Norway: Re-notification of amended tonnage tax system | KPMG | GLOBAL

Norway: Re-notification of amended tonnage tax system

Norway: Re-notification of amended tonnage tax system

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.

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*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.

Windmill farm vessels

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.

Limitations on bare-boat chartering

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 bare-boat activity does not exceed 50% of the qualifying group's fleet within the tonnage tax system during the income year. There must also be an option to measure the bare-boat chartered fleet over a period of four years
  • For companies chartering out part of the fleet on bare-boat terms, “strategic management” of all vessels chartered out on bare-boat terms must be carried out from the EEA area. In this context, “strategic management” is a higher management level of the company, such as the CEO and the Board of Directors.
  • Bare-boat chartering contracts must not exceed a contract period of five years, with an option to extend the contract for up to three years.
  • These limitations do not apply to intra-group bare-boat contracts—that is, there is no impact on related-party bare-boat contracts. For the purpose if the notified limitation, bare-boat chartering is defined as the chartering of vessels without crew.

Limitations on time chartering in non-EEA flagged vessels

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.

Transition rules

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.

Effective date

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.

KPMG observation

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 | per.daniel.nyberg@kpmg.no

Ola Mæle | +47 9716 49 99 | ola.maele@kpmg.no 

Jan-Åge Nymoen | +47 4063 92 31 | jan.nymoen@kpmg.no

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