Norway: Tonnage tax system approved by ESA | KPMG | GLOBAL

Norway: Amendments to tonnage tax system approved by ESA

Norway: Tonnage tax system approved by ESA

The Norwegian Ministry of Finance, in a December 2017 letter, announced that the EFTA Surveillance Authority (ESA)* has approved the Norwegian special tax regime for shipping—that is, the tonnage tax system—for another 10 years. The announcement came months after negotiations.

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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.

Background

The Norwegian government and the ESA have been in negotiations since May 2017 for a continuation of the Norwegian tonnage tax system. A first extension was approved in November 2016, and the ESA greenlighted another six-month extension in June 2017 to allow more time to finalise the process with a new 10-year programme. For more background, read TaxNewsFlash-Europe

10-year extension with revisions

The ESA announced in December 2017 that the Norwegian tonnage tax system has been extended for 10 years from 1 January 2018 until 31 December 2027. As expected, the tonnage tax system also has been revised by taking in windmill farm vessels while introducing some limitations for bare-boat chartering. There is a transitional period until 31 October 2018. On this basis, the ESA has concluded that the Norwegian tonnage tax system is in line with the EEA state aid rules.

Limitations on bare-boat chartering

The Norwegian Ministry of Finance previously stated that certain limitations on bare-boat chartering would contribute to determining that core-shipping activities remain the main activity of companies within the tonnage tax system. For purposes of limitations, “bare-boat chartering out” is defined as the chartering out of a vessel, when the owner does not have responsibility for the vessel’s crew. The limitations will depend on the type of vessel.

For “non-offshore vessels” (traditional transport vessels), a maximum 40% of the total tonnage in the group can be leased out on bare-boat terms to external parties. The Ministry of Finance has not stated any time limit on the bare-boat lease for non-offshore vessels. However, such bareboat leases cannot be "financial.” The Ministry of Finance provided in the December 2017 statement an example of what is considered a "financial bare-boat lease"—i.e., when the lessee or a third party will acquire the vessel on other terms than market terms at the end or after the lease period.

For “offshore vessels” (including support vessels, windmill farm vessels, and cable-laying vessels), there is an election available for an alternative restriction—a maximum of 50% of the tonnage in the group can be leased out on bare-boat terms to external parties. The lease period must be maximum five years with a three-year option for extension. Strategic management of the bare-boat leased out vessels must be within the EEA area. Intra-group bare-boat charters will be allowed without limitations. 

Limitations on time chartering in non-EEA flagged vessels

A limitation of 90% on the “chartering in” of non-EEA flagged vessels on time-charter or voyage-charter terms has been upheld. For these purposes, time charters and voyage charters are defined as the chartering of vessels with crew.

Transition rules

In order to encourage companies to comply with the new requirements and to continue with the Norwegian tonnage tax system, the limitations concerning bare-boat chartering will, as a starting point, only apply to new bare-boat charter contracts. However, under the transition rules, the limitations will also apply for certain bare-boat contracts: 

  • Offshore vessel bare-boat contracts with a remaining term exceeding five years
  • Non-offshore vessel bare-boat contracts with a remaining term exceeding eight years
  • In order to avoid any risk of by-passing of the anti-abuse rule, any changes in the existing bare-boat chartering out contracts made between 15 November 2017 and 31 December 2017 that influence the remaining contract period will not be taken into consideration

Companies within the tonnage tax regime that fail to meet the new requirements by 1 January 2018 will have to exit the regime unless the breach is corrected under the general rule (i.e.,  within a two-month period to fulfil the requirements running from when the breach came into being). 

Effective date

If approved by Parliament, the amendments are expected to be effective from 1 January 2018.

The ESA has approved a transitional period until 31 October 2018 for companies to adhere to the new rules on bare-boat lease out and requirements for EEA registration and gross tonnage of at least 1,000 gross register tons for barges without own propulsion.

As 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). Windmill farm vessels are eligible for the Norwegian tonnage tax system as of 1 January 2017. 

 

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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