Norway: New Decision on Refund of Withholding Tax for US RIC

In November 2024, a new decision from the Norwegian Tax Appeals Board (SKNS1-2024-97) was published regarding the refund of withholding tax for a Regulated Investment Company (“RIC”) resident in the United States. The decision implies that more shareholders may be entitled to a refund of withholding tax.

Norwegian limited liability companies distributing dividends to shareholders resident abroad are, as a general rule, required to withhold 25% withholding tax.

An important limitation on withholding tax is that dividends distributed to corporate shareholders established and conducting substantial economic activity in an EEA country fall under the participation exemption method and are therefore not subject to withholding tax. Further, the withholding tax may be reduced under the tax treaty with the country where the shareholder is resident. In such cases, a refund of the withholding tax can be claimed.

According to article 20 of the tax treaty between Norway and the United States, a company will not be entitled to the tax benefits provided by certain articles of the treaty, including the reduction of withholding tax on dividends, if the tax imposed on the corporation is substantially less than the tax generally imposed on corporate profits due to special measures. Norwegian tax authorities have previously concluded that this is the case for RICs, and therefore, they have not granted a refund of withholding tax.

However, recently the Tax Appeals Board unanimously concluded that RICs are not subject to special measures that result in a substantially lower tax being imposed by the United States, meaning that Article 20 does not apply. Hence, the withholding tax rate was reduced from 25% to 15% under the tax treaty.

The decision will influence future practice and implies that more shareholders may be entitled to a refund of withholding tax. In addition, one can apply for a refund or file a complaint for previous years. It should be noted that the Ministry of Finance may file a lawsuit against the Norwegian Tax Appeals Board and challenge the decision within six months from the decision.

For most countries, the deadline to apply for a refund of withholding tax is five years. The deadline is calculated from the end of the income year when the dividend was paid.