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Proposal for temporary tax incentives for petroleum companies

Norwegian Government proposed certain temporary changes in the Petroleum Tax Act.

Proposed certain temporary changes in the Petroleum Tax Act.

In Prp. 113 L (2019-2020) dated 12 May 2020, the Norwegian Government proposed certain temporary changes in the Petroleum Tax Act with the aim to keep the activity both for the oil companies and for the oil service industry.

The Government's proposal is in line with the announcement made May 7. Read more in this article published April 30: Norway: Proposed amendments to Petroleum tax regime.

The proposal is to allow direct expense in the 56% special petroleum tax basis for offshore E&P investments incurred in 2020 and 2021. In addition, it is proposed certain grandfathering rules that allows similar expenses for the period 2022 – 2024 for investments related to PDO, PIO and certain other plans for approval that have been filed within January 1 2022, and approved within January 1 2023 (and not prior to May 12, 2020). Under any circumstances it only covers investments up to production start (if earlier than end of 2024).

For investments subject to direct expenses as outlined above, there will be an uplift of 10%, which also can be taken in full for the year of investment.

For companies that will have a tax loss incurred in 2020 and 2021 it is proposed that the tax payer can get a cash refund of the tax value of such losses. A payout will come in December of the year following the income year, i.e. the refund for 2020 will come in December of 2021. It will be possible to mortgage the refund (similar as for the exploration refund).

The proposal for direct expenses in the basis for special petroleum tax will impact the interest deduction. A certain portion of the interest deduction is under current legislation allowed for deduction in the 78% basis, and the allocation is based on tax asset values per year-end. As the Government proposes that it should be the special tax basis that is used for allocation of interest costs, this means that interest costs related to expensed investments will only get a 22% tax relief (on a stand-alone basis).

It is expected that the Government proposal as described above will be subject to debate in Parliament, and the industry has signaled that the proposal is not sufficient to secure adequate activity. Thus, the proposal may be subject to certain adjustments.