Certain of these proposals could affect market activity—hence, a reason for the announcement on a Sunday, when the markets were closed.
In his May Day speech, the prime minister previously stated that the revised Budget would include measures to curb international tax planning, but the measures presented during that speech did not list proposals other than a plan to introduce rules to limit the deductibility of interest—see TaxNewsFlash-Europe: Norway - Anti-avoidance rules to be introduced on 7 May
The revised Budget proposals are expected to include relief for certain businesses, but also to include increased rates under the petroleum tax and the resource rent tax (i.e., the tax on the production of hydroelectric power) regimes.
In addition, an anticipated proposal to increase the taxable value of second homes is expected to be included in the revised Budget.
Reduction of corporate income tax rate
The proposals are expected to include a provision to reduce the corporate income tax rate from 28% to 27% effective from 1 January 2014.
The corporate income tax rate reduction would also apply to “sole traders” and participants in partnerships.
Tax professionals in Norway observe that even with the proposed rate reduction, the corporate income tax rate in Norway would still be significantly higher than the corporate income tax rates in other Nordic countries, but apparently Norway’s government is reluctant to reduce the rate too rapidly.
Tax depreciation and R&D
The year-one rate for plant and machinery depreciation (i.e., for the first year of the acquisition) would be increased from 20% to 30%, effective 2014. This change would not increase the total depreciation deductions allowed, but would merely be a timing advantage.
The proposals also would include measures to increase support under the research and development (R&D) tax credit regime by NOK 100 million (approximately U.S. $17 million); however, no details were provided.
Under current rules, companies conducting R&D activities may claim a tax credit for projects approved by the Norwegian research council, but the R&D tax credit is limited to 18% of the costs with a maximum relief of NOK 5.5 million (approximately U.S. $942,000). For some projects, the credit is set at 20% of costs, capped at NOK 11 million.
Norway’s petroleum tax is currently levied at a rate of 50% and imposed on income from petroleum-related activities
Under the revised Budget proposal, beginning 1 January 2014, the petroleum tax rate would be increase by 1% to 51%.
There are a number of special rules for computing the petroleum tax. One allows for an “uplift” (exempt income) in the form of an additional depreciation deduction of 30% spread over four years (7.5% per year). Under the proposal, it is expected that this “uplift” would be reduced to 22%, or 5.5% annually for investments made on or after 5 May 2013.
- However, transition or “grandfather” rules would allow companies to claim the uplift under current rules for investments comprised by a plan for development and operation (PUD) or a plan for construction and operation (PAD) received by the Ministry of Petroleum and Energy before 5 May 2013.
- Investments made under applications for significant deviations from previously approved plans received by the Ministry of Petroleum and Energy before 5 May 2013 also could be subject to the grandfather rules.
In both situations, the expenditures / costs would have to be incurred with the year when production starts.
Resource rent tax
Norway’s resource rent tax currently is levied at a rate of 30% on relevant income. Under the proposal, beginning 1 January 2014, the rate would be increase by 1% to 31%.
For more information, contact a tax professional with the KPMG member firm (KPMG Law Advokatfirma DA) in Norway:
+47 4063 9183
Daniel L. Høgtun
+47 4063 9437
Per Daniel Nyberg
+47 4063 9265