Interest limitation rule contrary to the EEA Agreement
Supreme Court judgment 26 June 2024, HR-2024-1168-A, (case no. 23-155251SIV-HRET), civil case, appeal against Borgarting Court of Appeal's judgment.
The State represented by the Tax Office (The Office of the Attorney General represented by Ida Thue) v. PRA Group Europe AS (Counsel Daniel Markus Hermod Herde)
A company was financed with a loan from the parent company in Luxembourg, but only received a deduction for part of the interest expenses. The tax authorities applied the interest limitation rule for group-internal loans in section 6-41 of the Tax Act, as it read in 2015. The company argued that the rule could not be applied because it was contrary to the freedom of establishment in the EEA. Norwegian groups could avoid the limitation by receiving group contributions, which companies in foreign groups could not.
The case was submitted to the EFTA Court, which interpreted the EEA Agreement in accordance with the company's view. The State challenged the EFTA Court's view before the Supreme Court.
The Supreme Court follows the EFTA Court and rules in favour of the company. The Supreme Court agrees with the EFTA Court that the interest limitation rule in combination with the group contribution rules constitutes a special restriction on the freedom of establishment in the EEA.
The Supreme Court also follows the EFTA Court in its assessment of the proportionality of the restriction, given the weight of the EFTA Court's opinions. The consideration of securing Norwegian tax authority and preventing tax evasion cannot justify maintaining the rule without the company being given the opportunity to prove that the loan transaction was commercially motivated.
Areas of law: Tax law and EEA law, sections 6-41 and 10-4 of the Tax Act, Articles 31 and 34 of the EEA Agreement.
Key paragraphs: 49–54, 58–61, 65–72
Justices: Matheson, Ringnes, Falch, Bergh, Steinsvik