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Newsletter no 2/2013 - Tax

Published 05/07/2013

The Norwegian Government announces major tax changes to stimulate the mainland economy and increase the revenue from the petroleum sector

On 5 May 2013 the Norwegian Government proposed certain tax changes in order to stimulate the Norwegian mainland economy. This includes among other things a lowering of the general corporate tax rate. In addition, the Government proposed to increase the tax revenue from oil companies operating on the Norwegian continental shelf by way of reducing the cost base for special petroleum tax.

1. Changes in the general corporate taxation

The general Norwegian corporate income tax rate is currently 28 per cent. The Government has now proposed to reduce the rate to 27 per cent. Corresponding tax cuts are proposed for partners in (transparent) partnerships as well as for individual enterprises. However, the marginal tax rate applicable to oil companies and hydropower plants will remain unchanged. The reason is that it is proposed to increase the ground rent taxation of such companies with one percentage point.

The proposal also includes the introduction of an extra 10 per cent opening depreciation of machinery and equipment etc. This implies that such assets can be written off by 30 per cent in the purchase year (as opposed to 20 per cent according to the present rules). The proposal makes no changes in the depreciation allowance of 20 per cent annually subsequent of the purchase year.

Another important element of the proposal is that the Skattefunn scheme will be strengthened by MNOK 100 in order to stimulate business R&D spendings. Skattefunn is a tax credit scheme where business enterprises may apply for tax deductions in connection with R&D projects.

The above mentioned proposals are suggested to be effective as from the income year of 2014, and will formally be submitted to the Parliament in the 2014 tax bill the coming autumn. The proposals must be seen in connection with the recently proposed limitations on deduction for interest expenses paid to related parties, which is assumed to partly finance the new proposals.

2. Reduced cost deduction for oil companies

The Government has also proposed to reduce the deduction for investment costs when computing the base for the special petroleum tax. The deduction is proposed reduced from 30 per cent to 22 per cent of the investment costs. The deduction will still be divided over four years following the year the investment was incurred, which implies a new annual deduction rate of 5.5 per cent compared to the current 7.5 per cent. The Government has estimated that the proposal will result in a net present value of 70 billion NOK in increased tax revenues over the period 2013-2050.

It follows from the announcement that there will be a transitional rule shielding inter alia projects where the Ministry of Petroleum and Energy has received a plan for development and operation (PDO) or a plan for installation and operation (PIO) prior to 5 May 2013. The transition rule will also apply to investments where an application for an exemption or written notification of any significant deviation from a PDO or a PIO is received by the Ministry prior to 5 May 2013.

However, only investments incurred up to the same year as production starts or operation of the facility starts, will benefit from the transition rule. For investments covered by the transition rule, the current deduction of 7.5 per cent will still apply.

This newsletter contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. BAHR will not accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this newsletter.

Advokatfirmaet BAHR AS
Tjuvholmen allé 16, NO-0252 Oslo | PO Box 1524 Vika, NO-0117 Oslo
T: +47 21 00 00 50 | |