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Norway: Proposed amendments to petroleum tax regime

Norway: Proposed amendments to petroleum tax regime

The government today, at a 30 April 2020 press conference, announced that it will propose certain time-limited tax reliefs for the oil and gas industry, with a proposed effective date for 2020.

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The details of the proposal will be issued as a separate “white paper” that will be published together with the revised national budget, scheduled for 12 May 2020.  The government will also need to assess and determine that the proposals are aligned with the EEA agreement.


Overview

The key elements of the proposal are as follows:

  • The E&P companies would be allowed a direct expense of development capital expenditure for the 56% special tax base. For the 22% corporate tax base, the current six-year straight-line depreciation would continue.  For covered investments (i.e., investments subject to the direct expense for special tax purposes), there would be an “uplift” of 10% that could be fully taken in the year of investments. These changes in depreciation and uplift would be effective for investments made in 2020 and 2021, but also would include investments through 2024 or production started (if earlier), provided that a plan for development and operation and a plan for installation and operation (PDO/PIO) are filed by the end of 2021 and approved prior to the end of 2022.
  • A refund of the tax value of losses would be allowed for the income years 2020 and 2021 (i.e., such losses would not need to be linked to exploration costs or to the ceasing of the E&P business in order to be refunded). 
  • Further, the government also announce that it would present measures for environmental-friendly transformation ("green shift") by the end of May 2020. Such measures may also include elements of relevance for the oil and gas industry. In particular, there was mention of 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 the CO2 emission tax may be increased, particularly if the cost for buying quotas is reduced.


KPMG observation

Tax professionals have observed that the government only presented a very brief summary of the proposals during the press conference, and details of the proposal are not likely to be presented in full until 12 May 2020. Given that the government does not have majority in the Parliament, the final outcome of the proposal as presented for the Parliament may be subject to adjustments.

Even if the government's ultimate proposals are much the same as those suggested by the petroleum and service industry, they may be more limited—e.g., direct expense only for the 56% tax basis, reduced uplift for the expensed capital expenditure, and a reduced period for refund of the tax value of losses. The proposal would improve the situation for the petroleum sector, but the effects of a direct expense would be reduced for industry entities that are not in a tax-paying position, and a refund of tax losses for 2020 and 2021 would most likely not result in any payouts before late 2021 and 2022 respectively and thus with potentially limited immediate liquidity effect.   


KPMG observation

The petroleum industry is Norway's largest industry. Norway is the eighth largest producer of oil and the third 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 affected the broader petroleum-related industries, and hence, the government has proposed certain amendments to the petroleum tax law as measures to maintain investment activities and also to secure work for the oil service industry.


For more information, contact a KPMG tax professional in Norway:

Jan Samuelsen | +4740639395 | jan.samuelsen@kpmg.no

Per Daniel Nyberg | +4740639265 | per.daniel.nyberg@kpmg.no

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