A tax commission charged with examining the tax system in Norway today submitted its report—NOU 2014: 13—to the Minister of Finance that describes proposals for changes to the corporate tax system and for adjustments to the tax system, in general.
The tax commission’s report will be submitted for public consultation.
The tax commission was appointed by the previous government (Stoltenberg II) in March 2013 and was directed to review the corporate tax system in light of recent trends in international taxation.
In November 2013, the current government (Solberg) broadened the commission’s mandate and directed the commission to assess Norway’s tax depreciation rules.
The tax commission reviewed the Norwegian corporate tax system in light of recent trends in international taxation, and its recommendation is for a reduction in the statutory corporate income tax rate to 20% (from the current rate of 27%).
Noting that many countries have statutory corporate tax rates lower than 20% or have favorable tax regimes for certain types of income, the tax commission recommended a reduction in the statutory corporate tax rate to be combined with other measures to counter profit shifting.
The scope for adopting such measures could be limited by Norway's international obligations, primarily under the EEA Agreement. Moreover, Norway's right to taxation would, in some instances, be limited by the 90 tax treaties that Norway has concluded with other countries.
The key corporate tax proposals from the tax commission’s reports would:
Generally, the tax commission’s view is that Norway needs to follow up any recommendations concerning the arm's length principle resulting from the base erosion and profit shifting (BEPS) project within OECD.
The proposal for a reduced corporate income tax rate would decrease the profitability of profit shifting abroad. However, in the tax commission's view, it could be difficult to find good arm's length prices in certain areas—such as with respect to royalties, rental payments, and interest—so that special rules would need to be considered, such as:
The tax commission’s position is that there is a need for taxation to address profit shifting, to prevent double non-taxation, and to determine Norway's right to such income.
It was noted that the Norwegian tax base faces significant costs and challenges related to the leasing of vessels, machines, and assets—especially within the offshore petroleum sector. According to the tax commission, it is not an unusual practice for offshore contractors to lease assets from related parties (i.e., that are residents outside Norway). Generally, such lease payments are considered deductible for tax purposes in Norway. According to Norwegian tax authorities, the tax deduction for bareboat leases was BNOK 20.1 in 2011 and BNOK 16.6 in 2012, mainly related to offshore drilling rigs.
The tax commission discussed whether to introduce a deduction limitation in respect of royalties (to include bareboat lease payments), but concluded that a general limitation would not be a good resolution. Nevertheless, the tax commission’s position is that the Ministry of Finance needs to consider a deduction restriction for tax purposes in connection with certain types of rental payments, including bareboat charters on vessels and rigs.
The tax commission referred to UK law that imposes a cap on the tax deduction available for bareboat leasing payments for rigs (i.e., with respect to the UK continental shelf) made to a related party. However, the Norwegian tax commission did not recommend adapting the UK model when the limitation for tax deductibility is based on historic costs of the rig.
Rather, the tax commission recommended that:
The tax commission’s report is silent with regards to further analysis and the potential timeframe for adopting these proposals set out in the report. Nevertheless, tax professionals in Norway believe that the Ministry of Finance is already working on rules that would limit the tax deduction on bareboat payments between related parties.
The tax commission’s view is that the depreciation rules, to the extent possible, must correspond to the economic life; and therefore, the report proposes a reduction to the current depreciation rate for vessels and rigs to 10%, from the current depreciation rate of 14%.
The tax commission did not proposal changes to the special tax regimes for petroleum and hydropower companies, and it may be assume that revenue from these regimes would remain unchanged. However, it may be possible that a reduced statutory corporate tax rate could be countered by increasing the special tax for petroleum companies and economic rent tax on hydropower.
For more information, contact a tax professional with the KPMG member firm in Norway:
Anders H. Liland | +1 47 4063 9188 | firstname.lastname@example.org
Thor Leegaard | +1 47 4063 9183 | email@example.com
Per Daniel Nyberg | +1 47 4063 9265 | firstname.lastname@example.org
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