies Act, the principle applies that there is no transfer of title and exemption is therefore granted from registration fee.

e) The Authority asks whether the interpretations mentioned are restricted to mergers of limited companies and savings banks. It is asked that restructurings that are treated the same way be described. It is also asked that interpretation statements or decisions regarding Section 1.2 of the circular on document duty be annexed.

In context we consider that it must be interpretation decisions and statements related to Section 1.3 of the circular that the Authority means, not 1.2 The latter concerns blocking of registration. The Ministry of Justice has no relevant interpretation statements or decisions that concern the issue in Section 1.3 of the circular on document duty.

The position that there is deemed to be no transfer of title on the basis of continuity principles must be considered to apply in all cases where statutory rules on mergers exist. Besides the provision in the Limited Companies Act, the Public Limited Companies Act and the Savings Bank Act, we refer to the provisions of Section 3 of Act No. 4 of 25 June 1936, Certain Provisions Regarding Dairy Companies; Section 10-5 of Act no. 39 of 10 June 1988 on Insurance Activities; Section 54 of Act no. 71 of 30 August 1991 on State-Owned Enterprises; and Section 53 of Act No. 59 of 15 June 2001 on Foundations.

f) The Authority asks that we explain similarities in the grounds for handling document duty in the same way under the merger rules of the companies legislation and under the rules of the type that govern the reorganisation of Directorate of Public Construction and Property ( Statsbygg).

The reasons for handling document duty in the same way in the two relationships is to facilitate the implementation of restructuring processes, and thereby encourage the organisation of the undertakings in a rational and expedient manner. These are views that have validity for the organisation of both private and public undertakings.

Demergers

g) The Authority claims that Chapter 14 of the Limited Companies Act authorises combined mergers-demergers of limited companies, in that the transferring company transfers assets to an already existing company.We are asked to explain how such transactions are considered in relation to the rules on registration fee and document duty.

It may seem as if the Authority has misunderstood the Limited Companies Act on this point. Whether the asset is transferred to a newly established or existing company is not relevant to the distinction between merger and demerger. The chapter on demerger governs cases where the company’s assets, rights and obligations are apportioned between two or more companies (whether between the transferring company itself and one or more acquiring companies, or in their entirety between two or more acquiring companies.) The chapter on merger governs cases where the company’s assets, rights and obligations are taken over by one single company. The definitions of merger and demerger are consequently mutually exclusive. Another issue is that merger and demerger are two transaction forms with many common features, and so the rules on merger and demerger are much the same.

h) The Authority asks us also to explain whether registration fees shall be paid on change of corporate form, for example in the conversion from one-man business and firms under the Partnerships Act to limited companies under the Limited Companies Act.

As regards conversion from one corporate form to another, the main rule is that there must be a transfer of title. Accordingly, registration fee and document duty are payable. This is how the legislation has been practised. However, it is possible to consider exemptions on two grounds: either pursuant to the Registration Act as interpreted and practised, or pursuant to special legislation. We would mention that both Chapter 15 of the Limited Companies Act and Chapter 15 of the Public Limited Companies Act contain conversion provisions that are based on continuity principles. If a limited company is converted to a public limited company or vice versa, there will therefore be no transfer of title and so no registration fee or document duty is payable. We suppose that the same will apply when a limited company under the Public Limited Companies Act is converted to a cooperative under Section 2 of Act No. 4 of 25 June 1936, Certain Provisions Regarding Dairy Companies.

i) The Authority asks for an explanation of the relevant criteria for determining whether a converted company is the same legal entity or a new one.

It is continuity principles that determine that statutory conversion processes can be done as a name change in relation to inter alia the rules on registration fee and document duty. The reasons for the continuity principles are explained above.

j) The Authority asks for an explanation on how transactions according to Chapter III of the Act 10. June 1988 No 40 on Insurance undertakings may be treated for document duty purposes.

First, the Ministry of Finance would like to emphasize that transformation of mutual insurance companies, credit associations and savings banks into limited liability companies is regulated by the Financial Institutions Act (40/1988) - not by the Act on Insurance Activity (39/1988).

Document duty is released when the transfer of ownership to real property is registered in the property register. Thus, if a company decides to transform into a limited liability company it only incurs document duty if the ownership of the real property belonging to the company is considered to be transferred as a consequence of the conversion, and the company chooses to register the transfer. If the transformation is merely considered a change of name, no document duty will be released.

The Norwegian registration authority considers real property to be transferred when a transformation as mentioned above takes place. To keep title, the company therefore has to register the transfer. Document duty will consequently be incurred. However, the company can choose not to register. In that case, no document duty will be released.

Clarification concerning reimbursement of accrued document duty resulting form the reorganisation of hydropower/electricity companies

The Ministry of Trade and Industry requested the Ministry of Petroleum and Energy to comment on the reimbursement of accrued document duty.

Legal base - background

As regards the legal base of the arrangements for reimbursement of accrued document duty related to reorganisations in the Norwegian hydropower/electricity sector, reference is made to the Norwegian Constitution (Grunnloven) Section 75a and annual decisions by the Norwegian Parliament (the Storting) according to this section on the national budget.

Accordingly, companies applied for reimbursements to the Ministry of Petroleum and Energy (the MPE). Applications were then considered by the MPE according to criteria as laid down in decisions by the Storting. If an application for reimbursement was in compliance with these criteria, the MPE made a decision to grant the application.

The first arrangement for reimbursement of accrued document duty in the Norwegian hydropower/electricity sector was introduced as a result of a decision made by the

Storting on the basis of Report No. 1 (1986-87).

According to the arrangement introduced by Report No. 1 (1986-87), reimbursement could be granted for mergers of hydropower/electricity companies. The motivation for this arrangement was to encourage hydropower/electricity companies to form larger and more rational companies in accordance with the energy policy.

When discussing Proposition No. 43 (1989-90) to the Odelsting concerning the Energy Act, cf. Innst O No. 67 (1989-90), the Storting concluded that the introduction of a power market and the organisation of power supplies into markets and monopolies would necessitate restructuring of the electricity sector. In particular, the new Act would put conversion of hydropower/electricity enterprises to limited liability companies on the agenda, in addition to structural changes to separate monopoly operations and market-based power production and power sales. The Storting therefore requested that the arrangement introduced by Report No. 1 (1986-87) should be given a wider scope, so that it would also be possible to apply for reimbursement of document duty resulting from the conversion of hydropower/electricity enterprises to limited liability companies and de-mergers.

On the basis of Report No. 82 (1990-91), cf. Innst S No. 240 (1990-91), the Storting decided that the scope of the arrangement for reimbursement should be widened, thus including conversion of hydropower/electricity companies to limited liability companies.

On the basis of Report No. 1 (1996-97) the scope of the arrangement was further widened. The arrangement now included reorganisations of hydropower/electricity companies where monopoly operations and market-based activities were split in separate legal entities. In addition, the arrangement also included reorganisation of power companies into consolidated groups of companies where monopoly operations and market-based activities were kept as separate subsidiaries. The background for this widening of scope was to encourage structural changes in the hydropower/electricity sector in compliance with the goals laid down in Proposition No. 43 (1989-90) concerning a rational organisation and structure in the sector, in particular with regard to separation of monopoly operations from market-based power production and power sales.

It should be noted that the arrangements for reimbursement of document duty served as a means to encourage structural changes and market-based power sales. The MPE would like to point out that the same structural goals of late have been subject to regulatory efforts in Directive 96/92/EC Concerning common rules for the internal market in electricity. Further regulatory efforts in this field is currently discussed within the EU, cf. Common Position adopted by the Council with a view to the adoption of a Directive of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 96/92/EC.

The arrangement for reimbursement of document duty was repealed as of 31 st> of December 1998, cf. Report No. 1 (1998-99) to the Storting and Innst.S. No. 9 (1998-99). On the basis of several decisions concerning the National Budget, grants for reimbursement given in 1998 or earlier could be used in 1999, 2000 and 2001. The same applied to applications presented by 31 st> of December 1998 that were considered by the MPE in 1999. As regards the background for the repeal of the arrangements, reference is made to the enclosed copies of relevant documents, in particular Report No. 67 (1998-99).

Please find enclosed an excerpt of Report No. 67 (1998-99) to the Storting where the arrangement is further explained and evaluated.

Overview of cases concerning reimbursement including costs

Please find enclosed an overview of all grants for reimbursement given in the years 1995 – 1999, including a copy of explanations to the state accounts for 1994 – 2001. The MPE has unfortunately not been able to provide an overview of any grants given in 1994 or earlier given the current timeframe of this case. Any payments to companies based on such grants are however reflected in the explanations to the state accounts for 1994.

Grants given in the period from 1994 – 1999 amount to a total of about NOK 1.5 billion. The total amount paid to companies on the basis of these grants, constitute about NOK 1.3 billion. The difference is mainly due to uncertainty relating to market value of real property as the basis of calculating document duty. In addition, several companies have for various reasons not made use of grants or of the entire amounts.

Conclusion

The common system regarding registration fee and document duty is that the continuity principle determines if conversion processes, both public and private, may be done as a name change in relation to inter alia the rules on registration fee and document duty. The purpose of the continuity principle is to facilitate the implementation of mergers, demergers and restructurings, which is regarded as socio-economically desirable. The special legislation and the reimbursement of accrued document duty resulting from the reorganisation of hydropower/electricity companies are a result of the same considerations. Thus, the practice is a general measure, which according to well established case law does not constitute State aid within the meaning of Article 61 of the EEA Agreement.

Yours sincerely,

Marit Aaberg
Assistant Director General

Bjørnar Alterskjær
Adviser

Attachments:

  1. Letter from Gjensidige NOR
  2. Entra Eiendom AS - opening balance sheet and adjusted alternative opening balance sheet
  3. Odelsting Proposition No. 2 (1996-1997)
  4. Odelsting Proposition No. 82 (2001-2002)
  5. Odelsting Proposition No. 6 (2002-2003)
  6. Odelsting Proposition No. 14 (2002-2003)
  7. Odelsting Proposition No. 61 (1993-1994)
  8. Circular G-37/90
  9. Circulars G- 137/90
  10. Documents submitted by the Ministry of Petroleum and Energy concerning reimbursement of accrued document duty resulting form the reorganisation of hydropower/electricity companies