Ramme Farm - no right to deduction
Supreme Court judgment 19 December 2022, HR-2022-2404-A, (case no. 22-042196SIV-HRET), civil case, appeal against judgment.
A (Counsel Bettina Banoun), NHO Reiseliv (intervener) (Counsel Hugo Pedersen Matre), Norges Gründerforening (intervener), SMB Norge (intervener) (Counsel Nicolay Skarning) v. The State represented by the Tax Office (The Office of the Attorney General represented by Gøran Østerman Thengs) (Assisting counsel: Karen Mellingen)
The owner of a large property in Vestby completed an extensive construction project on the property in 2011-2020, including the construction of a hotel and museum complex. The Tax Office decided on a refund of input VAT of close to NOK 104 million and an income increase of around NOK 43 million, on the grounds that the investments in the project were so large that it was not possible for the operation to make a profit. The Supreme Court, like the Court of Appeal, concluded that the tax office's decision was valid. It was assumed that there is a requirement of surplus capacity for an activity to be considered a business according to section 5-1 of the Taxation Act and to give the right to deductions according to section 6-1. In the same way, an activity must have the ability to turn a profit to be considered a business and give the right to a deduction for input VAT according to section 8-1 of the VAT. The requirement of a profit also applies to private museums. The requirement of ability to turn a profit also applies to capital income. The tax authorities had not gone too far in reviewing the taxpayer's own assessments. The case involved large amounts, and the activity was financed with equity. The tax authorities then had an objective need to investigate more thoroughly whether an ability to turn a profit existed. When assessing this, account must be taken of the return on contributed equity, and depreciation must be carried out. Much suggested that a period of up to 10 years must be used for the assessment. Based on the undertaking's own forecasts, however, it had to be assumed that a profit would only be achieved after a significantly longer period than that. The requirement of ability to turn a profit in the long term was then not met, so that the undertaking had no right to a deduction under section 6-1 of the Taxation Act or section 8-1 of the VAT Act. The appeal against the Court of Appeal's judgment was dismissed.
Read the judgment (Norwegian only)
Area of law: Tax law
Key paragraphs: 63, 80, 86, 96, 102-103, 108-109, 127, 146
Justices: Indreberg, Falkanger, Kallerud, Steinsvik, Sæther