Foreign businesses assessed as partnerships (USDF)

When calculating a deduction for a management fee, the fee must be divided into a deductible management component and a non‑deductible transaction component. This follows from the Supreme Court judgment of 28 February 2018 in the so-called "Argentum case" (HR-2018-391-A). Only the portion of the fee that relates to the ongoing management of the fund is deductible, see section 6‑24 (1) of the Taxation Act. The portion that relates to the acquisition or realisation of shares (transaction costs) is not deductible, see section 6‑24 (2) of the Taxation Act.

The allocation of the fee between the deductible and non‑deductible components must be based on the manager’s actual work for the fund each year. A standard allocation or template cannot be used. The allocation must be specific and justified. It should be described in an attachment to the company tax return.

The Tax Administration assumes as a general rule that carried interest is not deductible. Carried interest is normally an excess return allocated to certain participants in the fund (profit sharing), and must be distinguished from payment of the management fee. The excess return is usually a distribution of ownership return from the fund (skewed distribution) and is not considered a deductible cost under sections 6‑1 and 6‑24 (1) of the Taxation Act.

There are exceptions. If a specific assessment of the agreement shows that the payment of carried interest is a cost related to the operation of the fund, such as a management cost, a deduction may be granted. In such cases, it must be documented that the payment is not profit sharing but a genuine cost, see sections 6‑1 and 6‑24 (1) of the Taxation Act. If you’re claiming a deduction for carried interest, please include a justification as an attachment.

When converting amounts in foreign currency, section 8‑9‑2 (3) of the Tax Administration Regulation requires the exchange rate at the end of the tax assessment period to be used. If the business has a deviating financial year, you must use the exchange rate at the end of that year instead.

The rules on limiting interest deductions apply to USDFs. This also applies where a participant is a financial institution under section 1‑3 (1) of the Financial Institutions Act and is exempt from the interest limitation rule under section 6‑41 (11) of the Taxation Act in its own tax return. For general information, see the guidance: Limitation on interest deductions.

For USDFs, the following applies in particular:

The Ministry of Finance has issued several interpretative statements on the concept of "related parties" in the interest limitation rule. In a statement dated 8 March 2016, the Ministry explained how the concept applies to limited partnerships. The Ministry considers the general partner to be a related party if they have general decision‑making authority under section 3‑9 (2) of the Partnerships Act. In such cases, all interest on loans from external lenders is considered internal interest. 

To determine whether the interest limitation rule applies to a USDF, section 3‑9 (2) of the Partnerships Act is the starting point. The assessment depends on the partnership agreement and the domestic law of the USDF’s country of establishment. If the general partner is considered to have general decision‑making authority, they’re considered a related party, and the interest limitation rule applies.

If, after a specific assessment, you believe the rule should not apply, for example, due to special contractual provisions, please provide an explanation in an attachment to the tax return.

Businesses outside a group

The topic card "Limitation of interest deduction" in the company tax return must be completed if net interest expenses exceed NOK 5,000,000, or if the business has interest carried forward from previous years. This applies to businesses that are not "companies, etc. in a group" under section 6‑41 (5) of the Taxation Act. 

Companies, etc. in a group

Companies in a group may have deductions disallowed for interest on loans from unrelated parties (external interest), as well as interest on loans from related parties, see section 6‑41 (3) of the Taxation Act. The topic card "Limitation of interest deduction" must be completed by all companies in a group unless otherwise stated in the guidance.

A USDF is also considered a group company, see section 6‑41 (5) of the Taxation Act, if the business:  

• was consolidated line‑by‑line in the consolidated financial statements for the previous year under an approved accounting standard, or
• could have been consolidated line‑by‑line in the previous year if IFRS had been applied, or
• was established in the income year and met the above criteria at the time of establishment 

Companies, etc. in a group can avoid the disallowance of external interest and interest to companies within the same group if either:  

• net interest expenses in the Norwegian part of the group do not exceed NOK 25,000,000 (the group threshold), see section 6‑41 (4) of the Taxation Act, or  
• the company applies the exemption rule at company level or national level, see section 6‑41 (8) of the Taxation Act. See Exemption for interest limitation for companies in a group.

Group companies that have interest payable to a related party outside the group may have that deduction disallowed. This is calculated using a "corrected interest amount".

To submit a company tax return on behalf of a USDF, you need a registration number from the Tax Administration.

Please attach the partnership agreement when you request a registration number. In addition, please include the following information:

• Name of the USDF
• Date of establishment
• Purpose
• Name, organisation number, address, ownership share (email if applicable) for all Norwegian participants in the USDF
• Name, organisation number, address, phone number, and email of the person responsible for submitting the company tax return, etc. for the relevant year on behalf of the USDF’s participants
• Organisation number/Norwegian national identity number (11 digits) of the person(s) who need access to submit the partner statement ,etc.

Requests for a registration number should be sent to: [email protected]

For submitting a new self‑assessment for the 2022 income year, you must use:

• RF-1215 Selskapsmelding for selskap med deltakerfastsetting (Company tax return for businesses assessed as a partnership, in Norwegian only),
• RF-1233 Selskapets oppgave over deltakerens formue og inntekt i selskap med deltakerfastsetting (The company’s statement of partner income and assets in a company assessed as a partnership, in Norwegian only),
• and other relevant RF forms.

If you have questions about submitting a new self‑assessment for 2022, you can contact the Tax Administration, see contact details below. New self‑assessments for 2023 and onwards must be submitted in the Tax Administration’s new solution, as described above.

Norwegian rules on the tax year and submission deadline apply to USDFs, see section 8‑9‑4 of the Tax Administration Regulations. If the USDF has a deviating financial year, the company tax return, etc. must be submitted in accordance with that financial year.

Annual accounts for the foreign business are a required attachment to the company tax return if the business is required to prepare accounts under the laws of its country of residence, see section 8‑9‑2 (4) of the Tax Administration Regulations. If only consolidated accounts exist, please also attach an extract of the accounts for the relevant USDF that has been used to calculate the business income.

If a participant does not receive sufficient information from the USDF before the deadline, the company tax return, etc. must be submitted based on available information. Please state in an attachment that a new company tax return, etc. will be submitted once complete information becomes available. The right to amend self‑assessments is three years.

If changes are made to the partnership agreement that mean the business should no longer be classified as a USDF, the participant(s) must contact the Tax Administration and explain the change (reclassification), see contact information below. If you’re unsure whether changes to the partnership agreement will affect the classification, you may contact the Tax Administration for guidance. The same applies if you believe the business has been incorrectly classified as a USDF. When reclassifying, you must consider withdrawal taxation under section 9‑14 (2), third and fourth paragraphs of the Taxation Act.

Please also note the right to correct errors under section 9‑4 of the Tax Administration Act, which may be used in these situations. The Act is available in Norwegian only.

When a USDF is liquidated or when an interest is realised (sold), tax matters arise that must be clarified and included in an attachment. This applies in particular to:

• Withdrawal taxation, see section 9-14 (2), second and third paragraph of the Taxation Act
• The tax exemption method, see section 2-38 (3), letters e and f, of the Taxation Act
• Correct calculation of gains and losses at the USDF level (liquidation) and at the participant level

When an interest is realised, the currency follows the underlying transaction. As a general rule, realisation of an interest is taxable, see section 10-44 of the Taxation Act. The input value is determined using the historical acquisition cost, converted into NOK at the time of acquisition, including any adjustments that follow from section 10‑44 of the Taxation Act. Currency will be included in the final value (consideration and realisation costs). For realisations covered by the tax exemption method, gains are tax‑free, and losses are not deductible. In the winding‑up phase of a USDF, there may often be some time between the main settlement and the final liquidation. During this period, the USDF may not prepare annual accounts, but the participant must still submit the company tax return, etc. If annual accounts are not prepared during the winding‑up phase and the participant has not received income from the USDF, the participant may enter 0 for income and wealth, and explain this in an attachment. Please note that USDFs cannot receive advance assessments.

If all Norwegian interests in a USDF are owned by life insurance undertakings or pension undertakings, and all interests are managed in the customer portfolio, an exemption from the rules on assessment as a partnership applies. The exemption follows from section 8‑5 (4) of the Taxation Act, which states that income in the customer portfolio must be taxed in accordance with the accounts. In such cases, a company tax return, etc. and partner statement are not required for the USDF. Even though there is no submission obligation for the USDF in these situations, the participant must still report the wealth in their own tax return.

Statutory rules on withholding tax on interest, royalty, and certain rental payments, see sections 10‑80 to 10‑82 of the Taxation Act, also apply to USDFs.

For more information on this topic, see Withholding tax on interest, royalties and lease payments.

Repayment of paid-up capital

Paid‑up capital is a tax position linked to each interest in the business, and it follows the interest when ownership changes. Repayment of paid‑up capital is not considered a taxable distribution, see section 10‑42 (4) of the Taxation Act. However, repayment reduces the input value when the interest is realised. It is therefore important that the tax position for paid‑up capital is correct. Repayment should normally not exceed the basis for repayment, so that no negative amount arises after repayment.

If there are exchange rate movements between the date the repayment decision is made and the date the funds are paid out, this is considered a foreign‑exchange change related to a receivable from the business. The currency effect is then a taxable gain or a deductible loss, see case 2003‑061OLN reproduced in Utv. 2008 p. 309. The Tax Administration specifies that the same applies in the opposite situation, when capital is paid into the business.

Distributions

For individual participants, distributions are taxed under section 10‑42 of the Taxation Act. For corporate participants, distributions are taxed under section 2‑38 (6) of the Taxation Act (the three‑percent rule). If payments from the business exceed repayment of paid‑in capital, the payments are considered distributions.

The basis for the three‑percent inclusion must be reduced by the tax payable on the participant’s share of profit under section 10‑41 of the Taxation Act, that is, the participant’s share of taxable income determined at the business level multiplied by the participant’s ordinary income tax rate, see section 2‑38 (6), letter a, third sentence, of the Taxation Act.

The calculation of taxable value is regulated in chapter 4 of the Taxation Act.  The taxable value for participants in businesses assessed as partnerships must be determined under section 4‑40 of the Taxation Act. The Tax Administration assumes that the same applies to participants in USDFs.

For the purposes of the wealth assessment, the value of an interest in a USDF must be calculated "as if the partnership was the taxpayer". Section 4‑40 further states that taxable wealth in a USDF must be calculated based on the business’s assets and liabilities, and must be done at full values without discounts otherwise provided in the chapter. The value of a participant’s interest is set at 80 percent of the USDF’s net wealth.

The taxable wealth value of the USDF is calculated based on the accounting values of assets and liabilities in the balance sheet, adjusted in accordance with Norwegian tax rules, see the guide Skatte‑ABC 2025, point S‑5‑4.26.1 Norwegian participant in a foreign business (in Norwegian only). Valuation is then carried out in line with the principles that apply to the relevant asset and liability categories in chapter 4.

Taxable net wealth in the foreign business must be converted into NOK using the exchange rate at the end of the income year, see section 8‑9‑2 of the Tax Administration Regulations.