COVID-19 Compensation scheme 2

The regulations that govern compensation scheme 2, was established 21 December. The arrangement is based on compensation scheme 1, but several sets of rules are different. Below, we will review the new scheme and the most important changes and we will also provide some advice as to how a typical company with projects in Norway should relate to a possible application for compensation.

The new compensation scheme for companies with a large loss in turnover will cover the period from 1 September 2020 to 28 February 2021. One can apply for compensation for two and two months. That is:

• The period from 1 September to 31 October 2020 (Adjustment factor: 70%),
• The period from 1 November to 31 December 2020 (Adjustment factor: 85%), and
• The period from 1 January to 28 February 2021 (Adjustment factor: 80%).

As in compensation scheme 1, there are a number of terms and conditions that must be met in order for a company to be entitled to compensation. The terms and conditions in the two schemes mostly coincide.

The most central condition is that the company must have had a loss in turnover in the compensation period of at least 30%, compared with the same period last year. Turnover and fixed unavoidable costs shall be calculated in the same way as in compensation scheme 1, but the calculation is simpler: In compensation scheme 2, the calculation is made through a comparison with the corresponding period last year, without any growth factor. The adjustment factor per application period is indicated in the parentheses above.

An estimated subsidized amount up to NOK 60 million per compensation period (two months) is paid in full. For amounts exceeding NOK 60 million, the compensation is reduced by 50%. The maximum subsidized amount per compensation period is NOK 160 million.

The example below shows a "normal case". Note that the calculation will be different in cases where restrictions have to be applied. This may, for example, be due to a minimum / maximum limitation, that the subsidized amount may not exceed the decline in turnover in NOK or that the company experienced a loss before tax in 2019.

• Administration, application amounts, application period and confirmation
  The compensation scheme is administered by the Brønnøysund Register Centre (Brønnøysundregistrene) and not the Internal Revenue Service (Skatteetaten). The portal to compensation scheme 2 is https://kompensasjonsordning.brreg.no/
  It must be applied for a period of two months, not for individual months.
  The application must be confirmed by the auditor or accountant before payment the compensation. Everyone who applies must have a confirmation from an authorised auditor or an authorised accountant. There is thus no maximum amount. Confirmation is given by signing the application form in Altinn after the applicant has signed.
  
  80% of the cost of the confirmation from the auditor or accountant is covered, a maximum of up to NOK 10,000 per application period.
  
  It is an explicit condition that the loss in in turnover is mainly due to the corona pandemic. The applicant must declare this when the application is submitted.
  
  The seasonal model (season factor) has been removed.

• Easier calculation of loss in turnover
  The growth factor, change in turnover from January/February 2019 to January/February 2020, has been removed. The calculation of the loss in turnover is therefore simpler - only accrued turnover for the application period and the comparison period are compared.

• Deficit
  Any deficit before tax in the last financial year ended before 1 March 2020 may, as before, reduce the subsidy, but still so that the reduction can be limited or lapse if the result in the period January / February 2020 was better than the average monthly deficit in 2019.

• Mergers and demergers
  Companies that have been transferors or acquiring companies in demergers that have been registered as completed in the Register of Business Enterprises on 1 January 2020 or later, are not covered by the compensation scheme for any of the compensation periods.
  
  Companies that have been part of a merger during the comparison period or later may, for the comparison period, include the turnover from the transferring company.
  
  Companies that have been transferor or acquirer in a demerger registered in the Register of Business Enterprises during the period 1 September 2019 to 31 December 2019, shall use the turnover in the calendar months January and February 2020 as the basis for calculating the loss in turnover.

• Compensation
  Compensation that the recipient receives is paid under an insurance scheme, as part of legal proceedings, through arbitration or through other sources and which covers the same damage, shall be deducted upon receiving payment of the compensation. If the compensation is paid prior to a possible insurance sum, the recipient of the compensation must repay the corresponding part of the compensation.

• Overcompensation
  A form of "safety valve" has been installed, which will prevent you from receiving support from both compensation scheme 2 and other subsequent subsidies or income security, so-called "overcompensation".

• Deductible
  There is no longer a deductible nor a distinction between companies that have been closed down by the state / as a result of state injunctions and other undertakings.

Turnover means income from the sale of goods delivered and services performed by the company in the relevant period, even if the deliveries are not invoiced.

Income from public compensation schemes is also considered as turnover, as compensation for income, and income security granted in connection with the corona pandemic.

Only income that is taxable in Norway shall be included. Income or return from total assets, real estate or other financial assets shall not be included. Rental income from real estate must still be included. VAT and excise duties related to sales revenues are not considered as income.

It is the turnover for the period for which compensation is applied for, ie the value of the supplied goods and services performed including profits, which must be stated. This applies regardless of the financial handling of the sales.

For building and construction contracts, this means that the turnover must be accrued according to the current settlement method with profit. Regarding how a construction company that has a project-based business should relate to this regulation in practice, we refer to our previous article.

The business must have fixed, unavoidable costs in order to receive subsidiary payments. Fixed, unavoidable costs are costs that cannot be reduced in the short term in line with the level of activity. Examples of actual costs that can typically be reduced, are costs that vary with turnover, quantity of goods and services produced or that are related to time-limited assignments, deliveries, etc. Note that long-term manufacturing contracts with a duration of more than one year are not to be regarded as time-limited in this context.

In order to be regarded as a fixed, unavoidable cost, the cost must be linked to an agreement entered into prior to 1 September 2020, and it must refer to specified items in the Income Statement. Fixed, unavoidable costs must be allocated evenly over the period in which they are incurred. The question of what are typical fixed unavoidable costs for a construction company, as well as some issues related to this, is discussed in our previous article here: https://www.bygg.no/article/1431695. Please note that the cost of confirmation to the accountant or auditor is reimbursed with 80 percent, but with a maximum of NOK 10,000 per compensation period.

The applications are submitted in a separate application form in Altinn. This form will look different from the application form in compensation scheme 1. In the first scheme, the applicant answered questions that would clarify whether or not the company was entitled to compensation before the company was even given the opportunity to fill in the application form. In the new scheme, all questions are included in the application form.

The application deadline for the period 1 September to 31 October 2020 and for the period 1 November to 31 December 2020, is 14 March 2021. However, the first application cannot be submitted before 18 January 2021. For the period 1 January to 28 February 2021, applications can be submitted from 15 March 2021 and the final application deadline is 15 May 2021.

For some companies, receiving compensation is time-critical in order to cover liquidity needs. Our advice is to start the preparations immediately. Below is a suggested process:

1. Initially, the company must assess if they are covered by the scheme, and whether the company qualifies to apply under the scheme (loss in turnover). There are various calculators that will indicate whether the company is eligible for compensation, as well as the estimated size of the compensation. Click here to try KPMG's compensation calculator.
   
   
2. The application must be confirmed by an authorised accountant or auditor before it is submitted. The company must therefore as soon as possible arrange for a meeting with the accountant or auditor and agree on a time for a review and statement. Also note that the person who submits the application must be registered with a key role in the Central Coordinating Register for Legal Entities. Therefore, make any changes as soon as possible if this is not up to date.
   
   
3. Start the work of extracting and documenting the accounting information necessary to calculate the loss in turnover and the fixed, unavoidable costs. Reference is made to our previous articles referred to above. As mentioned, it will be very important to be thorough when it comes to assessing the turnover in the application period and the comparison period, including calculation of the loss in turnover. There are a number of clarifications related to specific questions from the previous scheme. Where the regulations are unchanged, these can and must be used as a basis for scheme 2. We recommend reading this: https://www.skatteetaten.no/kompensasjonsordning/regelverk/avklaringer/. A strict and thorough review, delimitation, and accrual of the fixed, unavoidable costs must also be made. This will also ease the auditor's or accountant's use of resources and costs afterwards. We remind you that the regulations require that there is a statement that supports the numbers and calculations on which the application is based, with reference to relevant accounting material. The statement must show how turnover and fixed unavoidable costs are accrued.
   
   The control actions related to compensation scheme 2 have recently been determined and are almost as extensive as they were in compensation scheme 1. This means that one must expect to use time and money on the required certification before the application can be submitted.
   
   
4. Finally, it remains to fill out the application form and submit it - as mentioned above. The first opportunity will be 18 January 2021.

Find more information about the scheme here: https://kompensasjonsordning.brreg.no/ and the Regulations are published here: https://lovdata.no/dokument/SF/forskrift/2020-12-21-3085.