E-3/21 PRA Group Europe AS v Staten v/Skatteetaten


E-3/21 PRA Group Europe AS v Staten v/Skatteetaten


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Deadlines: Motivation ministry:    30 July 2021
Written observations:                    16 September 2021

Keywords : freedom of establishment; taxes

Subject :

-           Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (SCA)

-           Main Part of the EEA Agreement [Agreement on the European Economic Area];

Facts of the case:

PRA Group is a global group engaged in the acquisition of financial assets and service of debt. The group has several companies in Europe, which are owned by the holding company PRA Group Europe Holding. That company is subject to taxation in Luxembourg. PRA Group Europe Subholding AS (subject to taxation in Norway) was a wholly-owned subsidiary of the holding company PRA Group Europe Holding. PRA Group Europe Subholding AS was financed with a combination of equity and loan from the parent company. The interest expenses for the fiscal years 2014 and 2015 are related to that debt. The company did not receive any other value transfers from the parent company in 2014 and 2015. In its tax returns for 2014 and 2015 the company claimed a deduction for that debt interest, see Section 6-40 of the Tax Act. The company asserted that Section 6-41 of the Tax Act entailed a reduction in the deductible amount. Disallowed interest deductions amounted to NOK 132 969 145 for the fiscal year 2014 and NOK 11 580 008 for the fiscal year 2015, a total of NOK 144 549 153. PRA Group Europe Subholding AS was merged into PRA Group Europe AS in November 2016.

By letter of 7 December 2016, PRA Group Europe AS requested a change in its tax assessment for the fiscal years 2014 and 2015. The company contended that the limited interest deduction rule was contrary to the freedom of establishment provided for in Article 31 EEA and that Norway was under an obligation to allow a full deduction for debt interest accrued. By the Tax Office’s decision of 7 July 2017, the request for a reassessment was admitted for consideration. Following a review on the merits, the tax assessments for 2014 and 2015 were upheld. PRA Group Europe AS appealed against that decision to the Tax Appeals Board (Skatteklagenemnda) on 31 July 2017. By decision of 24 June 2020, the Tax Appeals Board, sitting in extended composition, dismissed the appeal. On 8 September 2020, PRA Group Europe AS lodged proceedings before Oslo District Court, seeking to be allowed a full deduction for accrued debt interest in the fiscal years 2014 and 2015, meaning, without the limited interest deduction rule under Section 6-41 of the Tax Act. The Norwegian Government, represented by the Tax Administration, responded by Defence of 29 October 2020, claiming that the court should find in its favour. During the preparatory stages of the proceedings, the District Court has decided to obtain an Advisory Opinion from the EFTA Court concerning the EEA law questions raised by the case.

Request for an advisory opinion:

1) Is there a restriction within the meaning of Article 31 EEA, read in conjunction with Article 34, when group contributions from Norwegian companies increase the maximum deduction for interest and thus the entitlement to deduction of interests on debt to affiliated parties under the limited interest deduction rule, a possibility which, under Norwegian tax rules, is not available for investments by or in EEA companies?

2) Is an EEA company that is in a group with a Norwegian company in a comparable situation to that of a Norwegian company that is in a group with another Norwegian company, and what significance does it have for the comparability assessment that no actual group contribution has been made from the EEA company to the Norwegian company, but rather a loan?

3) In the event that there is a restriction: Which reasons in the public interest may justify such a restriction?

Cited (recent) case-law:

Policy Area: FIN-fiscaal