Norway: Consequence of Tax Bill for Investments in Foreign Limited Partnerships (Corporate Tax)

Last Updated: 29 September 2005

Originally published July 1 2005

Njaal Arne Høyland and Frode Talmo


Norwegian partnerships are regarded as transparent entities for tax purposes. Therefore, the income of partnerships is taxed at the hands of the partners regardless of whether the income has been distributed. In order for partnerships established abroad to be treated as transparent entities for Norwegian tax purposes, at least one of the partners (the general partner) must have an unlimited and personal obligation for the partnership's debts, liabilities and obligations. Moreover, the general partner's ability to meet its obligations must be genuine.

In a January 2005 report, an expert tax committee proposed rules under which, from a tax point of view, it would be less advantageous for Norwegian corporate investors to invest in limited partnerships outside the European Economic Area (EEA). Had it been adopted, the proposal could have had negative consequences for Norwegian investments in limited partnerships outside the EEA. The government reviewed the committee's report and submitted a proposal for new tax rules that deviates from that of the committee on several points. Under the government's proposal, it shall not be less advantageous - from a tax point of view - to invest in foreign limited partnerships.

Expert Tax Committee's Report

The committee suggested that the 'exemption method' for taxation of income from shares should also apply where corporate investors realize ownership interest in a limited partnership. Under the current exemption method, income from shares (ie, dividend payments and capital gains) in a limited liability company is tax exempt at the hands of corporate investors. Correspondingly, corporate investors will not be entitled to deduct costs - save for any interest on debts - attributable to any share income that is tax exempt. Further, losses incurred on shares will not be deductible.

Moreover, the committee proposed that the restrictions of the exemption method in relation to cross-border investments in shares also apply to investments in foreign limited partnerships. As a result, the exemption method would not apply to realization of ownership interest in a limited partnership established in a low-tax country outside the EEA, as well as to 'portfolio investments' (ownership of less than 10%) in a limited partnership outside the EEA.

Government's Proposal

In a white paper on changes in taxes and duties in the revised budget submitted on May 13 2005, the government presented a bill which deviates from the committee's proposal. The Ministry of Finance states that, from a transparency point of view, the place where the limited partnership is established is, in principle, of no significance. According to the bill, the exemption method shall apply to corporate investors realizing ownership interest in a limited partnership, irrespective of whether the partnership is established in Norway or abroad. With regards to corporate investors in limited partnerships that hold share investments, an exemption shall apply if more than 10% of the total share value consists of investments in low-tax countries and/or portfolio investments in companies established outside the EEA. Realization of ownership interest in such partnerships will not be encompassed by the exemption method. The bill is scheduled to become effective as of the 2006 financial year.

This update provides a short outline of the situation for Norwegian corporate investors in limited partnerships, provided that the partnerships are recognized as transparent entities for Norwegian tax purposes.

Taxation of Profits and Losses in the Partnership

The taxable income is calculated at partnership level pursuant to general tax regulations. It is then allocated to investors according to their respective ownership interest in the partnership (the 'net method'). The white paper does not propose any changes regarding the ordinary income taxation.

Under the tax exemption method, income from shares in a limited liability company residing within the EEA or the European Union will be tax exempt at the hands of Norwegian corporate investors. Provided that the partnership is treated as transparent for tax purposes in Norway, the net taxable result at partnership level attributable to Norwegian corporate investors shall be adjusted so as to exempt capital gains on shares and to add costs and losses related to share income. Dividend payments shall be excluded from the net income calculation at partnership level. Instead, they will be attributed to Norwegian corporate investors directly and thus entitled to tax exemption.

The partnership's income from shares which are not subject to the exemption method (ie, share investments in low-tax countries and portfolio investments outside the EEA) will be part of the net taxable result at partnership level attributable to Norwegian corporate investors. Correspondingly, the corporate investors will be entitled to a tax deduction proportional to the partnership's losses and expenses on such investments.

Distributions from the Partnership

The Ministry of Finance supports the committee's proposal that only personal investors be taxed on distributions from a partnership. Corporate investors may still receive distributions from the partnership without taxation. This does not require any changes to the current tax rules.

Realization of Ownership Interest in the Partnership

The ministry took the basic stance that the exemption method should apply to corporate investors in connection with realization of ownership interest in the partnership irrespective of where the partnership is established. Therefore, gains resulting from the realization of ownership interest is exempt from taxation, whereas losses and expenses related to the ownership interest in the partnership are not deductible.

However, the bill contains a restriction on the applicability of the exemption method which depends on where the partnership's share investments are made: if the value of the partnership's share investments in low-tax countries and/or portfolio investments outside the EEA exceeds 10% of the partnership's total share investments, the exemption method shall not apply to corporate investors in connection with the realization of ownership interest in the partnership. If this exception applies, the realization gains will be taxable as ordinary income (at a tax rate of 28%) and any loss will be deductible for the corporate investors. Profit/loss is calculated as the difference between the sale price and the net cost price.

Under the bill, the 10% limit for the applicability of the exemption method will be assessed on the basis of the market value of the partnership's share investments at the time the ownership interest in the partnership is realized. The ministry will assess whether regulations defining the contents of this provision more precisely are needed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions