Surcharges and Penalties in Tax Law

Transcription

1 Surcharges and Penalties in Tax Law Professor Benn Folkvord, University of Stavanger 1 Taxpayer and Third Party Duties 1.1 Tax Assessment Procedures Norwegian law is based on the principle of self-assessment, a principle that is applied both to physical persons and companies, irrespective of whether these are Norwegian or foreign taxpayers. The principle entails that the taxpayer is personally responsible for reporting their income to the tax assessment authorities. The taxpayer must also file documentation and submit multiple tax assessment forms. The backdrop to the self-assessment principle is primarily the fact that tax law involves administrative law applied to a mass of individuals. Placing these demands on the Tax Assessment Authorities would be very resource-intensive and impose a tremendous work load on the authorities. Moreover, it is a question of effectiveness. The taxpayer is the one who best knows his or her situation, and is thus in a position to provide this information most efficiently. While the tax assessment authorities also have an obligation to inquire into these matters, the underlying principle remains that it is the obligation of the taxpayer to report on his or her situation to the authorities. The onus of the duty of information is in other words on the taxpayer. 1.2 General Duties within Tax Assessment Procedures The self-assessment principle is established in Section 4-1 of the Norwegian Tax Assessment Act, which states that the taxpayer shall assist in timely clarification and fulfilment of his or her tax liability. The scope of the provision can be inferred from a quite substantial amount of relevant case law from the Norwegian Supreme Court. The principle of self-assessment is testament to the fact that the relation between the taxpayer and the tax assessment authorities is one of cooperation and loyalty. The taxpayer has a duty to file his or her tax return, including the necessary enclosures. As regards the scope of the tax return obligation, the taxpayer is obliged to give the tax assessment authorities the information they require in order to determine the taxpayer s tax liability. A judgment from the Norwegian Supreme Court (Rettstidende (Norwegian Supreme Court Report) 1992, p. 1588), dealing with the so-called «Lofland standard», delimits this obligation. It follows from this standard that the taxpayer is obliged to supply accurate and comprehensive

2 information. However, if there are reasons for the taxpayer failing to understand that he or she had an obligation of disclosure, this cannot be demanded by the authorities. In principle, all companies have a statutory duty to keep accounts. However, these accounts shall not always be filed with the tax assessment authorities; instead, they are sent to a public register, where they can be accessed by the tax assessment authorities. 1.3 Duties regarding Clarification, Examination and Supervision Procedures There have been considerable changes to Norwegian tax assessment procedures during recent years. Most wage earners now receive a pre-filled tax return. This involves that it is those paying out taxable wages that must report these wages to the tax assessment authorities, rather than the wage earners themselves. Banks and other entities are subject to similar obligations. Having received this information, the Tax Assessment Authorities then assess taxable income. In fact, it is not even necessary for the taxpayer to explicitly approve his or her own tax return. In this context, passive acceptance is considered approval. Although the taxpayer s obligation to submit a tax return is quite comprehensive, much of the practicalities are in fact passed on to employers, banks, and other entities. As the self-assessment principle has such limited practical significance these days, there are many who no longer believe it to be an accurate description of the system, and that the tax return system should be changed. The legislative process to implement such a change is already underway. The principal reports third parties are obliged to submit to the authorities under the rules outlined above are pay slips in connection with the payment of wages. Furthermore, banks, financial institutions, the Norwegian Central Securities Depository and insurance companies have quite extensive duties to provide information regarding their clients, at least in regard to private individuals. This obligation does not automatically apply to payments made to businesses. However, banks and other such institutions are required to disclose information on businesses if the tax assessment authorities impose an order to this effect. The system in other words requires that the tax assessment authorities are automatically informed of payments to wage earners, while the information requirement only comes into effect in relation to businesses when the tax assessment authorities so request. The system for VAT is different, however. Here, the general rule is that the person selling a good or service liable for duty must calculate and pay the duty. For further details, see below. There are also some special rules regarding the duty of disclosure, particularly the documentation requirement in connection with transactions between close relations. There is a spe-

3 cial information requirement in connection with transactions among parties that are closely related, which includes a requirement to document how the parties arrived at the price. In this context it is worth noting that the general statutory audit obligation has been waived. Many small businesses are no longer obliged to have their accounts audited. This signifies a genuine change. One of the key arguments cited in connection with ending the general auditing requirement was the need to control the taxpayers statements. The Norwegian tax assessment authorities were of the view that the auditing obligation should be upheld; however, the legal changes were introduced in spite of their objections. 1.4 Duties regarding Tax Collection General points The taxpayer is not responsible for assessing the tax. The taxpayer informs the tax assessment authorities of his or her income and expenses. Based on this, the tax assessment authorities assess and collect the tax. However, they do not allow any tax credits if the taxpayer does not claim these. If the person in receipt of a payment does not run a business, wages are deemed to have been paid. The central consideration in determining whether a person runs a business or not is whether the activity, over time, is likely to result in a profit. There is a large amount of case law concerning the Norwegian definition of business, which is pertinent in a number of contexts. All taxpayers, regardless of type of taxpayer, pay their tax in advance, through a withholding tax. Tax payments are due at different times, depending on who the taxpayer is. Once the individual taxpayer s tax has been assessed, a final settlement of outstanding amounts is done. After assessment of the tax, the taxpayer is repaid any excess tax they have paid; alternatively the taxpayer may receive a claim for payment of back taxes, assuming he or she has not paid enough. In some cases, the fact that taxpayers have to pay their tax prior to the final tax settlement constitutes a significant disadvantage. This is also the case if the taxpayer has appealed the tax assessment and an appeal has been filed with the courts. Such proceedings can take many years and sometimes end with the taxpayer winning the case on all counts. Despite this, the taxpayer has to pay the tax in advance. Specific points on wage earners / wage payments

4 Employers have extensive obligations regarding advance payment of tax on behalf of their staff. The requirement not only applies to employers in the traditional sense, but extends beyond them. If one pays wages liable for tax or makes similar payments, or this is done via a representative, there is a requirement to withhold tax. The wage earner or the person receiving the remuneration need not be the principal s employee as this is understood in common parlance. The requirement is very extensive and also covers private persons hiring workmen, unless these run their own business. In the summer of 2014 the press ran a story on the mayor of the Norwegian capital, Oslo, who had hired a worker to paint his cabin. The mayor was unaware that he was under an obligation to pay withholding tax. The case resulted in a lot of negative publicity and public debate. There are those who argued that this case showed that the requirement was excessive in relation to private individuals. Norwegian wage earners withholding tax is paid according to a PAYE principle (Pay as you earn). However, this principle has evolved since 1952, and it involves the progressive withholding of tax as wages are paid. In practical terms, the employer withholds the advance tax from the employee s pay before making any payment. Employers are in other words assigned duties that imply that they collect tax for the public purse. Every year, the tax assessment authorities make out a tax card for each single taxpayer, indicating how much tax is to be withheld from each wage earner. The amount of tax to be withheld depends on the wage earner s previous year s tax assessment figures. Withholdings are based on a table with progressive tax rates, etc.; alternatively, a fixed tax rate can be applied to all wage payments. The tax withholding is performed by the employer, who withholds the appropriate amount when paying the employee s wages and allocates the withheld amounts to a designated account. The amount on this account is the property of the public purse, and any allocation of this money by the employer incurs criminal liability. However, the interest on these accounts accrues to the employer. If it emerges that the employer fails to pay the withheld amounts or in any other way misappropriates the money, the employee is not liable and does not run any risk of being taxed twice. Specifically on business operators etc. The rules for personal business operators are by and large the same as for wage earners. As for wage earners, the advance tax is stipulated on the basis of the preceding year s income and assets. The advance tax is payable in four equal instalments every year.

5 Companies paying dividend to foreign shareholders are required to deduct advance tax. This is because the legislature has assumed that it is easier to collect the advance tax from the Norwegian company rather than from a number of shareholders residing abroad. Non-personal taxpayers, i.e. companies, are not subject to the same rules regarding advance tax as personal taxpayers. Companies pay tax the year following the year of accrual, thus attaining a one-year deferral of tax payment relative to personal taxpayers. The fundamental difference between personal and non-personal taxpayers is therefore that personal taxpayers pay advance tax based on the previous year s income. Non-personal taxpayers on the other hand pay advance tax based on income accrued in the year of payment. Non-personal taxpayers pay tax twice annually. 1.5 Duties regarding Tax Shelter or Tax Schemes There is no special information requirements applying specifically to tax shelters or tax schemes. However, the general rules regarding the duty to provide information and co-operation also apply in this context. Nevertheless, in practice there are taxpayers who fail to comply with this duty, as they often fail to disclose that they have taxable income. 1.6 Other Duties Section 6-15 of the Norwegian Tax Assessment Act has several provisions regarding control. These are phrased in a manner that is so general that they give the tax assessment authorities considerable leeway with regard to control activities, as well as permitting the authorities access to extensive information from third parties. The preparatory works to the act emphasise the importance of not imposing unnecessary burdens on businesses. However, such considerations are weighed against the authorities need for information. Among other things, the provision is used to collect information from firms on transactions between private persons and the company. The scope of the provision is controversial and not very clear, but it does allow the authorities to control entities engaged in activities exempt from tax. However, there was a case in which a court found for an airline, concluding that it was not obligated to inform the tax assessment authorities of its passengers use of bonus points. The tax assessment authorities may request the information they believe necessary from private persons with a view to deciding their respective tax return. The Norwegian Supreme Court has been reluctant to sustain taxpayers claims that they are not obligated to present

6 documentation on the grounds that the taxpayer believes the information contained therein to be irrelevant or unnecessary, etc. Thorough investigations into the taxpayer s situation are performed with some frequency, and known as tax audits. When performing tax audits, the tax assessment authorities have extensive authority to request access to books of accounts, vouchers and other documents. Following such a tax audit, the tax assessment authorities prepare a report, which is sent to the taxpayer. Thorough tax audits of this type need not be based on any concrete suspicion of assets being withheld from taxation but may in fact be carried out as part of a random selection. The taxpayer is to be notified of the impending tax audit in due time before it is carried out. However, if there is a suspicion that documentation will be withheld, the tax audit may be performed without any notice. In practice, no-notice tax inspections are rarely performed. The Norwegian tax authorities have a tax evasion hotline where it is possible to report assets and income that have not been reported to the tax authorities. There are no rules specifically regulating this hotline, and the scheme has been criticised because the lack of oversight entails a lack of legal safeguards. There is some controversy as to how far the authorities may go in demanding confidential information, such as the information doctors are privy to regarding their patients, or attorneys-at-laws knowledge of their clients dealings. In a Supreme Court case (Rettstidende (Norwegian Supreme Court Reports) 2000, p. 788) a judgment was made to the effect that a psychologist was obliged to present lists detailing patient appointments to the tax assessment authorities. The decisive argument was the assumption that the lists were kept in order to give the psychologist an overview of his appointments, and not for the sake of the patients. Prior to a transaction, the taxpayer can obtain a binding prior statement from the tax authorities regarding whether and to which extent a transaction will result in tax liability. It is not possible to file complaints regarding such binding statements, or appeal them to the courts. The fact that a taxpayer is obliged to complete a transaction in order to have a binding prior statement reviewed by the courts has been much criticised, and this option is primarily utilised by companies and only rarely by physical persons. By way of conclusion, it is worth mentioning that Norway has a long tradition of publishing tax assessment rolls. These lists are available to everybody via the internet, showing the assets of every single taxpayer, their income and how much the person in question has paid in tax. Considerable controversy surrounds these assessment rolls, partly because the press every year publishes excerpts from these lists. These stories have, by some, been labelled a media circus.

7 2 Definition and Categorisation of different Types of Surcharges The Norwegian rules on sanctions have undergone great change over the last few years. This is primarily due to two factors: first, the fight against tax evasion. The second factor on the other hand has moved Norwegian tax law in the opposite direction: the desire to bring Norwegian rules into compliance with the European Convention on Human Rights (ECHR). Several judgments from the Norwegian Supreme Court preceded the changes of the past two years and have established that the Norwegian rules were in breach of the ECHR. The Norwegian rules regarding sanctions are closely related to the duty to provide information. The nature and scope of the violation of the information requirement are often decisive for both the type and scope of the resulting sanction. 2.1 Criminal Penalties In Norwegian law, the line between penalties and administrative sanctions follows from the three criteria in the Engel case (EGMR-E No. 23 of 5 December 2008; p: 178, Para. 82). In its concrete assessment the Norwegian Supreme Court, making direct reference to the Engel case, among other things gave great importance to the objective underlying the sanction, the sanction s classification, the nature of the violation, the scope of the sanction, etc. If a sanction is to be classified as a penalty, all requirements under the ECHR must be fulfilled. These include requirements to a fair trial and the ban on double jeopardy. Pursuant to Section 12-1 of the Norwegian Tax Assessment Act, the taxpayer can be penalised for simple tax evasion if he or she gives incorrect or incomplete information to the tax assessment authorities. It is sufficient that the taxpayer has evinced negligence and that his or her actions have resulted in a potential tax advantage for the taxpayer. Penalties involve fines or a jail sentence of up to two years, depending on the seriousness of the offence. In more serious cases the taxpayer can be penalised for serious tax evasion, or tax fraud. In determining whether tax evasion qualifies as tax fraud, special importance is given to the amount, whether the person has abused their position, whether the person has made significant attempts to conceal their actions, etc. The maximum penalties for tax fraud are fines and prison up to six years. Complicity is penalised in the same manner. Complicity in tax evasion also qualifies as a criminal offence, and accessory liability extends quite far. Paying a worker if one has reason to assume that the worker will not report this amount for taxation purposes, is punishable. Over the past few years, the scope of and the severity of the penalties to be imposed in the case of accessory liability have been subject to considerable controversy in Norway. In a highly controversial judgment from 2010 the Norwe-

8 gian Supreme Court sentenced a person to 21 days prison and confiscation of about EUR for having paid a worker approximately EUR in remuneration for help in building a cabin. The court was of the view that the principal, a private individual, should have understood that the worker would not report the amount for taxation purposes. The person subject to the obligation to keep accounts can be ordered to set errors right. If the error is not corrected, the person subject to the obligation to keep accounts may be ordered to pay daily penalties for default. As a rule, a penalty of this type will be set at EUR 100 per day. As regards directors of the board in companies, every single director may be ordered to pay penalties for default, and these may be enforced from the directors. The Norwegian Ministry of Finance bases itself on the assumption that such penalties for default do not preclude subsequent penal action. This assumption has been subject to criticism, as many believe that such punishment would be a case of double jeopardy and therefore in breach of the ECHR. 2.2 Administrative Tax Penalties Taxpayers who file their tax return after the deadline are liable to a late-filing penalty. This penalty is not considered a penalty as such, and may therefore be imposed in conjunction with a tax underpayment penalty, etc., without being affected by the ban on double jeopardy. The surcharge is relatively low, partly in order to avoid being falling under the ECHR s penalty definition. Persons who fail to file their tax return or certain ancillary statements may be subject to a late-filling penalty. If the tax return is filed late, a surcharge may be imposed, whereas failure to file the tax return results in a tax underpayment penalty. The tax underpayment penalty is considered a penalty, while the late-filing penalty is considered an administrative sanction. The latefiling penalty shall not be applied when the delay may be excused due to the taxpayer s age, lack of experience, etc. The minimum late-filing penalty is NOK 200 (approx. EUR 25). As a general rule, the late-filing penalty should be 1/1000 of taxable income and assets; however, the maximum latefiling penalty is NOK 15,000 (approx. EUR 1,900). Repeated delays do not result in any increase in the late-filing penalty. For large companies, the maximum surcharge is so low - a maximum of NOK 15,000 (EUR 1,900) - that it provides no incentive for timely filing of the tax return. There are also other administrative tax penalties. These are of a different nature, and are considered under Section 2.4 below.

9 2.3 Interests The Norwegian rules regarding interest used to involve a substantial penal element. The former rules were very strict, and occasionally resulted in disproportionate interest. Following an amendment to the act in 2005, the rules were changed and the penal element removed. The Norwegian rules differentiate between different types of interest. Interest on insufficient withholding tax and interest earnings on tax paid in excess If the taxpayer has paid excess tax, they are entitled to interest on the outstanding amount. Absent such a rule, the taxpayer would have a powerful incentive to pay as little withholding tax as possible, and paying less than they owe. Moreover, the state would be given an unwarranted advantage in those cases in which excess withholding tax has been paid. Given that such interest is payable, it is very much up to the taxpayer to decide how much withholding tax shall be paid, as the taxpayer has minimal incentives to pay excess withholding tax or a withholding tax that is too low. Formally, the taxpayer needs to make an application for any adjustment to the level of the withholding tax, but the tax assessment authorities almost universally accede to such requests. Interest on tax arrears do not qualify for tax allowance. This constitutes an exception from the otherwise prevailing rule in Norwegian law which always permits deductions for interest. Nor is interest income from excess payments of withholding tax liable for tax. No interest accrues on tax arrears if the arrears follow from the employer failing to pay to the public purse any advance tax withheld by the employer. In such cases the taxpayer is not at fault and not liable for the tax arrears. If too much withholding tax has been paid, this is re-paid together with the interest on the excess tax. The same applies in those in cases in which insufficient advance tax has been paid. Such tax arrears are payable together with the interest. Interest in connection with changes to the tax assessment If the taxpayer s tax assessment is changed, interest will usually be payable. If the change results in a rise in the taxpayer s taxable income, as a rule interest will accrue. Interest in connection with changes in tax assessments is not conditional on culpability; the rules are entirely objective. Following a legislative amendment of 2005, interest following from changes to the tax assessment no longer involves any element of sanction. The interest shall correspond to the official interest rate plus one percentage point. Interest following from changes to tax assessments is not tax deductible or taxable. The official interest rate is equal to the banks interest on borrowings from Norges Bank.

10 Interest on arrears In the event of late payment, interest on arrears accrues. Interest on arrears is not the same as interest following from changes to the tax assessment. Interest resulting from changes to the tax assessment accrues on both excess withholding tax and withholding tax that falls short of the level that should be paid. Interest on arrears accrues when the tax has not been paid by the deadline for paying advance tax or by the deadline for definitively assessed tax. In tax law, interest on arrears is directly linked to interest on arrears as defined in Norwegian civil law. The type and rate of interest is therefore the same as for amounts that have been defaulted on among private parties. As per 2014, interest on arrears is 8.5% and has remained unchanged since Interest on arrears is set by the Norwegian Ministry of Finance, and has a penal element. There is no compound interest on interest on arrears. If the Norwegian state can be blamed for the failure to pay the full amount of tax, no interest on arrears is payable. 2.4 Other Surcharges There are numerous rules containing an element of sanction. In the following I will list some of these elements: The legality requirement In respect of tax law, most transactions are required to comply with company law and accounting legislation. If execution of a transaction violates company law this usually results in some type of taxation. In some cases this also applies to violations of accounting law. The legality requirement appears to be a relatively unusual feature particular to Norwegian law. The consequences of violating this requirement vary. Dividends paid to company shareholders are for instance exempt from tax. But if the dividend is illegal in terms of company law, usually because the company paying the dividend does not have adequate equity, the recipient of the dividend is liable for tax. The legality requirement therefore provides strong incentives for complying with the rules under company law. This is also the reason why the legality requirement has come under attack, as it can have quite unfair and disproportionate results. In a judgment made in the Norwegian Supreme Court it was established that the legality requirement must also be interpreted as containing a requirement to significance. Only claims that are significant in terms of company law entail consequences under tax law.

11 Discretionary tax assessment A discretionary tax assessment means that the taxpayer is not assessed on the basis of their statements and the tax return they have submitted, but on the basis of the tax assessment authorities discretionary tax assessment. This usually involves cases in which the authorities, for one reason or another, are unable to rely on the taxpayer s tax return. Discretionary tax assessments may not be carried out with a view to penalising the taxpayer, but only in order to arrive at an accurate result. Despite this, taxpayers have found it difficult to have their discretionary tax assessments re-examined, and may have assumed there to be penal element. These rules also have a preventive function, as those subjected to discretionary tax assessments have put themselves into difficulties. There are limitations to the taxpayer s access to appeal a discretionary tax assessment. Another way of putting this is to say that there is limited access to having the tax assessment authorities' discretionary assessment re-examined. The discretionary assessment itself cannot be re-examined. The authorities assessment of the taxpayer s income can only be set aside by the tax assessment authorities if they have been found to discriminate among taxpayers, to have based themselves on erroneous facts, or have acted in a grossly unfair manner. The criteria for discretionary tax assessments may be grouped into three categories: 1. The taxpayer has failed to file a tax return or other obligatory documentation. 2. The statements filed by the taxpayer do not form a sound basis for assessing tax. 3. The taxpayer has failed to reply to the tax assessment authorities request for information within a given deadline. Refusal of non-documented tax allowances If the taxpayer does not claim or fails to document a tax allowance, the tax assessment authorities refuse the allowance. In some cases, denying the taxpayer tax allowance may be regarded as a form of sanction. Abatement In some cases abatement of the taxpayer s outstanding tax debts may be considered. Tax abatement means that all or parts of the state s outstanding tax are waived. However, tax abatement may also mean that tax payment is postponed. The criteria are very strict; tax abatement is only granted in exceptional cases. However, abatement does occur in certain circumstances, providing the taxpayer s personal situation indicates that it is appropriate. Examples include illness on the part of the tax-

12 payer, or if the taxpayer s tax-paying capacity is very low. However, tax abatement does not entail a review of legality. If a person believes that the tax assessment authorities have made a tax decision that is not in line with the rules, this must be appealed and reviewed. Tax abatement is based on the assumption that the assessed tax is in compliance with the rules. Debt settlement In addition to applying for tax abatement, the taxpayer may apply for debt settlement. This set of rules is not designed specifically for tax debts but applies more generally to all types of debts. Debt settlement means that all claims on the taxpayer are forgiven, either entirely or in part. One of the crucial prerequisites for debt settlement arrangements is that the taxpayer is unable to pay his or her debt in the long term. 3 Catalogue of Attributes of different Surcharges 3.1 Purpose/aim/justification Partly penal and partly preventive objectives, see Section Prerequisites The late-filing penalty is instituted in the event of late filing of the tax return or other ancillary documentation. The late-filing penalty is primarily intended as an incentive to file the tax return within the deadline. The tax underpayment penalties are motivated by penal objectives, and are primarily applied if the taxpayer has given incorrect information or has failed to provide information. Moreover, this must have or could potentially have resulted in the evasion of tax. 3.3 Timely appliance of the surcharge (e.g. immediately after a certain time period). Surcharges are only imposed if the tax assessment authorities make an administrative decision to impose them. As a result, surcharges are usually only imposed when an administrative decision has been made regarding tax assessment. As regards surcharges that are imposed in connection with late filing, this is imposed in a more mechanical fashion after the deadline. 3.4 Amount of the Surcharge, base on which the Surcharge is applied (e.g. tax amount, certain underlying object) or the duration of imprisonment. As a general rule, the surcharge that is imposed in connection with late filing should be 1/1000 of taxable income and assets. The surcharge should be no less than approximately EUR 25, and should not exceed approximately EUR 1,900.

13 The tax underpayment penalty imposed in connection with failure to provide information is between 10% and 30% of the potential tax evasion. The amount is in other words calculated on the basis of the tax, not on the basis of income. The size of the tax underpayment penalty depends on the severity of the regulatory violation. 3.5 Maximum limit regarding the surcharge amount or the imprisonment. The surcharge should be no less than about EUR 25, and the tax underpayment penalty no more than approximately 10% of the potential tax evasion. 3.6 If the surcharge is depending on fault or not (please name the degree of the personal responsibility). The surcharge is imposed in any case. This must be seen in the light of the surcharge being relatively low, and having no penal objective. The tax underpayment penalty is waived entirely or in part if there are grounds that render it excusable. This must be seen in the light of the fact that the tax underpayment penalty s objective is, in part, penal. The tax underpayment penalty is not imposed when the taxpayer s actions are regarded as excusable on grounds of illness, old age, lack of experience, or for other reasons. 3.7 If exemptions from surcharges exist (e.g. due to severity, reasonable justification of the non-compliance or acting in good faith). There are such exemptions, see Section 3.6 above. 3.8 Who imposes surcharges/penalties? / Who is in charge (differ between criminal penalties, administrative tax penalties, interests and other surcharges)? These are imposed by the tax assessment authorities. The same assessment agency determines ordinary income/tax assessment and surcharges/penalties. These are not, in the first instance, imposed by the courts or police authorities. Ordinary penalties (fines, prison sentences etc.) must always be imposed by a court, and can never be an outcome of an administrative decision.

14 3.9 What are the procedures regarding the imposition of administrative tax penalties and criminal penalties. Please also compare those procedures. Are there differences, similarities, links? The initial administrative decision regarding surcharges/penalties is imposed by the tax assessment authorities. If a taxpayer believes that the conditions for such surcharges/penalties have not been met, they can lodge an appeal, and an appeal board will then review whether the conditions have been met. Following this, the matter can be brought before the courts. As regards ordinary punishment, before the case can be heard by the courts the police must press charges. 4 Surcharges regarding Third Parties Surcharges or tax underpayment penalties will not be imposed on third parties. These are sanctions related to the taxpayer s income. However, third parties can be penalised for complicity under the same rules as outlined in Section 1. In some cases, third parties that require a governmental licence (such as chartered accounts, attorneys-at-law etc.) risk losing their licence. This is not a matter to be decided by the tax assessment authorities but by the authority that issued the licence. 5 Legal Protection of the Taxpayer/Third Parties 5.1 Does he/she have recourse to legal actions? The taxpayer may appeal administrative decisions to an administrative appeal board. However, they may also initiate court proceedings. If the taxpayer succeeds in his or her appeal, as a rule legal costs should be met by the public purse. 5.2 Which authority or institution has to be addressed by the taxpayer/third party if he/she wants to file an objection? The taxpayer may send an appeal to any Norwegian tax office. The tax office then forwards the appeal to the body that made the original administrative decision so that it can consider whether to reverse its decision. If a decision is made to adhere to the original decision, the appeal is sent to the appeals board. The appeal board is an independent committee whose members are specialised in tax law. It is also possible to bring cases before the courts.

15 5.3 Do interim measures regarding legal protection exist in your country? In addition to tax, the taxpayer must pay any surcharges or tax underpayment penalties that are imposed. In the event of disputed claims, payment cannot be deferred. This is so that taxpayers shall have no incentive to file an appeal regarding their tax assessment, as appeals do not result in the deferral of payment. Although payment is not deferred in cases of disputed tax claims, if the taxpayer wins the appeal he or she is paid interest on excess tax paid. In some situations these rules have produced unfortunate results and come across as unfair. This is the case particularly in situations where the taxpayer is faced with large claims for payment, and establishing whether the tax assessment is correct is a time-consuming process involving significant delays. 5.4 Does protection through advance ruling exist in your country? If yes, what are the prerequisites? Norwegian law has no such special rules. 5.5 Do alternative dispute resolutions or settlements (dealing) regarding surcharges exist in your country (e.g. within tax audits)? Norwegian law has no such special rules. Despite the absence of formal dispute resolution schemes, there are cases in which the tax assessment authorities and the taxpayer enter into agreements regarding assessment of the taxpayer s tax. This can happen in cases in which an administrative decision is about to be brought to court. Alternatively, the taxpayer and tax assessment authorities can arrive at a settlement after proceedings have been initiated. 5.6 Do other tax law safeguards exist in your country (does a special taxpayer bill of rights exist)? Is the level of tax law safeguards in general higher/lower compared to civil, administrative or criminal rules? Norwegian law has no such special rules. 6 Deductibility of Surcharges Surcharges are not tax deductible. Nor are expenses such as legal costs allowed as deductions in tax cases. Up to a point, these rules conflict with the fundamental Norwegian principle that the taxation of each taxpayer shall be based on the taxpayer s tax-paying ability. The rules and practice surrounding these are therefore open to criticism.

16 7 Numbers The figures are based on the income year This is because processing of the tax assessment was not concluded until I start with providing some general figures that form the backdrop to the list of the number of appeals, the scope of surcharges, etc. Total assessed tax in Norway: Personal taxpayers EUR 48 billion Companies EUR 9.2 billion Oil companies EUR 28.2 billion Outstanding amounts and tax arrears for wage earners, pensioners and self-employed persons: The number of persons with amounts outstanding individuals Amounts outstanding (including interest) EUR 4.5 billion Number of taxpayer with tax arrears individuals Tax arrears including interest EUR 2 billion Late-filing penalty Number of self-employed persons individuals Late-filing penalty EUR 7.9 million Number of companies companies Late-filing penalty EUR 2.7 million Failure to submit information/submission of incorrect information Number of self-employed persons individuals Tax underpayment penalty EUR 13.7 million Number of companies companies Tax underpayment penalty EUR 11.2 million Appeals In total, 88,000 appeals were processed in 2012 concerning tax, value-added tax, inheritance duty and registrations with the population register. In addition, the tax offices set right errors in tax returns that did not result in any appeals from the taxpayers in almost 28,000 cases. The percentage of appeals regarding tax assessment that were processed within three months of receipt: 86.9%

17 Number of processed appeals Tax total of 81,537 Control results The results for 2012 showed that the control of 7000 companies found that the amount not reported for tax purposes was almost EUR 3.6 billion. For purposes of comparison, the figure for 2010 was just above EUR 0.75 billion. Reports to the prosecuting authorities In 2012 the Norwegian tax administration reported 854 individuals to the police districts. 8 Effectiveness The late-filing penalty is low, and has therefore been criticised for being ineffective in some cases. All the more so as it cannot exceed approximately EUR 1,900. For large businesses such a sum is of minor significance. The tax underpayment penalty imposed if the taxpayer has failed to provide all the information could formerly be imposed at up to 60% of the tax the taxpayer sought to evade. This has now been changed, partly because there was concern that these rules ran counter to the ECHR, and the tax underpayment penalty has been brought down to a maximum of 30%. The tax underpayment penalty has therefore had its effectiveness curtailed. There are a number of indications that the most effective policy instrument against tax evasion is increased risk of discovery rather than higher rates for tax underpayment penalties, surcharges or greater penalties. However, heftier penalties are easier to implement, whereas raising the risk of discovery is a stumbling block.