Norway: Reduced corporate tax rate, financial activity tax proposals

Norway: Reduced corporate tax rate

The Norwegian conservative government on 6 October 2016 published a proposed state budget plan for 2017. The tax proposals include a reduction in the corporate income tax rate to 24%, an increased tax burden for the financial sector, and increases to “environmental taxes.” The proposals in the 2017 budget plan are subject to parliamentary discussions before a bill is presented to the Parliament. It is expected that a final vote on the budget would be before the end of 2016.

Related content

With the 2017 budget plan, the government indicated its commitment to follow the parliamentary tax reform agreement. Read TaxNewsFlash-Europe

Corporate tax proposals

The 2017 budget includes the following proposals affecting corporate taxation in Norway:

  • The corporate income tax rate would be reduced from 25% to 24% in 2017—the parliamentary agreement calls for the rate to be further reduced to 23% in 2018. 
  • The petroleum tax and the tax on economic rent from hydropower would be adjusted without any net effect on tax revenues. This involves increasing the special tax on petroleum income to 54% and reducing the rate of “uplift” (investment-based extra depreciation) from 5.5% to 5.4% per year. The tax on economic rent from hydropower production would increased by 1.3 percentage points to 34.3%. 
  • Under the tonnage tax system, the definition of “qualifying vessels” would be expanded to include windfarm vessels, pending certain approval.
  • The country-by-country (CbC) reporting regulation is proposed to be effective from 1 January 2017, so the first year of reporting would be for the accounting year starting 1 January 2016 or later. 
  • The proposed state budget does not include any further comments related to amendments in light of OECD’s base erosion and profit shifting (BEPS) project and ongoing international tax developments.

Financial activity tax

In line with the parliamentary tax agreement, the budget includes a proposal for a “financial activity tax” that would be introduced on the financial sector wage base at a rate of 5% of the amount of gross salaries paid. The corporate tax rate for financial undertakings would be kept at the 2016 level—i.e., 25%. This implies that financial enterprises would not be included in the general reduction in the corporate income tax rate. 

The financial activity tax would be intended to tax the value added regarding the provision of financial services (currently exempt from value added tax (VAT)). It is proposed that the financial activity tax base would include all companies having employees who exercise activities within the area of industry K - "Financial and insurance activities" - the Central Bureau of Statistics Standard Industrial Classification. Companies with no employees, therefore, would not be subject to the tax. Further exemptions would include: 

  • Companies that have less than 30% of payroll expenses related to industry “K activities”
  • Companies whose VAT-able "K activities" exceed 70%
  • Financial institutions that exercise “important” socioeconomic duties not considered an economic activity based on EEA rules

KPMG observation

There are several uncertainties about the proposed financial activity tax. It is not clear how companies that exercise activities under several industry codes (multiple registered) would be treated. Further, companies with no employees (e.g., holding companies) would be exempt from payroll tax, but it is not clear whether such companies would enjoy the reduction in the corporate income tax rate or not. It is expected that secondary law, to be published before year-end, could clarify some of the current uncertainties.  

R&D incentives

The Skattefunn research and development (R&D) tax incentive regime would be expanded by increasing the maximum deductibility basis (cap) for internal R&D from NOK 20 million to NOK 25 million, while the cap for outsourced R&D would be increased from NOK 40 million to NOK 50 million. 

Additional tax incentives for long-term investments in start-up companies (similar to the seed enterprise investment scheme in the UK) had been considered, but ultimately, the government concluded that such incentives require additional analysis and therefore are not proposed at this stage.

Individual taxation

The political parties broadly agreed that the combined corporate income tax and tax on dividends would be maintained at current levels. The suggested corporate income tax rate reduction would entail a corresponding increase in the taxation of dividends. Nevertheless, the overall marginal tax rate on dividends would be maintained at about the current level when considering corporate tax and individual (personal) dividend taxation as a whole.

The government has proposed to shield the return on investments from tax—that is, reflecting a risk-free rate of interest. An increase of 0.5% to the “tax shield” is proposed, and this would imply a reduction in taxable dividends. Further, a share savings account regime for listed shares and equity funds is proposed, which would imply that gains are not taxed on an ongoing (current) basis.

The government has proposed further reductions in the net wealth tax to curtail the negative effects of this tax on Norwegian ownership and businesses. The provisions in the parliamentary tax agreement were followed, with a proposal to reduce the valuation of shares and operating assets, as well as associated debts, by 10%. Commercial property and secondary residences would retain a valuation discount of 20%, with the valuation of debts associated with such properties being reduced by 20% for net wealth tax purposes.

 

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

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

Thor Leegaard | thor.leegaard@kpmg.no

Anders Liland | anders.liland@kpmg.no

Jan Ove Fredlund | jan.ove.fredlund@kpmg.no

Jan Samuelsen | jan.samuelsen@kpmg.no

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