The Norwegian Ministry of Finance, in a May 2017 letter, advised the EFTA Surveillance Authority* with respect to the Norwegian special tax system for shipping—the tonnage tax system. Although the current model of the tonnage tax system is not of limited duration, the Norwegian authorities were committed to re-notify the EFTA about the tonnage tax regime after 10 years. The impending notification implies a continuation of the existing shipping tax system (that was approved by EFTA in a December 2008 decision). However, the notification provided by the Norwegian Ministry of Finance includes several new limitations and amendments regarding qualifications under the tonnage tax system.
*The EFTA Surveillance Authority monitors compliance with the agreement on the European Economic Area (EEA agreement) in Iceland, Liechtenstein, and Norway, enabling those countries to participate in the internal market of the European Union.
Previously announced by the Norwegian Parliament, one of the amendments concerns vessels involved in activities in connection with the construction, maintenance, repair, and disassembly of windmills at sea—made eligible for the tonnage tax system (even when the vessels are not used in transportation assignments. The tonnage tax system will not be available to windmill farm vessels operating in Norwegian internal waters, as foreign companies performing such activities would be liable to tax in Norway. This expansion clarifies that the treatment of windmill farm vessels under the tonnage tax system, and will therefore also include vessels that are not involved in marine transport per se.
The Ministry of Finance stated that certain limitation on bare-boat chartering would contribute to determining that core-shipping activities remain the main activity of companies within the tonnage tax system. Therefore, the notification includes a rule allowing revenues from bare-boat chartering to be subject to the tonnage tax system provided that:
The Ministry also notified a limitation of 90% on the chartering in of non-EEA flagged vessels on time-charter or voyage-charter terms. For the purpose of this context, time charters and voyage charters are defined as the chartering of vessels with crew.
In order to encourage companies to adapt to the new requirements and continue with the Norwegian tonnage tax system, the limitations concerning bare-boat chartering will only apply to new bare-boat charter contracts. Tonnage chartered on existing contracts (including options) will not be included in the limitation. This transitional rule will not apply to long-term contracts (those of a duration of more than five years). The Ministry of Finance considers that the limitation of 90% on the chartering in of non-EEA flagged vessels on time-charter or voyage-charter terms are in line with maritime guidelines. According to the transitional rule, it will only apply to new charter contracts.
The current tonnage tax provision are approved by EFTA Surveillance Authority until 1 July 2017. The new tonnage tax system notification period is from 1 July 2017 to 31 December 2026. For the inclusion of windmill farm vessels, the new rules will have retroactive effect as from 1 January 2017.
The expansion of the tonnage tax system to include windmill farm vessels is good news for those affected by this change, and reduced activity within the petroleum sector reinforces offshore wind power as an attractive business area for companies with vessels, crew, and know-how related to the offshore petroleum service sector. However, to the contrary, the notified limitation on bare-boat chartering to external parties may affect many market players currently within the Norwegian tonnage tax system. In particular, tax professionals in Norway have expressed opinions that the transitional rule is more restrictive than necessary, as it will affect existing contracts entered into long before the publication of the notification. Existing bare-boat charter contracts with a duration longer that five years (plus the three-year option) will likely be considered an illegal asset under the amended rules, and may consequently imply an exit from the tonnage tax system. It could pose a risk for the transfer of vessels and/or companies to other tonnage tax systems within EEA and non-EU jurisdictions.
For more information, contact a tax professional with the KPMG member firm in Norway:
Per Daniel Nyberg | +47 4063 92 65 | firstname.lastname@example.org
Ola Mæle | +47 9716 49 99 | email@example.com
Jan-Åge Nymoen | +47 4063 92 31 | firstname.lastname@example.org
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.