Re-invoicing in the context of commercial property transactions may appear straightforward; however, an increasing number of property owners and tenants are experiencing rejection of their VAT deductions, even where they believe compliance has been achieved. This article examines the requirements for preserving deduction rights, the implications of the Norwegian Tax Administration's revised practice, and the documentation deficiencies that most frequently result in adverse outcomes.
Property owners often procure construction and maintenance services for themselves and their tenants. This practice is usually the result of existing supplier agreements and a desire for administrative efficiency. Upon receipt of the invoice, the property owner will deduct the VAT and subsequently re-invoice the tenant for their proportionate share. This approach has been the industry practice for many years and has not been subject to any significant challenges.
However, under current practice, the Norwegian Tax Administration applies significantly stricter scrutiny to determine which party has genuinely assumed responsibility for, and borne the risk associated with, the work. In instances where a party acts solely as an intermediary paying an invoice on behalf of another, the Norwegian Tax Administration will characterize the transaction not as a sale, but as a pure advance of costs. In such cases, the right to deduct VAT is forfeited, regardless of whether the re-invoicing itself has been correctly executed. It is precisely this area of uncertainty that is now giving rise to disputes.
Also read: 5 common VAT mistakes in commercial property and how to avoid them
In November 2024, the Norwegian Tax Administration issued a policy statement that represents a significant tightening of the applicable rules. The statement emphasizes that a party must bear genuine risk in relation to the delivery for the re-invoicing to confer a right to deduct. In other words, it is no longer sufficient merely to re-invoice. It is imperative that the party clearly demonstrates their role as a seller and is able to provide documented evidence of this.
A significant portion of the prevailing uncertainty stems from the fact that "re-invoicing" is used in practice as a blanket term for fundamentally different situations. In some cases, it constitutes turnover; in others, it is merely cost allocation. The Norwegian Tax Administration now draws a much sharper distinction between these categories, and it is here that many businesses fall short. In instances where a business merely advances a cost without exercising control or assuming risk, the transaction does not constitute a sale. Consequently, no right to deduction arises.
Under the revised practice, a mere agreement between the parties to share costs is insufficient. A clear contractual basis must be established, demonstrating which party ordered and assumed responsibility for the work. The documentation must also specify which party bears the risk in the event of non-performance or defects. In the absence of such documentation, there is a significant risk that the Norwegian Tax Administration will deny the deduction, and assessments may be revised up to five years retrospectively. For many businesses, this may result in substantial financial exposure.
This issue is of particular relevance to corporate groups, joint ownership, and property companies where costs are frequently allocated between entities. It should be noted that established procedures which have historically been accepted may no longer satisfy the current assessment criteria. A significant number of deduction claims are now being rejected on the basis that existing practices have not been adapted to comply with the revised requirements.
Despite the Norwegian Tax Administration's stricter approach, there are still viable solutions available to preserve deduction rights where both the property owner and the tenant are to bear their respective shares of the cost. The Circular 40 model is an example of such a mechanism. According to the terms of this model, the property owner is entitled to deduct their share of the invoice amount based on the original document. The tenant's deduction is derived from a copy of the invoice, along with a settlement document that clearly outlines the allocation of costs. This approach requires appropriate procedures and comprehensive documentation; however, when implemented correctly, it can effectively accommodate shared responsibility arrangements.
The key takeaway is that re-invoicing does not automatically confer a right to deduct VAT. You must ensure that you are acting in a genuine capacity as the seller in the transaction and that you can document the assumption of risk and responsibility. If you continue to handle costs in the same way you always have, it may be advisable to review your procedures. Minor formal errors can now result in significant financial consequences.
If you are uncertain whether your re-invoicing practices comply with current requirements, or whether you risk losing deductions, we can assist you in reviewing your agreements, procedures and documentation. In most cases, only minor adjustments are required to ensure that the deduction meets the necessary standards.