The Norwegian tax authorities conduct regular business tax audits, so it’s important to be prepared — whether you are an individual or a company. A tax audit can be stressful and complex, but panicking won’t help. Instead, understanding your rights and obligations and seeking professional guidance early on can make the process smoother. This blog provides a clear overview of what you can expect and how to handle a business tax audit in Norway.
The consequences of a tax audit by the Norwegian Tax Authorities
You often won’t know exactly what the tax inspector is investigating, which can create uncertainty about how to respond and what to expect. Even though you have nothing to hide, you may be left with the impression that you or your company is under hostile suspicion.
The risk at stake may be increased taxation, severe penalty taxes and interest charges. In any case, a tax audit is time consuming, and you should be prepared to spend time and resources in defending yourself.
Also read: Corporate tax return in Norway
Make sure to be on track from the beginning
It is crucial to ensure the tax audit is directed correctly from the very beginning.
If you are unsure on how to deal with the queries from the Norwegian tax authorities, we advise you to seek professional expertise as early as possible. For a tax advisor, it can be more resource-intensive to enter the process at a late stage, in particular, if this involves repairing damages caused by the taxpayer.
To prevent misunderstandings, it is important to avoid giving impulsive and incomplete answers to the tax authorities. A professional party can help you answer the tax questions in an orderly manner.
DO YOU HAVE QUESTIONS ABOUT NORWEGIAN TAXATION?
Ensure your business adhere to Norwegian Tax rules. Contact our tax lawyers for support.Business tax audits: What you need to know
If you or your company has received a tax audit notice, you need to know the following:
Two types of tax audits
The tax authorities may carry out audits in two ways. They may either collect information via a written request or they may conduct a physical control (so called “local control”) at the premises of the taxpayer.
The most common audit is a written request, which often is a limited control of a specific item. Such requests may be limited to asking for documentation and explanations that is to be submitted to the tax authorities.
The other form is a local control, where the tax authorities carry out the control at the company's premises, or at your bank or business partner’s premises. The tax inspector is entitled to review physical or electronical archives.
The tax authority may copy the information to a data storage medium in order to be able to go through the archive at a later date.
Note that the tax office may request to copy information stored at your mobile phone or PC. If you decline to cooperate, they may obtain a court order.
Notification before a local control
The tax office is obliged to give notice before a local control is conducted, provided this does not jeopardize the purpose of the control.
The statutory limitations for correcting the tax assessment is up to 10 years.
Focus areas in value-oriented tax audits
The tax authorities prioritize audits in areas where they suspect irregularities may occur.
Lately they have focused on certain transactions, in particular transactions between related companies or between the company and its owner(s) in order to control the transfer pricing. Further, certain industries have been controlled such as the construction or building sector, transportation sector, restaurants, etc.
Tax, VAT and payroll tax
The tax authorities may audit any information relevant for the various taxes and duties levied by the state. This includes corporate income tax, value added tax (VAT) and payroll taxes. The control can be limited to one of these areas or apply to them all.
Note that the tax authorities should always strive to find the right tax assessment and if relevant also adjust to the benefit of the taxpayer. For example, if they refuse a deduction for input VAT - and this should result in a deduction of the income tax base, they should also adjust the income tax.
Also read: Do the right things when doing business in Norway
What information can the tax authorities require?
The taxpayer who is subject to a tax audit has a general duty to give the tax authorities access to:
Accounting material with documentation, contracts, correspondence, minutes from board of directors’ meetings, electronic programs and program systems which may be of significance for his or her bookkeeping or tax liability and the control thereof.
Therein lies a criterion of relevance, which means that you are under no obligation to provide information that is not relevant to the audit.
The information should concern matters that may help to clarify and fulfil your tax liability. However, the taxpayer has a duty to provide information and thus the responsibility for ensuring that sufficient information is provided.
Furthermore, only factual information may be required by the tax authorities. You are not obliged to provide legal reviews made by yourself, your company or others.
Lawyers’ confidentiality
Lawyers have a strict duty of confidentiality.
This means that the tax authorities cannot demand that you disclose correspondence or other documents provided by your lawyer. This may also apply to e-mail correspondence where you have copied in your lawyer.
Furthermore, your lawyer is not allowed to disclose to the tax authorities any information that regards you without your prior consent.
Note that your communication with other tax advisors such as your auditor or your accountant is not protected by the same non-disclosure regulations.
Also read: 6 tips for businesses: How to get a VAT refund in Norway
Who must provide information to the Norwegian Tax Authorities?
The taxpayer
The Tax Administration Act stipulates that taxpayers, as a general rule, are obliged to provide information according to requirements from the tax authorities. Note that the taxpayer can be anyone subject to tax, including both corporations and individuals.
Tax-free institutions
The tax authorities can also control whether a business meets the conditions for being a tax-free institution.
The payor
The duty to provide information also applies to certain payors, e.g. employers and clients who are responsible for reporting or withholding taxes in certain cases.
This applies e.g. when the employer pays salary to the employee, or when a company pays dividends to a non-Norwegian shareholder.
Third parties
The Tax Administration Act also allows the tax office to request that third parties participate in the control. There must however be a connection between the person being controlled and the third party whom the tax authorities require to assist in the control.
This can typically be the taxpayer's auditor, accountant, bank or employer. It may also be a person or company with which the taxpayer has an existing or previous contractual relationship. For example, the tax authorities can instruct your customers to disclose supporting documents that show whether you have invoiced with or without VAT.
The tax authorities often inform third parties that the control is confidential, which implies that the third parties cannot inform the audited taxpayer of the control. This is usually the case when the tax authorities obtain statements directly from the bank.
The provision giving the tax authorities the right to require third parties to participate, does not apply if the third party is limited by the statutory duty of confidentiality. However, the statutory duty of confidentiality does not apply when the tax authorities require information on money transfers, deposits and debts, as well as who the other party to the transaction is. This also applies to lawyers.
Obligation to provide information for third parties
In certain cases a third party may be obliged to provide information to the tax authorities:
Businesses are obliged to provide relevant information in cases where the tax authorities specify which taxpayer is the subject of the tax control. It is however a precondition that there is a connection between the business and the taxpayer who is controlled.
The obligation for third party individuals to provide information is very limited and applies only to some tax issues.
Read more: Business in Norway - Avoid sanctions and penalty charges
Stay in control from the start
A tax audit can have significant financial and operational implications, so it’s crucial to manage the process correctly from day one. Avoid giving incomplete or hasty responses, and make sure to seek professional advice as soon as you receive notice of an audit. At Magnus Legal, we are ready to assist you in navigating the audit process and protecting your interests. Don’t hesitate to contact us early — the right support can save you time, resources, and potential penalties.
Do you have questions about Norwegian Taxation?
Ensure your business adhere to Norwegian Tax rules. Contact us for support.
Find out more about Magnus Legal’s tax services on our webpage: Corporate tax in Norway
Article first published September 2019, latest update August 2020.
