Norway vs Orlen Upstream Norway AS (formerly PGNiG Upstream Norway AS), March 2026, Supreme Court, Case No HR-2026-707-A
Table of Contents
Case Information
Court: Høyesterett (Supreme Court of Norway)
Case number: HR-2026-707-A (sak nr. 25-141970SIV-HRET)
Citation: HR-2026-707-A
Applicant: Staten v/Oljeskattekontoret (the State represented by the Oil Tax Office)
Respondent: Orlen Upstream Norway AS (formerly PGNiG Upstream Norway AS)
Jurisdiction: Norway
Judgment date: 26 March 2026
Judgment Summary
The case concerned the discretionary assessment of tax under section 13-1 of the Tax Act (skatteloven) in a thin capitalisation situation. Orlen Upstream Norway AS, a wholly owned Norwegian subsidiary of the Polish energy group, had borrowed more from its parent company than it could have borrowed from independent lenders. The Oil Tax Office increased the company's net income for the tax years 2010 to 2016 by reducing the deductible financing costs attributable to Norway by a total of approximately NOK 880 million, producing an additional tax liability of approximately NOK 243 million [11].
The central legal question before the Supreme Court was whether a discretionary assessment under section 13-1, third paragraph, is limited to adjustments that are unfavourable to the taxpayer, or whether it must also take into account conditions that are more favourable than arm's length, in this case an agreed interest rate below the market rate [2].
The Supreme Court, unanimously, dismissed the State's appeal. It held that the discretionary assessment under section 13-1, third paragraph, must be based on a net assessment of the transaction as a whole. Individual contractual terms may be adjusted in the taxpayer's favour, provided that the net effect remains an increase in taxable income or wealth [68].
Background
Orlen Upstream Norway AS was established in 2007 in connection with the PGNiG group's purchase of a licence interest in the Skarv field for USD 360 million [5]. In the period covered by the dispute, 2010 to 2016, the company was called PGNiG Upstream Norway AS and was wholly owned by PGNiG SA, in which the Polish state held 72 per cent of the shares. Orlen SA acquired PGNiG SA in 2022 [3].
Until 2010 the company was financed with equity and intra-group debt. In 2010 it was decided to finance the company with a combination of an external reserve-based lending facility (RBL) and loans from the parent. The RBL facility was established in August 2010 with a limit of USD 400 million [6]. The parent company provided six separate intra-group loan facilities over the period, with limits ranging from NOK 500 million to NOK 5,050 million [7–9].
The agreed interest rate on intra-group loans 1 and 2 was NIBOR 3M plus 2.20 per cent. For loans 3 to 6 the rate was NIBOR 3M plus 2.25 per cent [10].
On 7 June 2022 the Oil Tax Office issued an assessment for the tax years 2010 to 2016, concluding that the company's income had been reduced as a result of the related-party relationship and that it had been thinly capitalised. Financing costs attributable to Norway were reduced by approximately NOK 880 million in total, producing an additional tax liability of approximately NOK 243 million [11].
Oslo District Court set aside the assessment on 19 December 2023 [12]. Borgarting Court of Appeal, sitting with expert lay judges, delivered judgment on 7 May 2025. It found that the excess intra-group debt compared with borrowing capacity ranged from approximately NOK 1,400 million to approximately NOK 2,500 million per tax year, and gave three directives for a new assessment, including a directive that a market rate of interest should be applied to loans within borrowing capacity based on all price-relevant characteristics of those loans [14, 37]. The effect of the Court of Appeal's directives was to limit the increase in PUN's net income to approximately NOK 344 million, some NOK 536 million less than under the Oil Tax Office's assessment [15].
Core Dispute
The State appealed to the Supreme Court solely on the legal question arising from directive 3(c) of the Court of Appeal's judgment, namely whether a discretionary assessment under section 13-1, third paragraph, of the Tax Act may include an upward adjustment of the agreed interest margin on intra-group loans that fall within the company's borrowing capacity and are therefore not reclassified as equity [16, 40].
The State argued that section 13-1, first paragraph, is triggered only where income has been reduced as a result of a related-party relationship. Accordingly, only those parts of a transaction that cause the income reduction, that is, the loans in excess of borrowing capacity, should be adjusted. The agreed interest rate on loans within capacity should stand, as it bound the taxpayer and was unconnected with the extent of borrowing [19]. The State also argued that no deduction could arise for interest not actually incurred, relying on the requirement under sections 6-1 and 6-40 of the Tax Act that a cost must have been incurred [20].
Orlen Upstream Norway AS argued that the words in section 13-1, third paragraph, requiring income to be assessed "as if the related-party relationship had not existed" mandated a net assessment of the transaction as a whole, encompassing both the loan amount and the interest rate. After removing the interest on loans outside borrowing capacity and then adjusting the rate on loans within capacity to the market rate, the net result would still be an increase in taxable income [25].
Court Findings
The Supreme Court held that the wording of section 13-1, third paragraph, is wholly general and contains no restriction as to which contractual terms may be adjusted or in which direction any individual term may be adjusted [43]. The assessment of whether income has been reduced under the first paragraph is itself a net assessment at the level of the transaction; it is not conducted term by term [45, 49].
The Court found support for a transaction-based approach in the preparatory works to both the 1911 Act and the current statute. Ot.prp. nr. 26 (1980–1981) stated that the conditions for discretionary assessment are met where a transaction is economically worse for the taxpayer than it would have been in an arm's length relationship [49]. Rt-2007-1025 Statoil Angola and HR-2016-2165-A IKEA were cited as confirming that the transaction, or several transactions viewed together, constitutes the frame for the assessment [50].
On the argument that no deduction could arise for costs not actually incurred, the Court held that a discretionary assessment under section 13-1, third paragraph, first establishes a new set of facts, namely what would have been agreed between independent parties, and only then applies the substantive tax rules to that new factual basis. This is independent of actual payment flows, as is clearly the case where a market rate is imputed to a previously interest-free loan [52].
The Court also considered OECD Transfer Pricing Guidelines, which provide that the arm's length principle should be applied on a transaction-by-transaction basis but acknowledge that closely linked transactions may need to be evaluated together [56]. The Court noted that OECD guidance on thin capitalisation allows for variation in how states regulate the matter and that the specific issue in this case was not expressly addressed, so it was cautious about placing significant weight on the guidelines [57].
A 1989 decision of the Petroleum Tax Appeals Board (PSK-1989-1002-A), concerning a parent company guarantee, was noted as support for a net approach, in that both income-increasing and income-reducing effects of the related-party relationship were taken into account, and the adjustment was not confined to the portion of the loan reclassified [58, 60].
The Court rejected the State's concern that a net approach gives the taxpayer a windfall advantage not available to others [64], finding that a net approach means the taxpayer neither gains nor suffers compared with what would have occurred between independent parties. The Court found no penal purpose in the provision [65].
On the State's subsidiary argument that the interest margin could only be adjusted if it fell outside an arm's length range, the Court held that although falling outside an arm's length range is a precondition for triggering a discretionary assessment under the first paragraph, the goal of the assessment under the third paragraph is to establish the income most probably resulting from an arm's length transaction. Where a specific price is found to be most probable, that price must be applied under the third paragraph, even if an arm's length range would also encompass lower margins. Since the trigger for the assessment in this case was loan size rather than the interest margin, the margin's position relative to an arm's length range was in any event irrelevant; under the third paragraph it must be set at the rate most probably agreed between independent parties [73–75].
The Court also found it natural to consider all the intra-group loans together, as they were between the same parties, raised for similar purposes, and had substantially the same margin and terms, differing only in amount and duration [70].
Outcome
The Supreme Court unanimously dismissed the State's appeal [76, 78]. The Court held that directive 3(c) in the Court of Appeal's judgment was based on the correct interpretation of section 13-1, third paragraph, of the Tax Act. The State was ordered to pay costs of NOK 2,000,000 to Orlen Upstream Norway AS within two weeks of service of the judgment [78]. The Court reduced the costs claimed by Orlen Upstream Norway AS from NOK 3,040,563 to NOK 2,000,000, finding that the amount claimed exceeded reasonable and necessary costs for a matter heard over two court days [77].
TP Method Highlighted
The case did not concern a specific transfer pricing method in the conventional sense. The pricing question related to the arm's length interest margin on intra-group loans. The Court of Appeal found, and the Supreme Court accepted without disturbing, that the agreed interest margin on the intra-group loans was below the market rate and that the most probable arm's length margin would have been 150 basis points (1.5 percentage points) higher than agreed [74]. The broader legal issue was whether, in a thin capitalisation assessment under section 13-1, the discretionary assessment must treat the transaction as a whole, applying a net approach that adjusts both the loan amount (downwards, by reclassifying excess debt as equity) and the interest rate on the remaining loans (upwards, to the market rate), rather than limiting the adjustment to the excess debt alone.
Major Issues / Areas of Contention
- Whether a discretionary income assessment under section 13-1, third paragraph, of the Tax Act in a thin capitalisation case must be limited to adjustments that increase the taxpayer's tax burden, or whether it must also adjust contractual terms that are more favourable than arm's length, even where this benefits the taxpayer.
- Whether the assessment under section 13-1, third paragraph, is transaction-based (a net adjustment of the transaction as a whole) or condition-based (limited to the specific contractual terms that caused the income reduction).
- Whether the requirement in sections 6-1 and 6-40 of the Tax Act that a cost must have been incurred precludes a deduction for interest calculated at a market rate that exceeds the rate actually agreed and paid.
- Whether an upward adjustment of the interest margin on intra-group loans within borrowing capacity is subject to a precondition that the agreed margin falls outside an arm's length range.
- Whether all six intra-group loan facilities could be assessed together as a single transaction or group of closely linked transactions for the purpose of the net assessment.