Pro Forma Transfers – A Legal Overview

Pro forma transfers often challenge the notion of true ownership. Courts assess the full context – from the parties’ intentions to subsequent actions – to determine which transfers have real legal effect.

The term “Proforma” or “pro forma,” derived from Latin—meaning “for the sake of form”—is used in legal contexts to denote acts or transactions that lack substantive significance but are nonetheless executed to satisfy formal requirements. Pro forma transfers may thus involve legal dispositions in which the formal transfer is not intended to have actual effect between the parties—for example, when the title to a property is registered in the name of a person who is not the true owner. A central question that arises is whether this formal appearance, which conceals the real legal position, should be disregarded in situations of conflicting interests, so that the actual owner or rights-holder remains the same after the transfer, effectively, even if the documentation indicates otherwise. 

The concept of pro forma has its roots in both property law and tax law. Determining whether a transfer is pro forma or genuine depends on a careful assessment of evidence as to whether the parties intended to effectuate a real transfer or whether the transaction was merely intended to appear genuine externally. Case law has established that the substantive legal position should be decisive, irrespective of the formal structure, cf. Section 34 of the Norwegian Contracts Act and the unwritten principle of “piercing the form.” The burden of proof that a transfer is pro forma generally lies with the party asserting it, though the standard of proof may vary depending on the circumstances, particularly in transactions between related parties.

In a 2001 case (HR-2000-949 – Rt-2001-187), the Supreme Court considered whether a share transfer between father and son was genuine or should be deemed pro forma for tax purposes under the distribution rules. The State argued that the transfer was merely a “sham,” with the shares effectively still owned by the father, satisfying the criteria for taxation as personal income. The Supreme Court emphasized that a comprehensive assessment of the evidence is required. It noted that it is insufficient to point to formal errors or irregularities in the documentation; the decisive factor is whether the transfer has substantive reality. Although there were incomplete tax filings and inconsistent explanations regarding settlement, the Court concluded that these facts alone could not justify deeming the transfer pro forma. Significant weight was placed on the fact that dividends were in fact paid to the formal shareholder, who exercised genuine shareholder rights, including participation at the general meeting. The Court accepted that tax motives alone do not render a transaction suspect, provided the transfer is real. On balance, the Supreme Court concluded that the share transfer was most likely genuine, invalidating the decision of the tax assessment committee.

A different outcome was reached in a recent district court ruling concerning the transfer of a particularly valuable property between spouses, where the question was whether the transfer was genuine or should be considered pro forma and therefore could not prevent creditor claims. The court started from a presumption that a registered marital property agreement is generally genuine, but this presumption may be rebutted if it appears more likely than not that the transfer was not genuinely intended. In its assessment, the court emphasized that the transfer was clearly motivated by the intention to protect the property from creditor claims. While this motive is generally legitimate, it lowers the threshold for considering the transaction pro forma if other circumstances point in the same direction. The court further noted that, following the transfer, several encumbrances in favor of creditors of the original owner had been registered, and that the formal owner had made the property available as security for debts for which no one other than the original owner was responsible. The court also found it “striking” that the new formal owner did not respond to enforcement actions on the property post-transfer, had they truly been the real owner. On balance, the court concluded that there was sufficient evidence that the transfer was not genuinely intended, and that the original owner should still be considered the legal owner despite what the land register and marital agreement indicated.

Both cases illustrate that the assessment of whether a transfer is pro forma or genuine involves a concrete, holistic evaluation of evidence, with courts considering formal and factual circumstances, the purpose of the transaction, and subsequent developments. Mere reference to tax or creditor-related motives is insufficient. Clear indications must exist that the formal transfer has not had real effects for the parties. Particular emphasis is placed on subsequent transactions and the actual exercise of rights, as well as the notoriety and documentation supporting the transfer. The Supreme Court’s decision demonstrates that significant formal errors do not necessarily render a transfer pro forma if there is substantive reality in the parties’ conduct. Conversely, the district court’s ruling shows that when subsequent circumstances provide clear evidence that the transfer has not had real effect, the court may disregard the formal transfer and deem it pro forma, thus without intended legal effect.

The development of case law on pro forma transfers generally reflects a consistent approach, placing decisive weight on substantive evaluation in light of subsequent circumstances. The possibilities for verification offered by digitalization have sharpened the assessment of reality, providing courts with a stronger basis for determining whether a transfer is genuinely effective.