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Cash compensation for businesses - 6 facts you should know

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The government has worked efficiently to establish measures to help the Norwegian business sector, which is affected by the corona-epidemic. The work has resulted in a simplified application process, a sort of “cash compensation” for the business sector.  

Businesses can apply for compensation due to the corona-epidemic. The compensation will be based on the size of unavoidable costs for each single legal person. The compensation scheme will as a starting point be in effect for March, April and May 2020. 

There is a lower threshold of 5.000 kroner for the cash compensation. The maximum compensation a company can apply for is 30 million kroner per month. A higher maximum compensation might also be available for group-structures, provided that an approval is given by ESA. 

We have set out and summarized the six most important features of the cash compensation scheme in this blog post. 

1. Who is covered by the compensation scheme?

The arrangement is meant to cover tax liable businesses in Norway, that have experienced a decline in their turnover as a result of the conoraepidemic. 

In order to apply for compensation, businesses shall as a starting point, have experienced a decline in turnover of 30 % (20 % in March), compared to the same period last year. If the business was not in operation in March 2019, or for other reasons had an unnatural low turnover for the same period last year, the average turnover for January and February 2020 can be used as the basis to calculate the decline of turnover. 

Special provisions apply for businesses that have been instructed to close by the government and are therefore experiencing a total loss of turnover. This applies to the following businesses: 

  • Physiotherapists, including manual therapists
  • Chiropractors
  • Opticians 
  • Chiropodists
  • Speech therapists
  • Psychologists 
  • Companies performing complementary and alternative medicine 
  • Companies that performs alternative treatments
  • Fitness centers, swimmings pools, water parks, etc. 
  • Companies offering skin care, massage, body care, hairdressers, tattooing, piercing and similar. 
  • All companies in the service sector that does not serve food, such as nightclubs and bars

Furthermore, it is proposed that the compensation scheme shall not cover the following businesses:

  • The finance industry (limitations will be based on whether businesses are subject to the financial activity tax) 
  • Production, transmission and distribution of electricity and water supply
  • Foreign shipping - with goods transport 
  • Oil and gas production(limited to business subject to the oil tax regime)
  • Private kindergartens covered by special support arrangement 
  • Airline companies covered by special support arrangement
  • Businesses without employees (apart from sole proprietorships where the business is the only income stream of the founder)
  • Businesses with no activity
  • Businesses that are undergoing bankruptcy proceedings or have filed for bankruptcy

2. What costs are covered? 

The compensation arrangement covers so-called “unavoidable costs”. This include costs that the business typically will have regardless of whether the income has been reduced, e.g. rent. 

Unavoidable costs are considered as costs that cannot be reduced by the businesses, proportionally with a decrease in turnover. The costs must be documented with a contract, agreement or similar, entered into before 1st of March 2020. 

From our understanding, this implies that the compensation only covers a reduced rent, and not the standard rent the business normally would pay.

The following posts in the income statement (tax return) are defined as unavoidable costs: 

Tabel VAT
A regulation with further provisions on the interpretation of the term unavoidable costs will be presented by the Ministry of Finance. 

3. How is the cash compensation calculated?

The cash compensation shall be calculated in a simple and effective manner. The business needs to identify the proportional decrease of turnover for the month the business applied for compensation, and multiply this percentage with the estimated unavoidable costs (subtracting an individual share). The sum shall be adjusted to either 90 % or 80 %. 

Businesses instructed by the government to close are entitled to a 90 % coverage of their unavoidable costs, while all other businesses covered by the scheme are entitled to 80 %. In addition, the businesses instructed by the government to close are not required to subtract the individual share of 10.000 kroner, when calculating the unavoidable costs. 

The compensation for respectively companies closed by the government and other businesses, can be calculated based on the below calculation: 

Compensation for businesses instructed to close by the government
Turnover in percentage * (unavoidable expenses - individual share of kr 0) * 90%

Compensation for business not instructed to close by the government 
Turnover in percentage * (unavoidable expenses - individual share of NOK 10.000) * 80%

4. How to apply and when will the compensation be received? 

The Government has proposed that the application for compensation shall be submitted digitally via Altinn. The plan is that the digital platform will be in operation as of 17th of April. We recommend businesses to prepare the basis of their application, for example in collaboration with their accountant and auditor, so that the application can be sent as soon as the digital platform opens. 

When submitting the application, companies will be asked to confirm that the information provided is correct, and that the applicant is familiar with the terms and that sanctions will be imposed for submitting incorrect information. As the applications are based on self-declaration principle, the applicant must confirm upon submission that a statement from an auditor or authorised accountant can be obtained upon request. Penalties will be imposed if submitting incorrect information.

The payments will be automatic, and will be paid out as soon as possible after the application is approved. 

As the arrangement is not yet in place, there is no application form available currently. It is expected that a regulation is in place 14. or 15. April with more details. 

5. Application control 

The Tax Authorities will carry out subsequent controls of the cash compensation applications. Automated controls will also be undertaken upon submission. The information provided by the applicant, will be referenced against historical information and additional information about the company that the Tax Authorities have available. The application will either be declined or referred to manual processing, if the automated control detects significant deviations. 

All applicants are required to document the information provided, with a statement from either the company's auditor or accountant. Information about the potential penalties is clearly set out in the application platform.

The provisions for appeals in the Tax Administration Act will be applicable for decisions to refuse compensation.  

6. Board responsibilities 

Documentation shall be submitted in connection with the cash compensation application. It is important that the information provided is complete and accurate, and from the perspective of the board, it is important that the correct documentation is submitted. It is confirmed that the application process will be automated, all the while the government also confirms that the submission of incorrect information will have serious consequences. From the perspective of the board, it is crucial that it has been registered that the documentation has been reviewed before submission. 

We emphasise that the proposal was given just a couple of days ago and that adjustments can be made in the future. 

                                                                           ***

This blog is written by Lene Sakariassen, Eivind Robstad, Silje Guttormsen and Marit Barth

Marit Barth

Marit Barth

Jeg heter Marit Barth, og er partner/advokat i Advokatfirmaet PwC. Jeg har jobbet med mva for næringsdrivende og selskaper siden 2003 og har lyst til å blogge om mine erfaringer på dette området. Mitt mål er å gi deg informasjon, analyser og nyheter på en annen måte enn det du får gjennom nyhetsbrev og annen faginformasjon.Jeg håper også at jeg noen ganger klarer å inspirere deg, utfordre deg og kanskje provosere deg litt. Hvis du har synspunkter, innspill, kommentarer eller spørsmål til noe du leser eller ser her på bloggen blir jeg glad for å høre fra deg.

Velkommen til #norgesskatteblogg.

My name is Marit Barth and I am a lawyer and partner in PwC Tax & Legal Services. I have been working with VAT since 2003, and I would like to blog about my experiences in this area. My goal is to give you information, analyses and news in a different way than you get through newsletters. I also hope that I sometimes manage to inspire you. If you have input, comments or questions to something you read, I will be happy to hear from you.

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