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Government compensation scheme for qualifying fixed costs

The parliament has approved a temporary compensation scheme for companies with a significant decrease of turnover to COVID-19.

The parliament has approved a temporary compensation scheme.

General information about the scheme

The scheme is an application-based grant scheme and the funds allocated to the scheme will be compensation for loss of revenue due to COVID-19 situation. In order to qualify, the applicant must evidence a shortfall in turnover for March of at least 20 percent. For April and May it is required to evidence a shortfall of at least 30 percent.

The scheme will be in effect for March, April and May and the payouts will be made on monthly basis. Entities must apply for the grant for one month at a time and the first payout will be made as soon as possible in April and be determined based on the numbers declared for March.

The grant will as a maximum amount to 90 percent of the unavoidable fixed costs for businesses that have been closed down due to a government resolutions, and 80 percent for other businesses. The costs must be accrued according to general accounting principles.

The grant for businesses that are experiencing a shortfall in turnover of 30 percent or more (20 percent for March) is calculated based on unavoidable fixed costs in the month for which the grant applies, less a deductible, multiplied by the shortfall in turnover as a percentage and multiplied by an adjustment factor:

Grant = Decline in turnover as a % x (unavoidable, fixed costs – deductible) x adjustment factor

The adjustment factor is the percentage of the costs that is covered (90 or 80 percent), see below.

The deductible is set to NOK 0 for businesses that have been ordered to close down by the government and NOK 10,000 for other businesses. The deductible is reduced to NOK 5 000 for April and May.

The grant will be considered taxable income.

Who can apply for grants?

The scheme is available for entities registered in the Register of Business Enterprises and sole proprietorships registered in the Central Coordinating Register for Legal Entities if the company’s income is the proprietor’s main source of income. The registration in the Register of Business Enterprises must have been made no later than 1 March 2020.

In order to qualify for the compensation scheme, the applicant must be taxable to Norway or the partners of the company must be taxable to Norway.

A general condition is that the applicants has employees. This condition does not apply for sole proprietorships and general partnerships where the company's income is the proprietor's or at least one of the partners’ main income. Certain exemptions are also made where an entity is part of a consolidated group with employees, cf. below.

Moreover, it is a requirement that the entity have experienced a significant shortfall of turnover and not subject to bankruptcy proceedings.

In addition, business activities that involve rentals or sales of real estate will be able to apply for grants according to an updated press release from the Ministry of Finance on 5 April.

Seasonal businesses

In a press release from the Norwegian Ministry of Finance dated 17 June 2020, changes are made in the calculation model regarding the subsidy amount for enterprises with mainly seasonal business activity.

Enterprises with seasonal business activity may increase the basis for the subsidy by a seasonal factor. For an enterprise to be considered to have «seasonal business activity», the enterprise must offer activities or experiences that mainly take place outdoors, and that are characterized as being seasonal. The subsidy amount may be adjusted upwards using the seasonal factor for all fixed unavoidable costs. This also includes the fixed unavoidable costs that are not related to the seasonal activity.

The seasonal factor for one month in 2020 is calculated by multiplying the revenue of the corresponding month in 2019 by 12, and divide it by the revenue in the previous year’s season.

If the enterprise for example had a revenue of NOK 200,000 in March 2019 and a revenue of NOK 1,200,000 in the 2018/2019-season, the seasonal factor for March 2020 will be 12*200,000/1,200,000= 2.

In order to apply the rules for seasonal business activity, more than 50 percent of the enterprise’s revenue must be generated by seasonal business activity or intrinsically linked business activity. In order to be granted a subsidy according to the rules for seasonal business activity, the peak season must include March, April or May 2019. In a normal year, the enterprise must generate 80 percent of its income during the peak season. If not, the enterprise must apply for a subsidy according to the general rules.

Companies part of consolidated group

Pursuant to the regulations, companies' part of a consolidated group may file one consolidated application as if the group was one company. In such cases, it will be sufficient that there is at least one employee in the consolidated group in order to fulfil the employee requirements.

Consolidated group applying for compensation of less than NOK 30 million may opt to file a consolidated application. This is however mandatory if the total compensation for the group exceeds NOK 30 million.

Shortfall in turnover

The shortfall in turnover should be measured as a percentage based on the turnover in the months for which the grant scheme applies compared to the turnover during a normal and comparable period.

A normal and comparable period is defined as the turnover for the same month last year, adjusted for the growth from January / February last year to January / February this year. Companies that did not exist last year, or that have been part of a restructuring, should use the January / February turnover this year as a basis for calculating the fall in turnover.

Applicants are required to provide an overview of turnover in the application and the numbers provided will be checked against various historical key performance indicators for the entity and peer group to the extent possible.

What should be considered as turnover

For the purpose of the compensation scheme, turnover shall include income from sales of goods and services. Income or return on capital, real estate and other financial assets shall not be considered as turnover.

Rental income and fees or commission income from sales of real estate will still be considered turnover.

Other government grants and governmental support received in connection with the outbreak of virus should be considered turnover. Such schemes may include, inter alia, support schemes for the cultural sector and funds allocated by Innovation Norway.

Unavoidable fixed costs

Unavoidable fixed costs include, amongst others, rental of premises, light and heat, water and sewage, insurance, rental of equipment and means of transport, as well as net interest costs. Unavoidable costs are defined as costs that cannot be reduced in the short term in line with a reduced activity level.  The costs must be evidenced by contracts or agreements entered into before 1 March 2020.

Costs related to time-limited assignments and deliveries is not considered as unavoidable fixed costs. This applies for example to short-term rentals of equipment in connection with short term assignments. Costs that vary with the level of activity, for example the variable component of rent that depends on the lessee's turnover or variable components of insurance premiums, also falls outside the definition of fixed unavoidable fixed costs.

While many businesses have significantly reduced their use of manpower, some are unable to fully reduce the manpower. The Ministry of Finance has announced that payroll costs will be included in the compensation scheme for certain businesses with retrospective effect for March 2020.

Compensations of less than NOK 5,000 per month per legal entity will not be paid and the aim is to have a limit for maximum payouts per month of NOK 30 million per company.

The maximum payment per month is NOK 80 million per company. For compensation exceeding NOK 30 million, compensation shall be reduced by a factor of 0.5. Similar limits also applies to applications prepared by a consolidated group.

Entities outside the scope of the scheme

Entities that are engaged in petroleum exploration and production as well as the transmission and distribution of power are not covered by the scheme. The same is the case for financial institutions, other companies with investment activities as their primary purpose and foreign goods transportation at sea.

Some industries and entities that are able to make use of industry-specific support schemes that have been established to help deal with the consequences of the outbreak, will also not be covered. This applies to private day-care facilities, air traffic companies and non-governmental organisations.

Furthermore, entities that are wholly-owned by the state, county or municipality and where the main portion of the activities measured in turnover is in competition with others, shall be covered by the scheme, but not companies wholly-owned by the same but where the main portion of the activities measured in turnover is not in competition with others.

Administration of the scheme

The scheme is managed by the Norwegian Tax Administration which is responsible of guidance, processing of applications for grants, decisions, registration of decisions, pay-outs and repayments of grants, follow-up and control.

Application and duty of disclosure

The application shall in principle be processed automatically on the basis of information provided by the applicant and information obtained from public authorities and others.

When submitting the application, the application must confirm that a certificate by an auditor or certified public accountant can be provided upon request. Through the automatic processing a decision will be made about the size of the grant, or possibly the rejection of the grant application.

Applications not automatically approved will be selected for manual processing before a decision is made. The Norwegian Tax Administration may ask for further documentation in order to process an application.

Applicants are required to provide correct and complete information. The applicant shall act with due care and loyalty and shall notify the grant authority in the event of any errors. Any violation of this obligation may result in an administrative sanction and/or penalty.

The Norwegian Tax Administration has expertise and systems in place for risk-based control and this includes that cross-checks can be made against historical information and other information about the company.

For applicants discovering that they need to correct the basis for the grant, there is the option of retroactive reassessment. In the event that the Norwegian Tax Administration should find that the paid out grant was given on an incorrect basis this will be followed up with a reassessment decision. There will be grounds for demanding repayment of overpayments of grants including interest.

Public access to successful applications

All successful applications will be made publically available on www.kompensasjonsordningen.no/innsyn. The information made public include the applicants name and organisation number, the compensation received, the turnover in 2020 and the comparable period in 2019 and the fixed unavoidable costs.

Audits and inspections

The Norwegian Tax Administration will conduct follow-up checks and obtain information in order to verify the information provided at the time of the application. It is envisaged that information provided in the application should be confirmed by an auditor or certified public accountant.

Follow-up checks and issuing statements in relation to this are part of an auditor's primary work. Arrangements are currently being made for the effective implementation of such follow-up check, with adaptation of tools and customisation of templates.

The Norwegian Tax Administration will also have the opportunity to perform on-site audits nad tax audits, of the grant recipient, equivalent to the audits that the Tax Administration otherwise performs in the area of direct and indirect taxes.

In general, the Taxes Management Act's rules will apply for the grant scheme to the extent they are suitable.