1 Introduction

The Norwegian Directorate of Taxes has received several questions regarding foreign businesses and their obligation to provide a SAF-T Financial file to the Tax Administration for audits.

It has also come to light that many foreign businesses find it difficult to fulfil the requirements for contents in the SAF-T file. As SAF-T Financial is only an export format that, as a general rule, requires that the recorded information be reproduced, it is necessary to clarify the requirements for bookkeeping, and whether these conditions apply in full for foreign businesses.

2 Legal basis

[The extracts of the Norwegian Acts and Regulations in this document have unofficial translations and are provided for information purposes only.]

2.1 The bookkeeping obligation

Section 2 of the Bookkeeping Act, Bookkeeping entities, subsections 1 and 2:

Anyone defined as a reporting entity in the Act of 17 July 1998 No. 56 relating to Annual Accounts, etc., shall be defined as a bookkeeping entity for purposes of the present Act.

Any legal or natural person that pursues business activities and is required to file a tax return in respect of wealth and income tax, etc., pursuant to § 8-2 of the Tax Administration Act shall be defined as a bookkeeping entity for purposes of the present Act with regard to the activities pursued. The same applies to any legal or natural person required to file a tax return in respect of Value Added Tax pursuant to § 8-3 of the Tax Administration Act. However, this shall not apply to providers that file a tax return in respect of Value Added Tax as mentioned in § 8-3, first paragraph, letter e, of the Tax Administration Act, and that would be defined as a bookkeeping entity exclusively on the basis of their obligation to file a tax return pursuant to the present provision.

2.1.1        Bookkeeping and updating

Section 7 of the Bookkeeping Act sets out that bookkeeping entities shall record all details necessary to be able to prepare specifications in relation to mandatory accounts as referred to in section 5, as well as mandatory accounts as referred to in section 3 of the Act.

More detailed requirements for the contents in specifications in relation to mandatory accounts are set out in section 3-1, subsection 1, numbers 1 to 10, where numbers 2 to 4 state the following:

2. Account specification. All accounts per period, with the account code and account name being specified in respect of each account, and with all entries being presented in the appropriate order with documentation date and documentation reference, other relevant processing codes, as well as opening and closing balances. Input and output Value Added Tax shall also be capable of being specified per transaction.

3. Customer specification. All transactions with customers per period, with specification of the customer’s code and name, and with all entries being presented in the appropriate order with documentation date and documentation reference, as well as opening and closing balance.

4. Supplier specification. All transactions with suppliers per period, with specification of the supplier’s code, name and enterprise registration number, and with all entries being presented in the appropriate order with documentation date and documentation reference, as well as opening and closing balance.

2.1.2        Requirement regarding electronic availability for recorded details

Recorded details that are available electronically to begin with shall be available electronically for three years and six months after the end of the financial year, see section 13b, subsection 1 of the Bookkeeping Act.

In section 7-7, subsection 3 of the Regulations relating to Bookkeeping, the following exemptions are set out:

Bookkeeping entities with a turnover of less than NOK 5 million, exclusive of Value Added Tax, are exempted from the requirement in
§ 13b of the Bookkeeping Act for the electronic availability of recorded details. When a bookkeeping entity that falls outside the scope of the first sentence is liquidated, recorded details shall be kept electronically available for no less than 6 months after the liquidation of the enterprise.

2.1.3        Requirements to be able to reproduce recorded information in standardised form

Section 7-8, subsections 1 and 2 of the Regulations relating to Bookkeeping states the following:

Bookkeeping entities that are required to keep recorded details electronically available under section 13b of the Bookkeeping Act shall be able to reproduce recorded details in standardised form. This requirement also applies to bookkeeping entities that fall within the scope of the exemptions in section 7-7, subsection 3, but nonetheless have recorded details electronically available.

The Directorate of Taxes determines the contents and format for the reproduction of electronically recorded details in standardised form.

The SAF-T Financial standard was established by the Directorate of Taxes on 23 March 2018.  The obligation came into effect for accounting periods starting on 1 January 2020 or later. The first version of SAF-T Financial is limited to the account specification (general ledger), including customer and supplier specifications, including the necessary master data.

2.2 Accounting and bookkeeping obligations

2.2.1 Foreign businesses with an accounting obligation in Norway

Foreign enterprises that engage or participate in activities in Norway or on the Norwegian continental shelf, and that are liable to tax in Norway under internal Norwegian law, have an accounting obligation, see section 1-2, subsection 1, number 13 of the Accounting Act. Enterprises that, pursuant to a tax treaty, have a permanent establishment in Norway meet these conditions. The bookkeeping obligation follows from section 2, subsections 1 and 2 of the Bookkeeping Act.

The foreign business may also pursue business activities that will trigger an obligation to register in the Value Added Tax Register, which in itself entails a bookkeeping obligation, see section 2, subsection 2 of the Bookkeeping Act.

As an accounting entity, the enterprise must prepare annual accounts and an annual report for the Norwegian enterprise pursuant to the rules in the Accounting Act.

2.2.2 Foreign businesses without a place of business in Norway

As for other businesses, the obligation to register in the Value Added Tax Register arises once the sum of supplies and withdrawals covered by the Value Added Tax Act exceed NOK 50,000 during a twelve-month period, see section 2-1, subsection 1 of the Value Added Tax Act.

Foreign businesses with no place of business or residence in Norway shall be registered in the Value Added Tax Register through a representative, see section 2-1, subsection 6 of the Value Added Tax Act.

From 1 January 2017, businesses domiciled in an EEA state with which Norway has entered into a treaty regarding the exchange of information and collection of value added tax (VAT), can choose to register without a representative. The same applies to businesses in the United Kingdom.

The bookkeeping obligation follows from the obligation to submit a VAT return, see section 2, subsection 2 of the Bookkeeping Act, and the obligation applies regardless of whether the foreign business is registered through a representative.

In connection with the entry into force of the Bookkeeping Act and Regulation, changes were made in Regulation of 31 March 1977 No. 4933 (No. 71) – Registration of foreign business through a representative, etc. to the previous Value Added Tax Act. Following the changes, section 5 of the Regulation clearly set out that the foreign business’ accounts for turnover were to be kept in compliance with the provisions of the Bookkeeping Act. Furthermore, it was stated that the foreign business and its representative were both responsible for ensuring compliance with the bookkeeping obligation set out in section 2, subsection 2 of the Bookkeeping Act.

In their statement of principle of 21 April 2006, merverdiavgiftsrepresentasjon - bokforingspliktens omfang (in Norwegian only), the Directorate of Taxes issued a statement regarding the scope of the bookkeeping obligation relating to value added tax representation. As both the foreign business and the representative are responsible for complying with the bookkeeping rules, most of the statement applies to both parties.

The statement sets out that the requirements to bookkeeping are somewhat extended compared to the previously applicable requirements pursuant to Regulation No. 71. This concerns, amongst others, the requirement for specifications. The following is a translation of an extract from the statement:

The Directorate of Taxes notes that it is not only the specification of value added tax that is of consequence for the reporting of value added tax. Some of the specification requirements will facilitate general audit purposes, including for calculating tax. For example, the account specification can be the starting point for audits of the specification of value added tax, the customer and supplier specification a starting point for audits against account requests, etc.

Regarding the specification of sales and distribution to owners, senior executive officers, etc. see section 5, subsection 1, numbers 5 to 7, of the Bookkeeping Act, the obligation is naturally limited by whether such sales or distributions actually take place from the Norwegian enterprise. If this is not the case, the specification requirement will be limited to the bookkeeping specification, account specification, customer and supplier specification as well as the specification of value added tax, see section 5, subsection 1, numbers 1 to 4 and subsection 2, number 1 of the Bookkeeping Act.

The Directorate of Taxes also stated that it would be natural to limit the representative’s bookkeeping obligation to the part of the legislation that is of consequence for the reporting pursuant to the Value Added Tax Act. This means that, for example, account reports of deducted tax will be excluded, unless the representative has taken on the responsibility to pay out amounts subject to withholding tax on behalf of the foreign business.

2.2.3 Summary

Foreign businesses carrying out activity in Norway have a bookkeeping obligation pursuant to section 2 of the Bookkeeping Act. Whether the foreign business is obliged to register in the Value Added Tax Register through a representative is of no consequence for the foreign business’ bookkeeping obligation. If the foreign business only has mandatory accounts in Norway in the form of a VAT return, the bookkeeping obligation will naturally be limited to information reported in this tax return, as well as to the relevant specifications.

2.3 Information to be recorded

Requirements for the contents of mandatory accounts, for example, annual accounts and the VAT return, and specifications of mandatory accounts are decisive for which information must be registered in the accounts, see section 7, subsection 1 of the Bookkeeping Act. Some of the information must be registered on an ongoing basis for each transaction, while other types of information are registered when creating an account, a customer relationship, etc.

Examples of information that must be registered on an ongoing basis in the accounts to meet the requirements for content in the account specification and customer and supplier specification are:

• All transactions, that is, sale and purchase transactions and payments, ref. NOU 2002:20 New bookkeeping act, point 6.4.1.
• Documentation reference
• Documentation date

Opening and closing balances per period must be stated on the account level in the account specification and for each customer and supplier in the customer and supplier specification.

2.4 Requirements for electronic availability of recorded details

Section 13b of the Bookkeeping Act sets out the requirement that recorded details that are available electronically to begin with shall be available electronically for three years and six months after the end of the financial year. This is a requirement for electronic availability and comes in addition to the requirement for storage, which is five years, see section 13, subsection 2 of the Bookkeeping Act, see also subsection 1 number 2. In the bookkeeping standard Norsk BokføringsStandard (NBS) no. 3 regarding electronic availability for 3.5 years, point 9, the connection between electronic availability and electronic storage is discussed. The following is a translation of an extract from this standard:

«Pursuant to section 13, subsection 1, number 2 of the Bookkeeping Act, the bookkeeping entity may choose between
- storage of completed specifications of mandatory accounts on paper or as completed report files, or
- electronic storage of recorded details that are required to prepare specifications of mandatory accounts, with requirements for the closing of accounting periods, see section 7-6 of the Regulations relating to Bookkeeping and the section relating to safeguarding in NBS 1, Sikring av regnskapsmateriale punkt 8 (in Norwegian only).

Regardless of the chosen alternative, the bookkeeping entity must comply with the requirements for storage of recorded information or specifications for mandatory accounts, as well as the requirements for electronic availability. These are two different provisions with different purposes and different requirements for storage time, storage place, safeguarding, etc. The requirement for electronic availability for 3.5 years is not a storage rule but an additional requirement to facilitate verification through an IT-based analysis of the recorded details.

In cases where the bookkeeping entity stores complete specifications of mandatory accounts, the storage of specifications and electronic availability means that two different data sets are stored (reports and raw data), subject to different requirements. If the bookkeeping entity chooses storage of recorded information and does not prepare specifications for mandatory accounts on an ongoing basis, the requirements for both storage and electronic availability must be met for the same data sets.»

Regarding the exemption from the requirement to keep recorded details electronically available, we refer to the statement in point 2.1.2.

2.5 The requirement to be able to reproduce recorded information in standardised form – SAF-T Financial

2.5.1 General information

As discussed in point 2.2, foreign businesses carrying out activity in Norway have, as a general rule, a bookkeeping obligation. Special exemptions have not been stipulated for the requirement to be able to reproduce recorded details in standardised form for foreign businesses.

The requirement to be able to reproduce recorded details in standardised form is linked to the requirement for electronic availability, but there is an important difference. Even if the bookkeeping entity is not required to keep recorded details electronically available, for instance because the turnover is less than NOK 5 million, the requirement of SAF-T Financial also applies while the details are electronically available, see section 7-8, subsection 1, second sentence of the Regulations relating to Bookkeeping.

It is presumed that most enterprises keep electronic accounts and stores their accounting materials electronically, regardless of the size of the turnover. The enterprise will then be required to be able to reproduce recorded details in standardised form.

In the following comes a further description of some of the challenges the foreign business is faced with when it has an obligation to meet the requirements for SAF-T Financial.

2.5.2 The bookkeeping takes place abroad as an integral part of the main company’s bookkeeping

When bookkeeping is handled from abroad, without separate bookkeeping for the Norwegian enterprise, this may increase the risk of not fully complying with Norwegian bookkeeping rules for the Norwegian part.

One example could be that the requirement for traceability, see section 6 of the Bookkeeping Act, is not complied with for the Norwegian enterprise, when seen separately. This can take place if transactions concerning the Norwegian enterprise are included in the same number series as the foreign activity.

It is a fundamental prerequisite that multiple bookkeeping entities cannot share the same number series (identification code), see also mention in the section about audit trails in NSB, Kontrollsporet, no. 2, point 2.3.1. Below is a translation of an extract:

Multiple bookkeeping entities cannot share the same series of identification codes

The identification of recorded details must be conclusive for each bookkeeping entity so that it is not possible for multiple bookkeeping entities to share series of identification codes (for example, in a group). The use of shared series of identification codes poses problems with regards to the verification of the completeness of the documentation. Each bookkeeping entity's accounts must be verifiable. If multiple bookkeeping entities use the same series of identification codes, it will no longer be possible to check the completeness of the documentation with each bookkeeping entity’s accounting materials as the starting point.

Even if the Norwegian enterprise is included in a bookkeeping entity abroad, systems must be put in place to ensure that the requirement for an audit trail is met for the Norwegian entity with a bookkeeping obligation. This can be achieved by the use of a separate number series for the transactions and dispositions in the Norwegian enterprise, which can be an addition to the number series shared with the foreign enterprise.

Another challenge with this type of integrated bookkeeping is that information in the customer and supplier specification applies to both the foreign and Norwegian part of the enterprise (the same customers and suppliers). This may result in the need for system adjustments to meet the Regulations relating to Bookkeeping’s requirement for content in the specifications, see also that the specifications must contain the opening and closing balance. The opening and closing balance per customer and supplier is part of the master data in the SAF-T file.

A SAF-T file must contain information about the Norwegian enterprise. Accounts that do not have unbroken number series for the Norwegian enterprise or that do not show opening and closing balances for the Norwegian enterprise, do not meet the requirements set out in the bookkeeping legislation. A SAF-T file based on such accounts therefore does not meet the requirement for content in the SAF-T file.

There have been instances where the Norwegian Tax Administration has requested a SAF-T file from the Norwegian enterprise for audit purposes but been informed that no separate accounts have been kept for the Norwegian enterprise. To perform the audit, it has been accepted that the enterprise submit a SAF-T file that also contains information from the foreign enterprise. From this solution follows two facts: that the Norwegian enterprise has not fulfilled its bookkeeping obligation to the full extent, and that the Tax Administration will receive more data than necessary. For the future, the enterprise must facilitate the bookkeeping so that the requirement for an audit trail is met for the Norwegian enterprise, when seen separately.

It is noted that there is no requirement for the SAF-T file to be generated by the accounting system. It is permitted to use a third party that offers SAF-T conversion.

2.5.3 The accounting takes place in Norway, but does not include payment transactions

Another issue that has been brought up, is connected to bookkeeping in Norway through a representative, see section 2-1, subsection 6 of the VAT Act. The representative prepares simple tax accounts based on the invoiced turnover (outgoing invoices) and incoming invoices. These tax accounts are used as the basis for the VAT return. Customer and supplier specifications are created, but not a separate bank account for the Norwegian enterprise. The payments are deposited to the main company’s bank account and included in their customer and supplier specification, and it is not recorded in the Norwegian «tax accounts».

The Directorate of Taxes notes that accounts that are not complete in terms of payment transactions, do not meet the requirements for bookkeeping, see the statement in point 2.3 above. A SAF-T file based on this type of accounts will be less suitable for audits, as it cannot be verified that the invoices forming the basis for the VAT return actually are paid. The information in the customer and supplier specification will show an increasingly higher opening and closing balance, not the actual receivables and debt.

One possible solution is that the representative is sent information on payments relating to the Norwegian enterprise from the main company. These amounts may then be recorded with the correct date and amount and be included in the customer and supplier specification. The basis for the bookkeeping can, for example, be a «list of payments» from the main company stating the relevant transactions for the Norwegian enterprise, including the period’s bank statement. The counter account for the entries will be the main company’s bank account/supplementary account. The deadline to enter these transactions into the accounts will be within the ordinary deadlines for updating, see section 7 of the Bookkeeping Act.

Summary:

When the foreign business meets the requirements set out in the bookkeeping rules, it will not be difficult to meet the requirements for content in the SAF-T Financial file.