Right to deduct import VAT when importing goods that the seller will install in the buyer’s facility in Norway?

Statutory references : Value Added Tax Act § 8-1, §3-29, § 11-1 first paragraph.

1. The matter applies (see preamble)

2. [Document list]

3. The case relationship

3.1.  Submitter’s request for BFU

A AS (hereafter also “Submittor”) v/ lawyer B (Advocate firm C AS) submitted a request for BFU on 4 January 2023.

In the request, the submitter has provided the following information about the case:

« 2 BACKGROUND

            The Tax Office can use the following fact as the basis for its binding preliminary opinion:

• A is part of a recently established group with activities within the development, production and sale of […]. The ambition is to be able to offer […] solutions on an industrial scale.
• A is normally registered in the VAT register. A will build and operate a production facility [Location in Norway], “A’s production facility”, for the production of […], and has an ambition to be able to start production during 2024.
• In connection with the construction of A’s production facility, A shall use various foreign suppliers for the delivery and installation of goods in and at the facility in Norway. A is in negotiations with D regarding D’s delivery and installation of goods to the facility. After assembly, the goods will form part of the production equipment for the production of […]. The type of goods to be delivered is not specified in the existing draft contract, but it is clear between the parties that D will deliver goods and will, under the same contract, undertake the installation of the goods in Norway. The installation work will be carried out by D using its own employees, hired personnel or subcontractors, and D must be registered in the VAT register for the supply of goods and services to be carried out in accordance with the contract with A.
• The goods to be delivered will be sent to Norway from abroad. The agreed terms for delivery will be DAP […], which means that the goods must be delivered at A’s facility [Place in Norway], but so that A will be responsible for import taxes, including import value added tax, and therefore must be indicated as the recipient of the goods in the import declarations.
• According to clause 22.1 of the contract, ownership of the delivery will be transferred from D to A continuously as the delivery is performed (“Title to the Contract Object shall pass to Company progressively as the Work is performed” ). This means that the formal ownership of the goods will have passed to A before they arrive in Norway.
• According to clause 20.2 of the contract, payment shall be made in accordance with the fulfillment of various milestones specified in Appendix B (” Unless otherwise prescribed in Appendix B, the following provisions apply to invoicing: a) The Contract Price shall be payable to Contractor upon Contractor’s achievement of the payment milestones set out in Appendix B”).
• According to clause 19.1 of the contract, takeover must take place when the delivery has been completed and tested in a way that confirms that it is contractual (“Take-over of the Contract Object occurs when the parties jointly, upon Contractor’s request, conclude a Take-Over Certificate when: a ) the Take-Over Date has been reached, and b) the Contract Object has been mechanically completed and commissioned, has passed the tests specified in the Contract, and is ready for take-over”) . In practice, this means that takeover takes place after the product has been installed and tested at As’s facility in [Location in Norway].
• According to clause 29.1 of the contract, A will have responsibility and risk for loss and damage that occurs from the start of the delivery until the handover (“lf loss of or damage to the Contract Object occurs between the start of the Work until the time when the Take-Over Certificate has been signed or should have been signed in accordance with Art. 19.1 and 19.2, Contractor shall carry out necessary measures to ensure that the Work is completed in accordance with the Contract. The same applies if any loss of or damage to Materials occurs while they are under the Contractor’s safekeeping or control”) .
• According to clauses 31.1 and 31.2 of the contract, A must insure the goods until […] (“… the Contract Object, Materials against physical loss or damage (including during transportation) until their arrival and successful unloading at Company’s Site”), and A from this time (“…covering the Contract Object and Materials against physical loss or damage from their arrival and successful unloading at Company’s Site”) . According to clause 29.2 of the contract, D’s liability for loss and damage to the goods during the period the goods are to be insured by A will be limited to the deductible under the insurance of A, provided that there is cover for loss and damage(“Contractor’s liability for such costs for any one occurrence is, however, limited to deductibles for the insured’s own risk under the Company’s insurance policy set out in Art. 31.1 b), provided that the loss or damage is covered by such insurance policy”).

In point 3 of the request, it appears that the Submitter wants the following answered in a binding advance statement:

« 3 THE QUESTION WHICH IS DESIRED CLARIFIED

On the basis of the facts as described in point 2, we ask the tax office to answer the following questions in a binding preliminary statement to A:

1. Will A have the right to deduct import value added tax on the goods that are imported into Norway to be included in the delivery from D to A in Norway in accordance with the contract, if A is indicated as the recipient of the goods in the import declaration to the customs authorities, cf. VAT. §§ 8-1 and 15-10?”

3.2. The Tax Office’s BFU

The Tax Office submitted the BFU in the case on 1 February 2023 with the following conclusion:

“A AS will not be entitled to a deduction for calculated import value added tax on goods to be assembled in the production facility for […] even if the company is indicated as the recipient of the goods in the import declaration to the customs authorities, cf. the Value Added Tax Act § 8-1.”

In the BFU, the tax office made the following assessment:

« The Tax Office’s assessments

The Tax Office shall, on the basis of the Submitter’s description of the facts, and the assumptions made, decide in the following whether A AS (“A”) will have the right to deduct import value added tax on the goods imported into Norway to be included in the delivery from D (” D”) to A in Norway in accordance with the contract if A is indicated as the recipient of the goods in the import declaration to the customs authorities, cf. VAT Act § 8-1.

For the record, it is noted that no decision is taken on any other tax issues or problems that may arise from the transaction(s) outlined beyond the issues discussed below. The Tax Office assumes that the premises and facts described above are complete for the questions being discussed. 

If A is indicated as the recipient of the goods in the import declaration to the customs authorities, the company, as declared recipient, will be obliged to calculate and pay import value added tax, cf. §§ 3-29 and 11-1 first paragraph. We also refer to the Tax Directorate’s principle statement of 20 March 2018.

A registered taxable person is entitled to a deduction for input VAT on acquisitions of goods and services that are used in the registered business, cf. § 8-1. Input VAT also includes VAT that accrues when importing goods, cf. section 1-3 first paragraph letter f.

Through legal practice, it is assumed that the acquisition must be relevant to the business and have a sufficiently natural and close connection to it to give the right to a deduction. The decisive criterion – both for connection and assignment – is whether the individual acquisition is “relevant to and has a natural and close connection to the taxable activity”, cf. Rt-2012-432 (Electricity purchase) section 43.

Whether the conditions for the right to deduct are met further depends on the conditions at the time of acquisition, here the time of importation, cf. Rt-2006-293 (Arves Trafikkskole) section 33.

The question is thus whether the goods, at the time of importation , can be considered “for use in” A’s registered business, or whether the goods will instead be for use in D’s business.

The Tax Office notes at the outset that, on a general basis, there is no requirement for ownership of imported goods in order for the goods to be used in the declared recipient’s registered business. This may, for example, be the case when an item is imported for maintenance or repair, for later re-export to the owner abroad. Whether an imported good can be considered for use in the declared recipient’s business, when the declared recipient is not also the goods owner, comes to the fore in particular if the imported good is to be used in the VAT area by the actual owner of the goods. In such cases, it may be that there will only be a natural and close connection between the importation and the goods owner’s use of the goods – without there being a corresponding, sufficient connection between the importation and the declared recipient’s business. As the tax office sees it, it is established practice that the importation of goods for use in taxable turnover in Norway must be considered for use for the seller’s business. This means that the goods, at the time of importation – before the goods have been delivered to the buyer – are not for use in the buyer’s business.

In the Tax Directorate’s message 6/82 no. 8, a letter from the Tax Directorate dated 25 November 1981 is reproduced in which the following was stated about the right to deduct import value added tax:

“Foreign company that has entered into acontract for the delivery and installation of a plant in this country is subject to tax for the entire contract delivery. This means that all imports of goods must be carried out in the name of the foreign company. If this is omitted, one should be prepared that problems may arise in the form of double taxation on imported goods, or that a refusal to deduct import duty paid may be discussed with the client. The principal who acts as the goods owner vis-a-vis the customs authorities in cases of this nature is therefore considered to be basically only making a payment of the VAT on behalf of the foreign company. The parties must therefore be prepared to have to make corrections in tax settlements that are arranged by direct importation of the goods in the client’s name,

The Oslo district court’s decision in UTV-2017-1235 concerned the question of whether a foreign company that sold, delivered and installed interior solutions for Norwegian restaurants, bars and the like was liable to tax for contracts entered into with Norwegian clients that included both the supply of goods and installation services. The Norwegian customers had here paid import value added tax for the goods. The delivery of the goods and services was agreed in one order confirmation without any splitting of contracts. The goods and services were invoiced at the same time, settlement took place in installments where the last part of the settlement took place after assembly had been carried out. The court agreed with the Board of Appeal’s decision that VAT should be paid on the entire contract delivery, where the following was stated:

“Where the delivery of an item includes assembly and repair of the item in Norway, the item will only be deemed to have been delivered in accordance with the contract when it has been assembled by the supplier. In such cases, it is often agreed that full payment will only take place after installation. As contractual delivery is only completed when the goods have been assembled, this means that both the assembly of the goods and the sale itself are considered domestic taxable turnover. This means that the seller must calculate VAT on the entire contract basis through his representative.

In such cases, the seller/supplier must also clear the goods through their Norwegian representative, so that the seller can receive a deduction for import value added tax.

Where assembly of the goods is agreed as an additional service to the main delivery, that is in a separate agreement that only covers assembly, duty will only arise on assembly services delivered in Norway. This assumes that the goods themselves are delivered via a pure export sale into Norway, on an independent basis. According to this, assembly cannot be a delivery condition for the delivery of the goods – which will lead to domestic tax liability for the entire contract delivery.”

Under the VAT handbook’s discussion of the Tax Directorate’s report AV no. 6/82 on p. 147, reference is also made to the Tax Appeals Board’s decision in SKNA1-2018-72 on the import and assembly of prefabricated modular houses in Norway. The delivery consisted of both elements and setting up the buildings. The delivery was considered contractually delivered when the building was erected in accordance with the contract. Payment of a certain percentage of the contract sum was agreed as the work progressed, until final takeover. Here, too, the Tax Appeals Board briefly states that the way the parties had arranged themselves contractually meant that the foreign company should have calculated and reported value added tax on the entire contract consideration. The result of how the parties have aligned themselves contractually is basically a risk that rests with the contracting parties.

According to the tax office’s assessment, the goods in this case will, at the time of importation, only be used in D’s activities as a seller. The imported goods will be for direct, actual use for the seller’s delivery to A. Only later, in the case of contractual delivery in Norway, will the goods be transferred to A and be used in the buyer’s business. At the time of import, however, the goods are the seller’s property and only for use in the seller’s own transaction. Deductible use at the hands of the buyer, in other words, only occurs in the next transaction stage.

At the time of import, the goods are not contractually handed over to A. According to the contract, the goods are handed over from D to A only when the delivery has been completed and tested in a way that confirms that it is in accordance with the contract, cf. clause 19.1 of the agreement. At the time of importation, the goods are therefore exclusively for use for the seller’s business of selling goods and installation, an activity which, according to the information, will entail a registration obligation in the VAT register for D. The use of the production equipment for the production of […] will only be able to take place after handover.

The tax office’s conclusion is that, based on the circumstances at the time of importation, the VAT incurred when importing the goods must be assigned to D’s sales activities, and not to activities in A. The import VAT will therefore not be deductible for A, even if the company is set as the declared recipient of the goods.

Conclusion

A AS will not be entitled to a deduction for calculated import value added tax on goods to be assembled in the production facility for […] even if the company is indicated as the recipient of the goods in the import declaration to the customs authorities, cf. the Value Added Tax Act § 8-1.”

3.3. Processing of the case at the secretariat of the Tax Appeal Board

Submitter, lawyer B (Law firm C AS) complained to the tax office’s BFU in a letter of complaint dated 15 March 2023.

The secretariat for the Tax Appeals Board received the case documents together with the tax office’s statement on 28 March 2023.

The Secretariat sent a draft recommendation for inspection to the Submitter’s representative on 16 May 2023. The Secretariat received a letter from the Submitter on 1 June 2023 in which comments were submitted to the Secretariat’s draft recommendation.

4. Submitter’s statements

In writing dated 15 March 2023, the Applicant submits the tax office’s binding preliminary statement of 1 February 2023 to the Swedish Tax Appeal Board. In the complaint, reference is made to the facts as presented in the request. About the legal assessment, the Submitter writes the following:

« 2.3. Our comments on the tax office’s assessment

2.3.1 Legal starting point

The starting point is that sales and importation of goods are subject to VAT, cf. VAT. §§ 3-1 and 3-29, cf. 1-1. When importing, it is the person liable to declare according to the Customs Duty Act who is obliged to calculate and pay the value added tax, cf. VAT. § 11-1(1) and the Customs Duty Act §§ 2-3(1), cf. 9-2(1). The person liable to declare according to the Customs Duty Act is “the person who delivers a declaration in his own name, or the person on whose behalf the declaration is delivered” , cf. Customs Duty Act § 1-2(a). This means the person indicated as recipient of the goods in the customs declaration, cf. Prop. 237 L (2020-2021). The duty to calculate and pay VAT on importation is therefore not linked to risk or ownership of the goods or the conditions for delivery of the goods.

If the declared recipient of the goods is registered in the VAT register, the import VAT must be reported in the tax return for value added tax (the VAT return) for the taxation period that includes the customs clearance date on the declaration, cf. sktfvl. 8-3 (1)(a), cf. Section 11-1(1) and the VAT handbook (2022) point 15-9.3. The tax subject will have the right to deduct the import value added tax in the same VAT return as it is calculated if the imported goods “are for use in the registered business”, cf. § 8-1, and the import value-added tax can be documented with an import declaration and basic documentation linked to such a declaration according to the goods transport regulations § 7-5-1(1), cf. VAT. § 15-10 and the bookkeeping regulations § 5-5-2, cf. the value added tax regulations (fmva.) § 15-10. There is therefore a special requirement for documentation in order to be able to deduct import value added tax.

A is registered in the VAT register and will therefore calculate and report the import VAT in his VAT return to the tax authorities. The question is whether A will be able to claim a deduction for the import tax in the VAT return.

A will be listed as the recipient of the goods in the customs declaration and will thus be authorized to claim a deduction for the import value added tax. The question is whether the substantive conditions for the right to deduct have been met. These are laid down in mval. § 8-1 where it is stated: 

“A registered taxable person is entitled to a deduction for input VAT on acquisitions of goods and services that are used in the registered business.”

As mentioned, A is a registered tax subject. The decisive factor is therefore whether the goods ” are for use in the registered business” . This condition is, in accordance with fixed and long-standing practice, understood to mean that the procurement must be “relevant to the business and have a sufficiently natural and close connection to it” , cf. HR-2021-2025-A section 36 with reference to previous case law. Furthermore, the assessment of whether the conditions for the right to deduct have been met must be assessed based on the conditions at the time when the business acquires the goods or services, cf. HR-2021-2025-A section 37 with reference to previous case law.

 2.3.2 Ownership of the goods is not a requirement for there to be a right of deduction

In our opinion, the tax office has wrongly based a claim on ownership of the goods in order for there to be a right of deduction. On page 9 of the binding preliminary statement, it does appear from the tax office’s assessments that:

“[t]he tax office notes at the outset that, on a general basis, there is no requirement for ownership of imported goods in order for the goods to be able to be used in the declared recipient’s registered business.”

The Tax Office thus seems to first establish that ownership of the goods is not a condition for the right to deduct. A agrees with this. What is decisive for the right of deduction is whether the importation of the goods is relevant to and has a sufficiently natural and close connection to A’s registered business, cf. VAT. Section 8-1.

Despite the fact that the tax office initially assumes that ownership is not a condition for the right to deduct, it appears from the assessment on page 11 of the binding preliminary statement that the tax office nevertheless considers ownership to be a condition for the right to deduct:

“According to the tax office’s assessment, the goods in this case, at the time of importation, will only be used in D’s activities as a seller. The imported goods will be for direct, actual use for the seller’s delivery to A. Only later, in the case of contractual delivery in Norway, will the goods are transferred to A and be used in the buyer’s business. At the time of importation, however, the goods are the seller’s property and only for use in the seller’s own transaction. Deductible use at the buyer’s disposal, in other words, only occurs in the next stage of the transaction.

The goods are not contractually handed over to A at the time of importation . According to the contract, the goods are only handed over from D to A when the delivery has been completed and tested in a way that confirms that it is in accordance with the contract, cf. clause 19.1 of the agreement. At the time of importation, the goods are therefore exclusively for use for the seller’s business of selling goods and installation, an activity which, according to the information, will entail an obligation to register in the VAT register for D. The use of the production equipment for the production of […] will only be able to take place after handover.” (our underlines)

As support for its assessment, the tax office refers to the Tax Directorate’s tax report 6/82 no. 8, the Oslo district court’s judgment in TOSLO-2016-128840 (Interieur Design BV) and SKNA1-2018-72. A does not agree with the tax office that these sources support the tax office’s application of law. These sources say that a foreign supplier who supplies and assembles/installs goods in Norway will be liable for tax for the entire supply, that is to say both for the supply of goods and the supply of assembly/installation in Norway. Such a registration obligation etc. for the foreign supplier is, however, irrelevant to the question of whether A has the right to deduct the import value added tax. Neither TOSLO-2016-128840 nor SKNA1-2018-72 contains an assessment of the right to deduct import VAT, and therefore provides no support for the tax office’s view. What is decisive is whether the importation of the goods is relevant to and has a sufficiently natural and close connection to As’s registered business, cf. VAT. Section 8-1.

A cannot see that there is any legal basis for interpreting a claim for ownership of the goods, as the tax office has done. Reference is made in this context to the legal sources to which reference is made in the request for a binding prior opinion:

• The Norwegian Tax Administration’s tax report 6/82 no. 8 states that the right to deduct VAT calculated and paid on import requires that the goods are used in the business of the person who is declared as customs debtor. The tax notice does not state that there is also a requirement for ownership of the goods upon importation in order for there to be a right of deduction.
• The Board of Appeal’s decision of 27 April 2009 (KMVA 6333) certainly seems to assume that tax notice 6/82 no. 8 implies that a requirement is to be interpreted that the person who claims a deduction for the import tax must also be the owner of the goods in order for the right of deduction to exist . However, the facts of the case indicate that, regardless of ownership, the goods were not for use in the taxable person’s business, and therefore cannot be given any significant weight in favor of the tax office’s understanding of the law.
• • The Tax Directorate’s binding advance statement of 27 September 2012 shows that the Directorate has in all cases abandoned such a point of view as the Board of Appeal derived from tax notification 6/82 no. 8. The question in the case was whether the owner of a data center in Norway had the right to deduct import value added tax on servers that were introduced to Norway to be placed and operated in the data center by the owner of the data center. The owner of the servers was resident abroad. The directorate concluded that the owner of the data center had the right to deduct the import value added tax because the servers were for use in the data center owner’s registered business of operating the servers, cf. § 8-1, regardless of whether the servers were owned by others.
  • It is assumed in legal theory that there is no legal basis for establishing a claim for ownership of the goods in order for there to be a right of deduction for import VAT, cf. VAT commentary (2016) pages 525-529 and Dyrnes, Mikelsen, Value added tax in an international perspective (2017), chapter 10.4.

  The Tax Office’s justification for a demand for ownership seems to be that the goods “at the time of importation, [will] only be for direct, actual use” for D’s business as a supplier to A because D is the owner at the time of importation and A becomes the owner only when the goods are delivered, cf. page 11 of the preliminary statement. This clearly expresses a restrictive interpretation of the condition for the right to deduct, for which there is no source of law. Firstly, it is not the case that the goods cannot be considered to be for use in A’s registered business because the goods are for use in D’s registered business. This follows from the Supreme Court’s judgment in Rt-2008-939 (Tønsberg Bolig), where it is stated in section 34:

  “The central legal question in our case then becomes whether the circumstance that a taxable good or service also satisfies the condition of being “for use in” the business of someone other than the person who pays for the good/service necessarily leads to the payer not is entitled to a deduction under section 21. I cannot see that there is a basis for such a limitation in the scope of this provision.”

  The fact that the goods are for use in D’s business with sales of the goods to A does not therefore exclude that the goods can also be considered to be for use in A’s registered business in relation to VAT. Section 8-1.

  Secondly, the condition that the goods must be “for use in” A’s registered business does not imply a requirement that the goods must be for “direct, actual use” in this business in order for the condition for the right to deduct to be met. This has been clarified several times by the Supreme Court, most recently in HR-2021-2025-A section 36:

  “It is not a condition for deduction that a taxable good or service is acquired for direct actual use in the taxable business, but that “the acquisition or sacrifice [is] relevant to the business and [has] a sufficiently natural and close connection to it” , cf. Rt-2012-432 Elkjøp section 43 with references to Rt-1985-93 Sira-Kvina and Rt-2001-1497 Norwegian Contractors. These connection criteria are repeated in Rt-2015-652 Telenor sections 41 and 42 and HR-2017 -1851-A Skårer South section 38 “

• The right to deduct import value added tax is therefore not limited to goods for direct actual use in a registered business. The right to deduct covers goods that are “relevant” and have a “sufficient and naturally close connection” to the business. This follows from fixed and long-standing Supreme Court practice, and there is no legal basis for establishing a different and stricter condition for the right to deduct import value added tax.

  For the sake of clarity, it is pointed out that there is no risk of loss for the state in the event of double deductions (both with the declared recipient and the goods owner), based on A’s understanding of the law. As explained in point 2.3.1 above, special documentation requirements apply when deducting import VAT. The deduction must be documented with an import declaration and basic documentation linked to such a declaration, cf. VAT. § 15-10 and the bookkeeping regulations § 5-5-2, cf. fmva. Section 15-10. It is therefore not the case that both the declared recipient and the goods owner can deduct the import value added tax, because it will only be the declared recipient in the capacity of being indicated as the recipient who will fulfill the documentation requirement. As long as A is indicated as recipient in the import declaration, D will not be entitled to deduct the import VAT because D will not fulfill the documentation requirement. There will therefore be no risk of loss for the state as a result of the import value added tax being deducted twice.

  What is decisive for the right of deduction is whether the importation of the goods, after a concrete assessment, is relevant to and has a sufficiently natural and close connection to As’s registered business, regardless of who is the owner of the goods at the time of importation.

  2.3.3 The goods are “for use in” A’s registered business

  The question is whether the imported goods are relevant to, and have a sufficiently natural and close connection to, A’s registered business.

  The goods introduced are for use as operating assets in As’s registered business, in that the goods are to be installed in […] for As’s future production of […]. The goods are manufactured, specially adapted for A’s facility, necessary for the operational operation of the facility, and have no other purpose of use, cf. point 2.1 above. The goods will be an integral part of the construction of the facility and will therefore be for use in A’s business already when the facility itself is erected. The goods are therefore undoubtedly relevant to and have a sufficient and close connection to A’s registered business. We refer here to a corresponding assessment that appears in the Tax Directorate’s binding preliminary statement of 27 September 2012, where it is stated:

  “When importing equipment that is borrowed for use as an operating asset in a registered business, there has never been any doubt that a registered borrower who is a customs debtor according to the Customs Act…, has the right to deduct paid import value added tax.”

  In addition to the goods being operating assets for use in A’s business, the formal ownership of the goods (“title”) will be transferred to A before importation into Norway. This is evident from the contract’s point 22.1, where it is stated that “Title to the Contract Object shall pass to Company progressively as the Work is performed”. “Contract object” includes the goods, cf. the definition in point 1.5 of the contract, and “Work” includes the production of the goods, cf. the definition in point 1.22 of the contract. This means that ownership of the goods is continuously transferred to A as the goods are produced by D abroad, and then so that ownership passes to A before the goods are imported into Norway.

On page 11 of the binding preliminary statement, the Tax Office has justified its assessment with the following:

“According to the tax office’s assessment, the goods in this case, at the time of importation, will only be used in D’s activities as a seller. The imported goods will be for direct, actual use for the seller’s delivery to A. Only later, in the case of contractual delivery in Norway, will the goods are transferred to A and be used in the buyer’s business. However, at the time of importation, the goods are the seller’s property and only for use in the seller’s own transaction. (…)

The Tax Office’s conclusion is that, based on the circumstances at the time of importation, the VAT that accrues on the importation of the goods must be attributed to D’s sales activities, and not to activities in A. The importation VAT will therefore not be deductible for A, even if the company is set as the declared recipient of the goods.”

This is therefore not correct. The goods are the buyer’s property already when they are manufactured, even if they are not considered contractually handed over until after the installation work in Norway has been carried out.

The goods are thus undoubtedly “for use in” A’s business according to mval. § 8-1 when they are introduced into Norway. The fact that the goods are also for use in D’s business of installing the goods in Norway does not change this, cf. Rt-2008-939 (Tønsberg Bolig) section 34.

Moreover, only A will have the right to deduct the import value added tax, because it is A who will be indicated as the recipient of the goods in the customs declaration, so that only A will be authorized to deduct the import tax, cf. VAT. Section 15-10. There is therefore no risk of loss for the state when the import duty is deducted twice.

2.3.4 Conclusion

Based on the above, we believe that A will have the right to deduct the import value added tax, because A will be listed as the recipient of the goods in the customs declaration and the goods will be imported “for use in” A’s registered business, cf. VAT. Section 8-1.”

In a letter dated 1 June 2023, the Submitter provided comments on the secretariat’s draft recommendation. From the Submitter’s notice letter, the following is added:

“A agrees with the secretariat’s recommendation and hereby only wishes to specify and confirm certain matters in support of the secretariat’s assessment and recommendation for decision.

In the draft recommendation, the secretariat states that it has not made an independent interpretation of the contract and only assumes that A will be the formal owner of the goods at the time of import as A has stated in the request and complaint, cf. pages 14-15 of the draft recommendation. For the record, it is confirmed that this assumption corresponds to clause 22.1 of the contract, which states that formal ownership (“Title”) is transferred to A before the goods arrive in Norway. As pointed out by the secretariat, delivery of the goods under sales law will be in Norway and the seller will have responsibility and risk for the goods until the goods are installed in Norway, cf. page 22 of the draft proposal. Only formal ownership will be transferred to A at the time of importation. The secretariat’s assumption is therefore correct.

As far as the secretariat’s assessment of the assignment condition is concerned, it is correctly understood that the agreement between the parties implies that the underlying private law obligation to cover the import duty will lie with A. There is no basis for considering A’s fulfillment of this obligation as an outlay or in any other way way of assigning the import value added tax to someone other than A.

When it comes to the secretariat’s assessment of the affiliation condition, the actual premises for this assessment are also correct. For the sake of clarity, it is specified that when the secretariat writes that “[in] the request and the complaint informs the Submitter that it is the Submitter who will be the owner of the goods in question at the time they are imported into Norway”, then this is also a case of formal ownership as A has provided information and the secretariat has used it as a basis in its assessment and recommendation for decisions in other respects. The key thing in this context is that the goods are introduced for use in As’s registered business, so that the condition for the right to deduct is met, cf. VAT. § 8-1, and that this is the case even if the goods are also introduced for use in the supplier’s taxable business of delivering the goods to A in Norway. Although the connection requirement will also be met for the supplier, only A will have the right to deduct the tax, because it is A who assumes the obligation to cover the tax in the agreement between the parties and to the authorities when declaring the goods to customs, so that only A is to be assigned the tax and who will be authorized to claim a deduction for the tax, cf. VAT. § 8-1 and § 15-10.

With these clarifications and confirmations, A can agree with the secretariat’s assessment and recommendation for decision.

5. The Tax Office’s assessments

The Tax Office has assessed the complaint as follows in a statement to the secretariat:

« Form requirements

The appeal deadline has been met and the appeal meets the requirements for addressee, form and content, cf. Tax Administration Act §§ 13-4 and 13-5.

Complainant’s legal submissions

A AS requests in the request of 04.01.2023 that the tax office answers the question whether the company will have the right to deduct import value added tax on the goods that are imported into Norway to be included in the delivery from D to A AS in Norway in accordance with the contract if A AS is indicated as the recipient of the goods in the import declaration to the customs authorities cf. the Value Added Tax Act §§ 8-1 and 15-10.

In the complaint, the company refers to their request of 04.01.2023 and states that what is decisive for the right of deduction is whether the importation of the goods, after a concrete assessment, is relevant to and has a sufficiently natural and close connection to A AS’s registered business, regardless of who who is the owner of the goods at the time of importation.

The company points out that the formal ownership of the goods (“title”), in accordance with the contract, is transferred to A AS before importation to Norway, and that the goods are relevant to and have a sufficient and close connection to A AS’s registered business. The goods are therefore “for use in” A AS’s business according to mval. § 8-1 when they are introduced into Norway. When A AS is indicated as the recipient of the goods in the customs declaration, the company will be authorized to deduct the import duty, cf. VAT. Section 15-10.

The fact/case relationship

There have been no new circumstances in the complaint dated 15/03/2023. The Tax Office considers that the binding advance statement is correct and that a reversal is not applicable.

Relevant sources

In addition to the already mentioned judgment Rt-2008-939 (Tønsberg Housing), a reference to HR-2021-2025-A section 36 has been included in the complaint. Otherwise, no new relevant sources.”

6. The secretariat’s assessments

6.1. Formal conditions and conclusion

The Tax Appeals Board is the right appeal body according to the Tax Administration Act section 6-2 first paragraph, cf. section 13-3 second paragraph. When the appeal is taken under consideration, the Tax Appeals Board can try all sides of the case, cf. Tax Administration Act § 13-7 second paragraph.

The Secretariat, which prepares the case for the Tax Appeal Board, recommends that the Submitter’s complaint be upheld.

6.2. Content of the request – fact presented by the Submitter

The regulation on binding advance statements applies in accordance with section 6-1 first paragraph of the Tax Administration Act:

“(…) the fiscal effects of a concrete planned disposition before it is initiated.”

It follows from the tax administration regulations, § 6-1-4, sixth paragraph, that the future disposition must be outlined, and an accurate and sufficient account must be made of the present and assumed future facts that may have significance for the advance statement. As stated in the Tax Administration Act, 8th edition 2023 p. 185, it is in this that the request should not lead to doubt as to which fact should be used as a basis. The factual description is decisive for which assumptions are used as a basis in the advance statement and which disposition or dispositions the tax authorities have bound themselves to.

To the extent that the Submitter uses attachments, the Submitter should explain in the request what is the relevant fact for the advance statement in the attachments. It is not sufficient to fulfill the condition that information can be found in an attachment, if the information is not mentioned in the request.

In the present case, the Submitter has attached a draft contract with the seller to the request for a binding advance statement, which has been addressed to the tax office. However, in the request itself (paragraph 2 of the request), the circumstances which the Submitter believes are important for the tax authorities to be able to issue a binding advance statement are highlighted. These points are reproduced above in point 3.1 of the setting.

The Secretariat refers here to the fact that the Submitter writes the following in the fifth bullet point of the presentation of the case:

“According to clause 22.1 of the contract, title to the delivery will be transferred from D to A continuously as the delivery is performed ( “Title to the Contract Object shall pass to Company progressively as the Work is performed” ). This means that the formal ownership of the goods will have passed to A before they arrive in Norway.”

The Secretariat finds reason to note that, despite the aforementioned information that the Submitter is the formal owner of the goods, the Submitter seems to concentrate the principal statement on the question of whether it can be interpreted as a requirement that one must be the formal owner of an item in order to have the right to deduct the import value added tax.

In the subsidiary statement of the request, however, it is again indicated that the Submitter will be the formal owner of the imported goods, and that the Submitter will therefore have the right of deduction for that reason anyway.

The same two main allegations are also put forward in the complaint. 

The secretariat draws attention to the fact that in the further discussions in the submission, we will base our assessments on the presentation of the case submitted by the Submitter. It is also pointed out here that the secretariat has not made an independent interpretation of the points in the contract that the Submitter refers to, but assumes that the Submitter himself has extracted the elements of the contract that are of central importance, and that the Submitter has presented these in a way that enables the Tax Appeal Board to make a sound assessment, in line with the tax administration regulations § 6-1-4 sixth paragraph. 

Consequently, for the further assessment, the secretariat will assume that the Submitter will be considered the formal owner of the goods in question at the time of importation, as is stated when the Submitter explains the facts of the case in the request and complaint under the point “Background”. 

6.3. Legal assessment

6.3.1.     Submitter’s obligation to calculate import value added tax

The Secretariat notes that the Customs Act was replaced by the Customs Duty Act and the Transport of Goods Act on 1 January 2023. Corresponding changes have thus also been made to the Value Added Tax Act where it was previously referred to the Customs Act. 

It follows from § 3-29 of the Value Added Tax Act that value added tax must be calculated when goods are imported into Norway. 

The tax obligation is linked to the importation itself, and arises regardless of who has imported the goods. The duty to calculate import value added tax rests with the entity that imported the goods, cf. the Value Added Tax Act § 11-1 first paragraph.

The provision stipulates that businesses registered in the VAT register must report import VAT according to the same rules that apply to domestic sales and withdrawals. This means, among other things, that taxable persons must provide information about import VAT in the VAT declaration. Reference is made to the Tax Administration Act § 8-3 first paragraph letter a.

In the Tax Directorate’s statement of principle of 25 May 2018 (updated on 25 September 2020), several professional clarifications are given relating to the import value added tax. In the statement of principle, the Norwegian Tax Directorate expresses that there is no requirement that the registered trader must be the real owner of the goods at the time of import in order to be obliged to calculate and report import VAT in his VAT notification, but it is specified that it must be a reality that the taxable person introduces the item. This means that it is a requirement that it really is the taxable person who is in charge of the importation.

In the statement of principles, the Directorate of Taxation further refers to the following:

“As examples of such cases that can arise in practice, a VAT-registered group company that imports a product for another (non-VAT-registered) company in the group, a subunit of a company and which has its own VAT registration, can be mentioned, a representative who oversees the import for the real owner of the goods (declarants, however, have a separate section in the customs declaration) or a Norwegian lessee or Norwegian goods repairer who imports a foreign-owned good.

NB: It is specified that in such cases the taxable person will not normally have the right to deduct the import VAT according to § 8-1 of the VAT Act, as the acquisition is not for use in his registered business”

As stated above, it will therefore not be the case that the entity responsible for calculating, reporting and paying the import value added tax will necessarily have the right to deduct the same import value added tax. In this way, companies’ handling and organization of the importation itself could lead to a situation where the import VAT constitutes a cost, in a situation where the choice of another importer could give the importer the right to deduct.

The secretariat understands it to mean that the request is based on the fact that it will be a reality that the Submitter will actually import the goods and thus be the correct subject to calculate import value added tax on the importation of the goods, cf. the Value Added Tax Act § 11-1 first paragraph, cf. Swedish Tax Administration Act § 8-3 first paragraph letter a. The Secretariat also assumes, in line with the Submitter’s information about the facts, that the Submitter is the formal owner of the goods at the time the goods are imported, cf. point 6.2. above.

The question is whether the Submitter will have the right to deduct the same import value added tax.

6.3.2.     Deduction for input VAT when importing the goods in question?

The question is whether the Submitter will have the right to deduct the input VAT that must be calculated when importing the goods in question. There is no separate provision in the Value Added Tax Act that regulates the right to deduct specifically for import VAT, and the question must therefore be resolved according to the general provision on the right to deduct input VAT in Section 8-1 of the Value Added Tax Act, which reads: 

“A registered taxable person is entitled to a deduction for input VAT on acquisitions of goods and services that are used in the registered business.”

The legal understanding of the condition “for use in” has been established several times by the Supreme Court, including in HR-2017-1851-A (Skårer Syd). Regarding the provision (§ 8-1), the Supreme Court in HR-2017-1851-A and Rt 2015 652 (Telenor) referred to Rt 2012 p. 432 (Elkjøp) which in section 43 stated:

“This provision has several functions. Firstly, it functions as a general delimitation of the right to deduct for traders who only run taxable activities. Secondly, it indicates how closely related an acquisition or donation must be to the taxable activity if the taxable person also operates a tax-free activity turnover. Thirdly, it functions as an assignment criterion in the relationship between different traders. For all these relationships, it has been held in case law that it is not sufficient for the right to deduct that the acquisition or sacrifice appears to be commercially reasonable or justifiable. For there to be a right to deduct , the acquisition or sacrifice must be relevant to the business and have a sufficiently natural and close connection to it.The basic decisions areRt-1985-93 (Sira-Kvina) and Rt-2001-1497 (Norwegian Contractors). In certain later decisions, some other wording has sometimes been used, but these decisions cannot be understood as meaning that the affiliation criteria set out in Rt-1985-93 and Rt-2001-1497 have been changed.”

In Norwegian Contractors, the Supreme Court emphasized: “[a] decisive factor must be whether the sacrifice has a natural and close connection to the business”.

According to this, the legal source image provides a basis for establishing requirements that deductions for input VAT must be relevant to the registered business, while at the same time it must have a close and natural connection to it. This establishes a so-called connection requirement . There is also a requirement that the acquisition actually belongs to the taxable person, and this creates a so-called assignment requirement.

In the present case, it is not a question of a deduction for value added tax that accrues when “acquiring” a good, as Section 8-1 of the Value Added Tax Act basically applies, but tax that accrues when goods are imported. In BFU-2012-25, where the question was whether a data center had the right to deduct import value added tax incurred when importing customers’ computers, the Swedish Tax Agency (SKD) writes the following about this distinction:

“According to the Tax Directorate’s assessment, the goods and services that the data center acquires to get the data equipment in place in the data center will obviously be relevant to the taxable business of operating the data equipment. The import tax is of a somewhat different nature. The tax is not triggered due to an acquisition in the true sense, but is a consequence of the goods being brought into the tax area. The sacrifice is limited to the payment of import value added tax on the value of the computer equipment. The decisive factor here, too, must be whether the goods are relevant to the taxable person’s activities.”

As SKD points out in the above-mentioned BFU, import value added tax differs from turnover value added tax in that the obligation to calculate and pay import value added tax is triggered when a product is introduced into the tax area.

In court and tribunal practice, the question of the right to deduct import value added tax seems to be assessed according to whether the import value added tax is to be regarded as an outlay (the allocation requirement) and partly by assessing whether the imported goods themselves have a close and natural connection to the person’s taxable business (the connection condition) .

The assignment requirement

When the tax office in the BFU is of the opinion that the submitter does not have the right to deduct, the secretariat understands this to mean that the tax office assesses the case so that the foreign seller will undertake a domestic Norwegian delivery (i.e. sale of the goods in Norway), and that the import VAT must be assigned to the seller’s business in Norway. In the BFU, the tax office assumes that the goods at the time of importation are only for use in the seller’s business – then in the capacity of being a sale item. According to the tax office’s assessment, deductible use at the hands of the buyer will only occur in the next stage of the transaction, – then in the capacity of being an operating asset.  

From the facts presented in the request, it appears that the seller will be registered in the VAT register for their activities in Norway.

In the BFU, the tax office refers to Rt-2008-939 (Tønsberg Bolig), where the Supreme Court clarifies that the necessary connection must apply to the relevant trader’s own taxable business, and not such business run by another.

As the Submitter points out in the complaint, this clarification is admittedly nuanced in the aforementioned judgment, when the first voter (the majority) then states the following assessment theme for the case:

“The central legal question in our case then becomes whether the circumstance that a taxable good or service also satisfies the condition of being “for use in” the business of someone other than the person who pays for the good/service necessarily leads to the payer not is entitled to a deduction according to § 21. I cannot see that there is a basis for such a limitation in the scope of this provision.

With this, the Supreme Court seems to clarify the assignment requirement that follows from the deduction provision (today the Value Added Tax Act § 8-1). It is clear from the statements that a taxable person cannot receive a deduction for input VAT if the acquisition in question to which the VAT relates is an acquisition that has been outsourced to others. This also appears as a natural consequence of the tax system. As can be seen from the quote above, however, the Supreme Court opens up the possibility that there may be cases where the acquisition is considered to be “for use” in the payer’s business, also in cases where the acquisition is considered to be “for use” by another subject. In the judgement, the Supreme Court came to the conclusion after a concrete assessment that the parent company had the right to deduct VAT on legal fees that applied to a wholly-owned subsidiary’s relationship.

Denial of deductions for a Norwegian buyer as a result of assignment to sales for which a foreign seller is liable to tax in Norway may, however, seem to have support in practice from the tax authorities. The practice is described in more detail in Av-1982-6 no. 8, which reproduces a letter from the Tax Directorate of 25 November 1981 in which the following was stated about the right to deduct import value added tax:

“A foreign company that has entered into a contract for the delivery and installation of a plant in this country is liable for tax for the entire contract delivery. This means that all imports of goods must be carried out in the name of the foreign company. If this is not done, one should be prepared for the problems may arise in the form of double taxation of imported goods, possibly that refusal to deduct for paid import duty may come up for the client. The client who acts as the owner of the goods vis-à-vis the customs authorities in cases of this nature is therefore considered, in principle, only to make a payment of the value added tax on behalf of the foreign company. The parties must therefore be prepared to have to make corrections in tax settlements that are arranged when the goods are imported directly in the client’s name,and a corresponding reduction in the basis for calculating outgoing duty on the part of the foreign company.

In the case mentioned above, all customs invoices must be handed over to the foreign company and amounts paid are not considered tax payments. The amounts can only be deducted in the settlement between the parties as a pure outlay of money.”

In the above-mentioned excise notice, Av-1982-6 no. 8, a refusal of deduction is justified by the fact that the importer only makes a payment for the beneficial owner of the goods. A prerequisite for SKD’s statement is therefore here that the import value added tax as such is considered a cost belonging to the seller’s taxable business and which must be assigned to that business, and not to the customer’s business.

At the same time, in the statement, SKD seems to justify assigning the cost to the seller on the condition that “all imports of goods must be carried out in the foreign company’s [seller’s] name”. 

The Tax Office points out in the BFU that the practice as referred to in Av-1982-6 no. 8 has been laid down by the Oslo District Court in UTV-2017-1235 (PUK Interieur), and also later by the Tax Appeal Board in NS 72/2018 (general department ).

In the PUK Interieur judgment, Av-1982-6 no. 8 is referred to in connection with the question of whether there were grounds for splitting the supply of goods and services from a foreign company to Norwegian customers. The district court initially referred to Av-1982-6 no. 8, and concluded that even though the tax notice was old, there was no concrete evidence that the legal position on which it is based is outdated or set aside.

In this context, reference was made to several decisions from the Board of Appeal for value added tax, including KMVA-2008-6123, KMVA-2008-6226 and KMVA-2010-6646.

In all of these appeals board cases, the Appeals Board for Value Added Tax (KMVA) decides whether a foreign company is obliged to calculate Norwegian value added tax on goods and services, for the delivery and construction of log cabins in Norway. Common to all the cases was that the materials and modules to be used in the construction of the cabins were imported to Norway from abroad by the Norwegian client. The Norwegian clients had therefore paid the Norwegian import value added tax in all cases.

In the Tax Appeal Board’s decision in NS 72/2018, there is a question as to whether a foreign company has had turnover in Norway, or whether that sale is to be regarded as an export sale to Norway.

Neither the PUK Interieur judgment nor the aforementioned Board of Appeal decisions apply to questions about the client’s right to deduct import VAT in the direct sense, but in the cases it is assumed that the client’s payment of import VAT constitutes an outlay for the seller which the foreign company must include in the basis for calculating the outgoing VAT on Norwegian sales. Nor can the Secretariat see that the complainants in the aforementioned cases state that the client can deduct the import VAT, but rather that a question arises as to whether the VAT should be included in the seller’s basis for VAT on the Norwegian sale, which in that case involves a tax cumulation.

In the above-mentioned court and appeal board practice, it thus seems to be assumed, without further discussion, that the import value added tax in the specific cases is a cost that belongs to the foreign seller.

The secretariat cannot see that it appears from the relevant cases that the client took ownership of the imported goods before importation, as the Submitter states will be the case in the present case.

Of the matters in question, there is also limited information regarding which contractual obligations the individual party has assumed in the transaction, including responsibility for import value added tax. This must, as the secretariat sees it, be important.

When the import regulations do not set requirements as to who is to be the customs debtor, in the secretariat’s assessment it will be difficult to assume that the import VAT must be the seller’s and goods owner’s cost, if the parties have agreed that the buyer/contractor shall be responsible for the import VAT. This therefore presupposes that it is actually a reality that the buyer makes the importation, cf. point 6.2.1 above.

In this connection, the secretariat refers to the VAT commentary 16th edition pages 527 and 528, where the following reasoning is made in legal theory:

“When under the Customs Act the parties are free to agree on who will assume responsibility as a customs debtor, it seems inconsistent if only the owner of the goods at the time of import should be able to deduct import VAT. If the buyer is the customs debtor, the buyer is solely responsible for paying the import value added tax to the customs authorities (to the tax authorities from 2017) and an invoice has been issued to the buyer. On this basis, we are of the opinion that import value added tax, which the buyer has paid as a customs debtor in accordance with the parties’ agreement, cannot be considered a cost of the seller’s fulfillment even if delivery takes place here. The import value added tax becomes a cost that one of the parties has to bear, but which cannot normally be said to have a particularly close connection with either the seller’s or the buyer’s business or performance.

The Secretariat shares this view.

From the fact presented in the request for BFU, it appears that the goods in question are to be assembled by the seller at the Submitter’s premises in Norway, and that the delivery under the law of sale takes place when the entire product has been fully assembled and tested in Norway. At the same time, the Submitter states that the Submitter will take over ownership of the individual goods before they are assembled in Norway, and that it is therefore the Submitter who is the formal owner of the goods at the time of importation. The Secretariat therefore assumes, without further discussion, that the Submitter will be the owner of the goods at the time of importation.

It also appears from the case information that it will be agreed that the Submitter will be responsible for import value added tax towards the tax authorities.

The delivery terms (incoterms) that have been agreed are DAP A’s production facility (Delivered-at-Place), which supports that the final delivery takes place at the Submitter’s premises, A’s production facility in Norway. The choice of delivery terms may thus appear to be in poor harmony with the information that the Submitter will take over ownership of the goods before they are imported into Norway. In all cases, a consequence of the DAP delivery conditions is that it is the buyer who is responsible for the tax obligations at the time of the sale. Choice of delivery terms DAP therefore supports that it is the Submitter who has the contractual obligation to oversee the importation, with the tax obligations this entails.

As the secretariat sees it, it follows from the parties’ agreement that responsibility for import value added tax is placed on the Submitter. The secretariat cannot see that the regulations relating to the calculation, reporting and payment of import value added tax are an obstacle to the Submitter becoming responsible for this, cf. discussion above. The secretariat thus shares the view expressed in the above-mentioned legal theory, that it must then be up to the parties to the trade to choose where the cost should be placed.

Following this, the secretariat cannot see that the parties’ choice in this case means that the import value added tax is placed on the “wrong” subject, and consequently we cannot see that the Submitter’s responsibility for calculating and paying the import value added tax implies that the Submitter has paid for the import value added tax for the seller.

Following this, the secretariat is of the opinion that the import VAT as such is a cost that must be assigned to the Submitter.

The further question is whether the actual importation of the goods has a close and natural connection with the Submitter’s taxable activities, cf. the Value Added Tax Act § 8-1. Here it is a question of whether the affiliation requirement has been met.

The affiliation requirement

The Tax Office has assessed in the BFU that as the goods at the time of importation have not yet been contractually handed over to the Submitter, the goods at the time of importation will exclusively be for direct actual use in the seller’s business.

In the request and complaint, the Submitter states that it is the Submitter who will be the owner of the goods in question at the time they are imported into Norway.

Furthermore, the introduced goods must be assembled in production facilities for […] in the Submitter’s taxable business with […] production. In the BFU, the tax office also states that the goods in question will be relevant to the Submitter’s taxable activities. There thus appears to be agreement between the tax office and the Submitter on this. The Secretariat also shares this assessment.

In this way, the importation of the goods will be a necessary prerequisite for the Submitter to be able to start up its taxable business with the production of […]. As the secretariat considers it, the import tax charged to the Submitter will be a sacrifice with a close connection to the Submitter’s business. In the secretariat’s opinion, the connection condition set out in § 8‑1 of the VAT Act is also fulfilled.

According to this secretariat’s assessment, import value added tax incurred when importing the goods in question will be deductible for the Submitter, cf. the Value Added Tax Act § 8-1.

7. The Secretariat’s proposal for a conclusion

The complaint is upheld.

A AS will be entitled to a deduction for calculated import value added tax on goods to be assembled in the production facility for […], when the company is indicated as the recipient of the goods in the import declaration to the customs authorities.

Source: skatteetaten.no