Norway’s state budget 2019, presented 8 October 2018, includes some tax rate changes, but for the most part, the budget does not propose significant corporate tax changes—in particular, measures relating to the Norwegian petroleum tax regime. There are no significant corporate tax changes with respect to income from exploration, development, and production (E&P activities) from petroleum-related activities on the Norwegian continental shelf.
The statutory corporate tax rate is proposed to be reduced from 23% to 22% effective from 1 January 2019. The special petroleum tax would be increased from 55% to 56% (i.e., the marginal tax rate of 78% would be unchanged).
To protect “normal returns” on investments from the special petroleum tax, an extra deduction would be allowed in the special tax device known as “uplift” (that is, an investment-based extra depreciation).
In order to maintain the tax value of the uplift mechanism at the same level as in effect prior to the change in the corporate tax rates, it has been proposed to reduce the uplift rate from the current rate of 21.2% (5.3% per year for four years) to 20.8% (5.2% for four years). This change would be effective for investments and realizations taking place in 2019 and later. Thus, the benefit from uplift from prior year investments would not be affected, and would continue to allow for the use of the uplift rule for the year when the investment took place. Furthermore, some projects could still claim uplift benefits under a grandfather rule from 2013.
With respect to environmental taxes (such as the tax imposed on CO2 emissions and NoX emissions), there would be adjustments for inflation. The CO2 tax would be increased from 1.06 NOK to 1.08 NOK/Sm3 emission, and the NoX rate would be increased from 21.94 NOK to 22.27 NOK/kg emission. However, with respect to NoX, taxpayers could elect to pay the tax into the NoX fund (that would allow for a significant reduction in the cost of NoX emissions). Environmental taxes are regarded as an “ordinary opex” with a 78% marginal tax deduction.
The EFTA Surveillance Authority (ESA)* in responding to a complaint from an environmental NGO has, for the past year, considered whether to open a formal investigation of the rules on refunds for exploration costs—as such are potentially considered to be illegal state aid. The process has been extensive, and the Norwegian authorities have submitted several formal letters to the ESA in 2017 and 2018.
The Norwegian government did not mention this ESA issue in the tax proposals for the state budget for 2019. The Ministry of Finance has asserted that such reimbursements are not an “advantage” within the meaning of the state aid rules and that the rules governing the refund of exploration costs are not “selective” under the state aid rules, pursuant to the European Economic Area (EEA) agreement.
*The EFTA Surveillance Authority monitors compliance with the agreement on the European Economic Area (EEA agreement) in Iceland, Liechtenstein, and Norway that enables these countries to participate in the internal market of the European Union.
The government has proposed to introduce additional restrictions on tax deductions for interest payments of companies subject to tax under the ordinary tax rules. The current interest deduction limitation also would apply to interest payments made by these companies on external debt (e.g., third-party bank debt).However, the proposed interest deduction limitation rules would not apply for oil and gas companies operating on the Norwegian continental shelf.
However, the position of the Ministry of Finance is that such companies would be subject to the interest deduction limitation rules with respect to interest currently deductible from the ordinary corporate tax base. The Ministry of Finance has stated that this is an issue that is still subject to study and evaluation, and thus will be further assessed in the future.
The government stated that the Ministry of Finance will publish for public consultation during 2018 a “white paper” concerning the introduction of a withholding tax on interest and royalty payments. According to the Ministry of Finance, the goal is to introduce a legislative proposal during 2019.
There is no current information as to whether such a legislative proposal would also apply for companies that are subject to the petroleum tax regime, and there are no statements regarding how such a proposal would comply with Norway's obligations under the EEA agreement. Additional information is expected during 2018 and 2019.
For more information, contact a tax professional with the KPMG member firm in Norway:
Per Daniel Nyberg | +47 4063 92 65 | email@example.com
Jan Samuelsen | +47 4063 93 95 | firstname.lastname@example.org
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