Norway: Proposed amendments to petroleum tax law

Proposal would amend the current rules on accelerated depreciation and the “uplift allowance” under the special petroleum tax regime

Accelerated depreciation and the “uplift allowance” under the special petroleum tax regime

The government proposed significant amendments to the petroleum tax law prior to yesterday’s parliamentary election.

The proposal would amend the current rules on accelerated depreciation and the “uplift allowance” under the special petroleum tax regime, and replace these measures with an immediate tax deduction in the year of investment, effective 2022.

In addition, it is proposed that the rules allowing a refund of the tax-value of exploration losses and on cessation of petroleum activities would be repealed. 

Overview

The Ministry of Finance stated that with these changes, it seeks to align the petroleum tax regime better with the future developments of the Norwegian continental shelf. It is further emphasized that this revision would provide the industry with predictable fiscal terms.

A petroleum tax regime more closely aligned with a cash-flow tax treatment would increase tax revenue for the Norwegian government over time (estimated at NOK 7 billion for investments made in 2020). However, allowing an immediate tax deduction of offshore petroleum investments, would decrease tax revenues from the petroleum activities in the near term. At the same time, the Ministry of Finance stated it would like a petroleum tax regime which aligns both the industry and society's evaluation of profitability.  

Key elements of petroleum tax regime proposed changes

  • Immediate expensing of offshore petroleum investments from 2022 for purposes of the 56% special petroleum tax base, cf. Section 3b of the petroleum tax law. The immediate expense is intended to replace the current depreciation schedule and uplift allowance. The amendment would only apply for new offshore petroleum investments, and not offshore petroleum investments covered by the temporary rules proposed during the coronavirus (COVID-19) pandemic. Read TaxNewsFlash
  • The tax value of 2022 (and later years) offshore losses for special tax is proposed to be paid out in connection with the annual tax settlement. The Ministry of Finance will request comments related to the implications of the current pledge scheme for tax value refund of losses in the consultation memorandum.
  • During a transition period, it is proposed that the tax value of loss carryforwards and unused uplift allowance from previous years—both for offshore corporate tax and special petroleum tax purposes—would be subject to refund.
  • It is proposed that the corporate income tax would be subject to a tax deduction the special petroleum tax basis, and that the marginal special petroleum tax rate technically would increase from 56% to 71.8%.
  • The current scheme for exploration refund and refund upon cessation of petroleum activities would be repealed.
  • Losses carryforwards from 2022 would, under the proposal, be carried forward indefinitely without an interest element, in line with the general tax law. 

KPMG observation

For “mature” oil and gas companies, the proposal may entail a liquidity benefit. However, pure exploration companies could experience a liquidity constraint due to the proposed cessation of the exploration refund scheme. Hence, the effects of immediate expense could be reduced for industry players that are not in a tax paying position.

The proposed amendments will not apply to the temporary rules as introduced in response to the pandemic. Read TaxNewsFlash. These would be phased out in line with the decision made by the Parliament at the time.

The proposed amendments to the petroleum tax regime are subject to public consultation with a public consultation period of approximately three months.
 

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

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

Jan Samuelsen | jan.samuelsen@kpmg.no

Jonas Odland | jonas.odland@kpmg.no

Pål Martin Schreiner | pal.martin.schreiner@kpmg.no 

 

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