Application of the arm's length principle in section 13-1 of the Taxation Act to costs for intra-group R&D

Supreme Court 28 May 2020, HR-2020-1130-A, (case no. 19-177162SIV-HRET), civil case, appeal against judgment. 

A/S Norske Shell (Counsel Jan Birger Jansen) v. The State represented by the Petroleum Tax Office (The Office of the Attorney General represented by Anders Flaatin Wilhelmsen)

Justices: Matningsdal, Normann, Bull, Arntzen, Bergh

In connection with the tax assessment of an oil company that was part of an international group, it was assumed that the company's R&D costs in Norway should not have been deducted in their entirety, but distributed among the group companies. The extra income was estimated in accordance with section 13-1 of the Taxation Act. Parts of the costs had been charged to the company's co-licensees in production projects on the Norwegian shelf. The Supreme Court found that parts of these costs were not to be included in the extra income. It was mentioned that the distribution within the group was a cost contribution arrangement, and that a correct application of the arm's length principle that had been expressed in section 13-1 subsection 3 of the Tax Act and the OECD principles referred to in subsection 4, implied that the decision had to be based on the costs actually incurred by the Norwegian company. The order from the Petroleum Tax Appeal Board, which had relied on a different legal starting point, was set aside.

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