As part of the National Budget process for 2023 the government has proposed a number of changes and new taxes for renewable energy producers.
This includes introduction of resource rent taxation for onshore wind farms, increasing the resource rent tax for hydroelectric power production and introduction of a so-called high price contribution when the price per kWh exceeds 0.70 NOK.
On the positive side, a proposal for fixed price contracts has also been introduced.
You can read more about the proposals here.
Just a few weeks after the proposals have been put forward, recommendations for changes are ticking in from the Ministry of Finance.
High price contribution
Confirmation that the high price contribution should be temporary
According to a new statement from the Ministry, the high price contribution is adapted to the special situation we are in, and is not intended to be a permanent element in the tax system like the resource rent tax. There was no mention of an end date in the original proposal. In order to contribute to predictability for the power producers, the Ministry informs that it is assumed that the high price contribution will be discontinued by the end of 2024 at the latest.
Change in measuring period
The government proposes to change from an hourly price to a monthly average price. The change means that the income from power production must be calculated over the month instead of per hour. It is in line with the design of the high-price contribution to use the average price obtained for the individual taxpayer so that the tax is based on the individual power producer's actual income. The change in time period is believed to have the greatest relevance for volume valued at the spot market price.
Clarifications relating to contractual relationships between related parties
The starting point for calculating the high price contribution is the actual prices for which the entity liable to pay the tax has sold the power.
Using the actual price in the calculation is not appropriate in all cases. If the taxable entity consumes the power himself, there will be no selling price and the power price to be used must be determined in a different way. Similarly, it can be challenging to determine the price when the sale takes place between related parties.
For power used by the entity subject to tax, it is maintained that the spot market price must be used as a basis. When it comes to power sold between related parties, the ministry slightly relaxes the requirements and clarifies that the main rule for such power sale should be pricing in accordance with the agreed price. This generally applies to contracts entered into before 28 September 2022. For contracts entered into after this time, it is emphasized that such contracts also should be valued at the agreed price as a starting point. Only in cases where the taxable entity cannot document that the power is sold on arm's length terms the spot market price will be used. However, it is stated that the general requirement for market conditions also will apply for such contracts.
Fixed price contracts
The government is continuing to detail the proposal on fixed price contracts. To reiterate what was proposed in September the government is aiming at introducing an exception for fixed price contracts which will form the basis for the income calculation in the resource rent taxation rather than spot market prices. What was mentioned in September when introducing the changes in resource rent taxation was that the proposal will likely encompass fixed volume contracts of 3, 5 or 7 years length and that the government will determine a maximum mark-up on the spot price, but the mark-up amount was not further defined at that time. Now the government has expanded on the fixed price contract scheme, and note that the maximum mark-up will be set at NOK 0.25/kWh. In addition, suppliers can add a fixed mark up of NOK 99 per month per meter point to cover costs not dependent on the electricity volume produced.
In addition, the government has as a simplification measure stated that for fixed price contracts the price area NO3 and NO4 (Mid Norway and Northern Norway) should be considered as one price area, and the same for price area NO1, NO2 and NO5 (Eastern Norway, Southern Norway and Western Norway), meaning that fixed price contracts between the areas considered one price area can be comprised by the fixed price exception (e.g. NO1 to NO5), however, the fixed price contract exception will not encompass sales between the two price areas (e.g. NO5 to NO3).
It is further mentioned that the fixed price contract exception will be effective until end of 2023, meaning that fixed price contracts entered into before year-end 2023 will form basis for the resource rent income until expiry of the contracts (e.g. for 7 years contracts until 2030).
Jeg heter Lars Walby og jobber som advokat i Advokatfirmaet PwC.
Jeg jobber med bedriftsbeskatning nasjonalt og internasjonalt, og har jobbet med skatt siden 1999.
I hovedsak bistår jeg norske og internasjonale industrielle aktører med løpende skatterådgivning, i forbindelse med reorganiseringer, grenseoverskridende transaksjoner og etableringer, samt oppkjøps- og salgsstrukturering, herunder tax due diligence. Jeg har spesialkompetanse på særskatteregimet for vannkraftprodusenter og generasjonsskifter i aksjeselskaper.
Det er mye som skjer på skatteområdet for tiden, ikke minst internasjonalt. Vi jobber hardt for å holde oss oppdatert og deler gjerne erfaringene. Ta gjerne kontakt dersom du har spørsmål, kommentarer eller innspill til innleggene.
My name is Lars Walby and I work as a lawyer in PwC law firm.
My main areas of expertise is national and international corporate taxation and reorganisations. I also have special expertise in the tax regime for hydropower production.
There is a lot going on at the tax area especially within the field of international taxation. We work hard to keep updated and we would like to share some of our experiences with you. Please feel free to contact me if you have any questions,comments or input to some of the articles.