Norway: Proposed amendments to Petroleum tax regime

Government announces proposal for time limited tax reliefs for the oil and gas industry.

Government announces proposal for time limited tax reliefs for the oil and gas industry.

The petroleum industry is Norway's largest industry. Norway is the 8th largest producer of oil and the 3rd largest producer of gas in the world. The service and supply industry is Norway’s second-largest industry measured in terms of turnover, after the oil and gas industry, and includes more than 1 250 companies. Recent events have impacted the wider petroleum related industries and the Government has therefore proposed certain amendments to the Petroleum Tax Act as a measure to maintain investment activities and then also secure work for the oil service industry.

In a press conference today (April 30, 2020), the Government announced that they will propose certain time limited tax reliefs for the oil and gas industry coming into effect for 2020.

The details of the proposal will be issued as a separate white paper (Ot. Prp) that will be published together with the revised National Budget May 12, 2020.

The Government will also need to assess and ensure that the proposals is be aligned with the EEA agreement.

The key elements of the proposal are as follows;

  • The E&P companies will be allowed a direct expense of development capex with effect for the 56% special tax basis. For the 22% corporate tax basis the current 6 year straight-line depreciation will be continued.  For covered investments (i.e. investments subject to the direct expense for special tax purposes) there will also be an uplift of 10% that can be fully taken in the year of investments.  These changes in depreciation and uplift will come in to effect for investments made in 2020 and 2021, but will also include investments through 2024 or production start (if earlier) provided that a PDO/PIO is filed by the end of 2021 and approved by the prior to the end of 2022.
  • The Government will also allow a refund of the tax value of losses for the income years 2020 and 2021, i.e. such losses do not need to be linked to exploration costs or cease of the E&P business in order to be refunded. 
  • Further, the Government also announce that they would present measures for environmental friendly transformation ("green shift") by the end of May 2020. Such measures may also have elements of relevance for the oil and gas industry. It was particularly mentioned the need to maintain activities related to projects for connecting the offshore installations with land based electricity. In this respect it was also indicated that Co2 emission tax may be increased, particularly if the cost for buying quotas was reduced.

It is important to note that the Government presented a very brief summary of the proposals during the press conference, and that the details of the proposal is not likely to be presented in full until May 12 2020. Given that the Government does not have majority in the Parliament, the final outcome of the proposal as presented for the Parliament may also be subject to adjustments.

Even if the Government's proposals are much of the same nature as suggested by the petroleum- and service industry, they are, however, more limited (e.g. direct expense only for the 56% tax basis, reduced uplift for the expensed capex, and a reduced period for refund of the tax value of losses) The proposal will clearly aid the situation for the petroleum sector, but two immediate observations are that the effects of a direct expense will be reduced for industry players that are not in a tax paying position. Moreover, a refund of tax losses for 2020 and 2021 will most likely not result in any payouts before late 2021 and 2022 respectively, i.e., potentially limited immediate liquidity effect.