The government proposes legislating the avoidance rule in tax law

The non-statutory avoidance standard, also known as the non-statutory cut-through standard, is a non-statutory legal rule in Norwegian tax law that is used to prevent avoidance of the tax rules. The function of the rule is to draw the line between acceptable tax planning and unacceptable tax avoidance. The avoidance norm is created through practice from the Supreme Court and legal theory, and thus has the same legal rank as formal law.

Today, a non-statutory anti-circumvention standard applies with a basic condition and an overall assessment, both of which must be met in order to cut through a transaction. Both conditions are set out in Rt. 2007 p.209, also known as the «Hex judgement». The first condition is that «the main purpose of the disposal must have been to save tax».  Accordingly, it is a necessary condition for cut-through that tax savings appear to be the most important motivating factor for the disposal.

The second condition, as formulated in the «Hex judgement», is that, based on «an overall assessment of the effects of the transaction (including the commercial intrinsic value, the taxpayer's purpose of the transaction and the circumstances in general appears to be contrary to the purpose of the tax rules to use the transaction as the basis for taxation». If the basic condition is fulfilled, an overall assessment must be made in which all the purposes behind the transaction are weighed up against the purpose of the tax rules.

According to Finance Minister Siv Jensen, such an important tax rule should be enshrined in law. The Ministry of Finance has therefore submitted a proposal to the Storting to legislate on the rule. You will find a link to the proposal in its entirety (Prop. 98 L (2018-2019)) at the bottom of the article.

With the introduction of a statutory anti-circumvention standard, the two-part assessment is continued. The conditions for the new anti-circumvention rule to apply are that there is a disposition (or several related dispositions):

1. the main purpose was to obtain a tax benefit, and
2. that the transaction, after an overall assessment, is considered a circumvention of the tax rules

One proposed change is that an objective assessment of the taxpayer's purpose will now be made, where it is no longer the taxpayer's subjective motivation that will be assessed. The decisive factor when assessing the taxpayer's purpose will thus be the objective elements of the transaction assessed on the basis of what an assumed rational person would typically have had as the purpose of the transaction in question. The effects that appeared likely at the time of the transaction will also be considered. The bill also means that the purpose of obtaining a tax advantage abroad will no longer be considered a commercial motive.

The avoidance rule is proposed to be included in the Tax Act as a new section 13-2. The provision will apply to the same taxes that are regulated in the Tax Act. In addition, it is proposed that the avoidance rule shall apply correspondingly to value added tax through a reference provision in the Value Added Tax Act, cf. proposed section 12-1 of the Value Added Tax Act.

According to the ministry, the purpose of the legislation is to increase legal certainty for taxpayers. The non-statutory avoidance rule already has a preventive effect. The new proposal will contribute to a more correct and fairer distribution of the tax burden, regardless of the taxpayer's resources and access to tax advisors," says the Minister of Finance. Another main purpose behind the legislation is predictability for taxpayers.

Amendments to the Tax Act and the Value Added Tax Act (legislating a general avoidance rule)