On 28 May 2020, the Norwegian Supreme Court issued a ruling in a transfer pricing case between the Shell group’s Norway subsidiary, A/S Norske Shell, and the Norwegian oil taxation office.
A / S Norske Shell has petroleum activities on the Norwegian continental shelf. A / S Norske Shell was involved in research and development during the income years by paying its share of the costs to the Shell Group’s central research and development center in the Netherlands and through its participation in local R&D projects in Norway.
A/S Norske Shell charged the local R&D costs to third party license partners on its extraction projects on the Norwegian Continental Shelf during the fiscal years 2007 to 2012. A/S Norske Shell did not initially charge any of these local R&D project costs to other Shell group companies, despite these companies having access to the research results.
Norway’s Petroleum Tax Appeals Board ruled that a discretionary assessment could be made since they considered that a comparable company would have also charged the R&D costs to companies that received access to the R&D results.
The Norwegian Supreme Court addressed the issue of whether the Petroleum Tax Appeal Board’s ruling was valid, considering that A/S Norske Shell had already charged the costs to its partners on extraction projects. The court held in favor of A/S Norske Shell. The Supreme Court considered the relationship between A/S Norske Shell and the relevant Shell Group companies as a cost-sharing agreement with no transfer of value for consideration. Thus, the Supreme Court ruled that, consistent with cost reimbursement principles outlined in Chapter VIII of the OECD transfer pricing guidelines, the Petroleum Tax Appeals Board did not take the proper consideration in their ruling and that it would be in violation of the arm’s length principle to charge the R&D costs to Shell group companies.