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  • Ydelse: Tax
  • Type: Nyheder og artikler, Information om KPMG
  • Dato: 07-01-2010

Draft tax bill on conversion of limited tax liable enterprises 

On 6 January 2010 Greenland tabled a draft bill to simplify the conversion of enterprises which are subject to limited tax liability to fully taxable companies and to change the rules for taxation of licence transfers ("farm out").

The draft bill is expected to come into force on 1 July 2010. In addition to the above the draft bill includes new flat rate tax provisions for employees.

 

Conversion
The corporate tax part of the draft bill mainly applies to oil & gas and mining companies.

Succession to the tax position is proposed in connection with a conversion or transfer of a limited taxable enterprise to a company which is resident in Greenland. Succession will be total in that losses in the limited tax liable enterprise can be carried forward as losses by the receiving company.

 

This means that gains and losses in connection with the conversion or transfer are not taxable for the limited tax liable enterprise.

 

There are a number of conditions which must be fulfilled in order for the conversion or transfer to result in total succession, e.g.:

 

  • The company must take over all of the limited tax liable enterprise's assets and become entitled or obligated party in relation to the limited tax liable enterprise'scontracting parties.
  • The transfer must be approved by the Greenlandic authorities
  • The tax authorities in Greenland must be notified of the transfer within 30 days.
  • A final tax return for the limited tax liable enterprise must be filed within 60 days from the date of the conversion.
    It is not a requirement that the limited company is owned by the foreign limited tax liable company as long as the payment to the owner of the limited tax liable enterprise consists of shares in the succeeding company.

 

The draft bill will ensure that the provisions under the Mineral Resources Act where licences for exploitation of mineral resources can only be granted to public limited companies do not result in adverse tax consequences such as forfeitment of tax losses carryforward  and taxation of any gain resulting from the transfer.

 

Transfer of licence interests ("farm out")

Currently, a transfer of a licence is generally taxed at the time of contract even if payment is made later. Where the payment for the transfer consists of the buyer paying the seller's share of the future exploration costs and the costs fall in later income years there will be a mismatch between the income year in which the seller will be taxed and the income year when the seller is allowed a deduction for the costs which the buyer has paid on behalf of the seller

It is therefore proposed to attribute profits and deductions to the same income year. If the seller receives payment where the acquirer pays exploration costs, the taxation can be deferred to the year in which the costs are paid.

 

However, according to the draft bill the profits must be booked as income at the latest in the 3rd income year after the transfer.

 

If the sales price for a licence exceeds the share of the seller's exploration costs which the buyer must pay during the first three years on behalf of the seller, the latter will be taxed upfront on the difference.

 

If the payment in relation to farm out of licence interests consists of elements other than an obligation to pay exploration costs - for example repayment of previously paid costs or assets - this element will be taxed in full in the sales price. The draft bill is not to apply to transfers between group-related companies.

 

According to the current rules the buyer is only allowed to deduct costs related to the buyer's own share. The draft bill does not contain provisions to change the buyer's possibility for tax deductions on their investment as it is not clear whether a licence is amortizable. Therefore the buyer will only be granted a deduction on the resale of the licence in the form of a deduction for the acquisition costs.

 

Flat rate tax regime for foreign employees
The proposed draft contains a draft bill to introduce a 30% final flat rate tax regime for foreign workerswhich as part of their work carry out construction work outside existing towns and villages (defined in detail in the interpretative notesto the Act) or carry out work within the minerals and petroleum industry (defined in detail in the Act), including exploitation of ice and water for export.

 

The tax administration is simplified for the workers covered by the regime in that

  • they do not have to file an income tax return if they do not receive any other taxable income (see below), as the 30% tax withheld by the employer is final
    the calculation of the 30% tax does not consider personal allowances or other allowances/deductions
    any interest income or other taxable income is disregarded in the calculation of the 30 % tax

 

Other important issues and provisions to be aware of:

 

  • Other taxable income which is not covered by the final flat rate tax regime is taxed according to the general tax rules and therefore must be declared. (The normal tax rates are 37-44%, depending on the municipal affiliation, and the general tax rules provide for personal allowances, etc.)
  • The final flat rate tax regime does not apply if an employee was taxable to a Greenlandic municipality within the previous 6 months. (the 30% tax is paid to the Treasury)
  • The final flat rate tax regime does not apply if an employee also receives income which is taxed at source, including employment income, which falls outside the scope of the final flat rate tax regime.

 

The proposed legislation also contains a draft bill

 

  • to change the rules for some foreign workers' municipal affiliation – and thereby tax rate (regarding income which is outside the scope of the final flat rate tax regime),
  • to change the rules on company cars for on-call services with maintenance vehicles and certain other special vehicles.

 

These provisions will also apply from 1 July 2010.

 

It is also proposed to reduce the compensation payment from 4% to 2% when repaying excess paid tax. This is to apply for taxes as from income year 2009. The draft bill will apply from 1 June 2010.

 

For further information, please feel free to contact us.

 

 

Kontakt

 

Per Ørtoft Jensen

Telefon: +45 3818 3239

pojensen@kpmg.dk

 

 

Carina Marie Korsgaard

Telefon: +45 3818 3764

ckorsgaard@kpmg.dk