Securities lending in Norway is on the threshold of sweeping reforms. Proposals are now before the Norwegian Parliament which will authorize securities loans as genuine transfers of title, but not ones which trigger a taxable event. However, borrowers paying manufactured dividends will have to withhold tax due on payments.
Accordng to Den norske Bank in Oslo, the Norwegian Ministry of Finance has forwarded a proposal to the Norwegian parliament (the Storting) to amend Norwegian law to recognise all securities lending transactions between banks and corporates (not individuals) as a transfer of rights and title. The current regime treats only the accompanying collateral as a transfer. The proposed Act on Financial Collateral Arrangements will also recognize closeout netting, and clarify the legal position in the event of the bankruptcy of a counter-party.
The proposal is being forwarded to the Standing Committee of Finance and Economic Affairs at the Storting, which will make its recommendations to the Storting 29 January 2004. The Storting is expected to decide in favour of the Act in early February 2004, but it is uncertain as to when the new regulation will come into force.
Secondly, new legislation on the taxation of securities lending approved by the Norwegian Parliament in July this year comes into effect on 1 January 2004. According to the amendments, securities lending will not be regarded as realization of shares imposing a tax liability on lenders resident for tax purposes in Norway. However, lenders tax resident in Norway will have an obligation to claim re-delivery of the securities before the end of every fiscal year to facilitate the calculation of capital gains tax from a base price when they are eventually realised.
Furthermore, a borrower paying dividend compensation to a counterparty resident in a foreign country will be obliged to deduct withholding tax from such compensation. This means borrowers of financial securities will face tax obligations similar to those facing foreign holders of Norwegian shares.