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Norway: Proposed changes to taxation of hydropower producers

Norway: Taxation of hydropower producers

An appointed expert committee in a report presented 30 September 2019 proposed changes to the current scheme for taxation of hydropower producers in Norway.

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The expert committee recently proposed changes to the taxation of the hydropower industry in Norway, including:

  • Reducing or eliminating non-surplus-based taxes and fees paid to the local authorities
  • Increasing certain rates to compensate for the termination of non-surplus-based taxes and fees, but existing resource rent tax and natural resource tax would remain almost untouched
  • Changing the basis for the calculation of property tax to tax values, thereby reducing the taxable value of older hydropower plants
  • Reducing the threshold for resource rent taxation from 10,000 kVA to 1,500 kVA, which would bring a number of smaller plants within scope of the measures

The committee recommends that introducing a resource rent tax and a natural resource tax for wind power producers needs to be evaluated. The report has been submitted for a public consultation, and the deadline for responding is 1 January 2020.

KPMG observation

The proposal reportedly has been met with broad opposition, and it is uncertain whether the proposals would result in any changes to the tax regime.

Resource rent

Part of the committee's mandate was related to the question of whether the resource rent tax is currently designed so that socio-economic profitable investments are not conducted by the hydropower producers due to negative after-tax profitability. The committee stated that the resource rent tax was neutral the way it is designed today, and does not hinder investments. This contrasts with the long-standing industry position that projects are not begun because of the tax regime. Other than reducing the threshold for the resource rent taxation, thereby making even small-scale power plants subject to the resource rent taxation, and an increase in the tax rate by two percentage points, the resource rent tax remains practically unaltered.

Hydropower producers are allowed a basic deduction when calculating the resource rent income. Normal profits are shielded from resource rent taxation through an uplift rate that for 2018 was fixed at 0.7 % of annual average tax values.

The committee did not see any need for amending the rate of uplift nor the rates for tax depreciation. The industry historically has favoured increased tax depreciation on hydropower plants and dams. 

Municipal taxes and fees

The committee suggested changes to the non-profit-based taxes and fees that are paid to municipalities and counties.

  • First, the committee proposed to terminate contributions of concession power and concession fee.
  • Second, the committee proposed to change the basis for property tax for hydropower plants from a profit-based valuation method to a tax value-based model. For older power plants, this is expected to result in a significantly lower property tax bases.

Combined, the committee proposed reductions in the tax revenues for municipalities. However, a compensation for the loss of concession power and concession fee with a 2% addition to the resource rent tax rate, possibly in combination with increased natural resource tax, have been suggested. The committee also noted the income equalization system as a means for reducing the negative effects for the affected municipalities. 

Wind power

The committee recommended an evaluation of whether resource rent tax and a natural resource tax warrants introduction for wind power. The committee asserted that a neutrally designed resource rent tax would not prevent investments in wind power. Given the current, and recently approved, special tax incentives for wind power in Norway, it does not appear to be likely that such tax increase would be approved in the near future.

 

For more information, contact a tax professional with the KPMG member firm in Norway:

Thor Leegaard  | +47 4063 9183 | thor.leegaard@kpmg.no

Jan Erik Greni | +47 4192 1177 |  jan.greni@kpmg.no

Trond Thorvaldsen | +47 9925 9515 | trond.thorvaldsen@kpmg.no

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