Norwegian board members in British companies risk double taxation

The British tax authorities, HM Revenue and Customs (HMRC), have in recent years increasingly challenged the tax treatment of non-resident directors ("NRD") in British companies. The specific issue relates to whether British companies, through the British Pay As You Earn (PAYE) system, have correctly deducted tax when paying out board fees to non-resident board members. The PAYE system is the UK's way of collecting income tax and national insurance from employees and directors, by deducting it from the salary or fees before they are paid out.

British companies that engage board members are required to report and deduct tax and national insurance contributions from the board members' fees through the PAYE system. This applies to both British and foreign board members who perform work in the United Kingdom. However, if the board members are Norwegian, employer's national insurance contributions must be paid to Norway, as the board members will normally be members of the Norwegian social security system. On their part, the board members must submit a British tax return including taxable board fees and any deductions.

Similar principles also apply in Norway, where Norwegian companies are required to report and deduct tax and national insurance contributions from fees to Norwegian and foreign board members who perform work in Norway. The employer's national insurance contributions must normally be paid to the country where the board members are insured. And the board members must submit a Norwegian tax return.

Another similarity is that British tax rules do not provide any exemptions or reliefs for NRDs, even if they only spend a few days in the UK. The British tax rules also do not generally provide any relief from British taxation under the tax treaties that the UK has with other countries. This means that the NRD may be taxed in both the UK and their country of residence on the same income, unless the country of residence provides a unilateral relief or a deduction for the British tax that is paid.

This is where the Norwegian tax perspective comes in. If you are a Norwegian resident who works part-time in Norway and the UK as a board member of a British company, you will be taxed in Norway on your global income, including board fees from British companies. Since the board fees may also be taxed in the UK, both under British tax law and under the provisions of the tax treaty, you are therefore in a double taxation situation.

Double taxation is avoided by Norway as the main jurisdiction granting a deduction for the British tax, limited to the part of the Norwegian income tax that falls on this income. Normally, this will mean that you get a full deduction, as the marginal tax rate for income from employment is somewhat lower in the UK than in Norway.

In practice, to claim the deduction under the tax treaty, you must prove that British tax has been paid on the board fees, such as by presenting a copy of your British tax return. You must also report the board fees and the paid British tax in your Norwegian tax return, and indicate that you claim a deduction under the tax treaty. You may also have to apply for a certificate of residence from the Norwegian tax authorities, to prove that you are resident in Norway for tax purposes.

The double taxation is further complicated by the fact that Norway and the UK have different tax years, where we in Norway follow the calendar year while the UK counts from 6 April to 5 April. You therefore risk having to wait for up to approximately six months to claim a deduction for parts of the British tax, and consequently temporarily cover this tax and file two tax returns with claims for deduction.

The tax treatment of NRDs in British companies is therefore relatively complex and challenging to navigate, and may involve a significant risk and administrative burden in both Norway and the UK. Therefore, it is sensible to seek professional advice and assistance to review your arrangements and ensure compliance with the tax rules and obligations in both countries.

We at PwC have significant experience in advising NRDs on their tax position and obligations, and we can help you to:

• Review your current arrangements and assess your tax exposure and risk in both Norway and the UK

• Proactively work with you to ensure that your future arrangements are compliant and optimized for tax purposes

• Work with you to resolve any queries or disputes you may have with the tax authorities in either country

• Advise you on the broader tax considerations, such as permanent establishment, residence, transfer pricing, and indirect taxes, that may arise from your cross-border activities