The national budget for 2018 was presented on 12 October 2017. This article provides an overview of the main proposals regarding corporate taxation, VAT and personal taxation.
The main features of the proposals for the amendments in corporate taxation
- The corporate income tax rate is proposed reduced from 24% to 23%
- Previously proposed amendments of the interest deduction limitation rules, whereby i.a. interest expenses on external debt is also subject to limited deductions, are postponed until 2019.
- Several changes are proposed in the area of property taxation, that will have a significant practical impact on the industry.
- A statutory anti-avoidance rule is likely to be introduced during 2018.
- No proposals on withholding tax on interests or royalties
In the area of property taxation the Government proposes several changes that will have a significant practical impact on the industry. The Government proposes that «works and installations» are no longer subject to property tax from 2019, with a transitional period of five years. In practice, the proposal entails that, broadly speaking, only land and building structures may be subject to property tax. Wind-power stations, hydroelectric power stations and constructions comprised by the special tax rules for the petroleum industry are not comprised by the proposal. The proposal is further discussed in a separate article (article in Norwegian).
The Government proposes an increase of the valuation discount for shares and operating assets for net wealth tax purposes, including related debt to from 10% to 20%. The basic tax free allowance is continued nominally.
Resource rent tax
Due to the reduction in the corporate income tax rate, the resource rent tax on income from hydroelectric power production is increased with 1.4%, to 35.7%.
Reduction of the rate of uplift relating to the special tax for petroleum income
The Ministry proposes that the rate of uplift (investment-based extra depreciation) relating to the special tax for petroleum income is reduced from 5.4% to 5.3% per year over a period of 4 years. Following this, the total rate of uplift will amount to 21.2% of the cost price of the asset.
The background for the proposal is that the special tax rate is increased from 54% to 55% due to the reduction of the corporate income tax rate from 24% to to 23%. This way, the marginal tax rate for petroleum income remains at 78%. As the rate of uplift is only deductible in the special tax and not in the corporate income tax, the rate of uplift must be reduced. The reduction in the rate of uplift will enter into force with effect for costs related to the acquisition of asset incurred as from 1 January 2018.
Revised interest deduction limitation rules
The previously proposed amendments of the interest deduction limitation rules described in this blog post, whereby i.a. interest expenses on external debt is also subject to limited deductions, are postponed until 2019. The amendments were originally planned to enter into force from 2018. The Ministry states that a separate proposal on the amendments will be released as soon as possible, aiming for the new rules to enter into force from 2019.
Only minor amendments are proposed for 2018. The Ministry proposes certain adjustments in the interest deduction limitation rules due to the new Financial Undertakings Act. The amendments aim to coordinate the rules with the changed terminology in the new act. In addition, the Ministry proposes a change of the exception for financial undertakings entailing that loan intermediaries no longer shall be excepted from the interest deduction limitation rules.
Adjustment of the group contribution rules - foreign company with tax losses carried forward from previous business activities in Norway
The Ministry proposes an amendment of the group contribution rules entailing that group contributions may be rendered to a Norwegian branch of an EEA company with uncovered losses after the cessation of tax liability to Norway.
As a starting point, the group contribution rules apply between Norwegian tax resident companies. In addition, and subject to certain requirements - i.a. tax liability to Norway -, group contributions may be rendered to or from Norwegian branches of EEA companies, as well as branches of companies from certain other states based on tax treaties.
The tax authorities have interpreted the requirement of tax liability to Norway to mean that an EEA branch must have taxable business activities in Norway in the year in which it receives a group contribution, in order for it to have tax effect. This has resulted in a difference in treatment of EEA companies with Norwegian branches with tox losses carried forward, compared to Norwegian companies in a comparable situation.
Thus, the Ministry proposes to introduce a rule that the company rendering the group contribution is entitled to deductions for the group contribution, when the recipient company within the EEA area has tax losses carried forward from previous business activities in Norway. The recipient company must reduce its tax losses carried forward correspondingly.
The amendment is proposed to enter into force with effect as from 2018.
No further amendments of the rules on cross-border group contributions are proposed. In a judgment dated 13 September 2017, the EFTA Court concluded that the denial of deductions for group contributions to a foreign group company constitute a breach on the freedom of establishment when the tax losses carried forward of the recipient company are final. We have previously blogged about the group contribution rules here.
Limitation on the possibility of obtaining loss deductions when dividends are tax free under an applicable tax treaty
The Ministry proposes a new rule whereby a calculated loss deduction is reduced with distributions that have been exempt from taxation under a tax treaty. The reduction shall be made based on dividends received during the ownership period of the shareholder, but limited to the last ten years. In case of a calculated gain, no such change applies.
If a Norwegian shareholder previously has been taxed according to the CFC rules on the same investment (given mainly passive income), there should be made no reduction on the basis of distributed dividends that have been taxed in accordance with the CFC rules. Any dividends that have been distributed without taxation before the shareholder became subject to tax according to the CFC rules shall be included upon the reduction of a calculated loss. If the owner is subject to CFC taxation at the time of the realisation of the shares, gains and losses shall be calculated pursuant to the CFC rules.
The background for the rule is that certain tax treaties entered into by Norway and other states contain provisions that depart from central tax legislative considerations in general. Under these treaties, dividends distributed to a Norwegian company may be tax exempt, if the corporate shareholder meets the ownership requirements in the tax treaty. At the same time the treaties grant Norway taxation rights to gains upon the realisation of shares, while the taxpayer has the right to deductions for losses upon the realisation of shares. In the Ministry’s view, this combination gives rise to unwanted tax planning. The most central of the treaties containing such provisions is the tax treaty with Singapore. Thus, the new rule should be most important for Norwegian investments in Singapore.
The rule is proposed to enter into force with effect as from 12 October 2017.
Amendment of the tax residency of companies etc.
In March 2017 the Ministry released a discussion paper on a proposal for the amendment of the tax residency of companies etc. The proposal entailed that a company incorporated under Norwegian law shall always be regarded tax resident in Norway, and that the assessment of when a company incorporated under the law of a foreign jurisdiction shall be made based on a broader basis than under current law. The national budget did not contain any proposals relating to this matter, however, the Ministry stated that a proposal shall be released as soon as possible. We have previously blogged about the proposal of March 2017 here.
Simplifications of the tax and VAT system
The Ministry acknowledges that the current system contains several arrangements that are administratively demanding for the industry, personal taxpayers and the tax authorities. Therefore, the Ministry states that it will initiate a project in collaboration with the tax authorities aiming to identify and form the basis of a simplifications of the rules.
Increase in the low VAT rate for travel- and cultural services etc.
The low VAT rate is proposed to increase from 10% to 12 % from 1 January 2018. The aim of the increase is to gradually shift the tax burden from income taxation and to consumption taxation, like VAT and excise duties. The expected revenue increase from the rate increase is MNOK 700.
The low VAT rate is applicable to travel- and cultural services, like hotel accommodation, mass transit, taxi fare and ski lifts, as well as cinema fees, museums, sporting events and amusement park tickets, etc. The low rate is also applicable to intermediation of such services by travel agencies, cruise lines, airlines etc.
The expectation is that the low rate will gradually increase to 15%, i.e. equal to the current intermediate rate, and that the low rate may thus disappear altogether.
We advice clients to verify that the ERP systems are updated to handle the new VAT rate. This also applies to foreign travel agencies, cruise lines, etc. who intermediate local Norwegian travel- or cultural services. They should also note that pre-sales of travel- or cultural services with the current VAT rate could entail a VAT cost in the intermediate period.
The current “Low Value- Scheme” will not be touched this time around
Goods with a total value below NOK 350 can be imported into Norway free of import VAT and customs duties. For more information about the scheme please see our blog.
The survival of the Low Value Scheme has been debated through recent years because of the trade leakage it creates. Lowering of the limit was debated through the election process and some politicians promised to do something about the trade leakage, but surprisingly, no comment whatsoever is made in the proposal, and no changes are proposed. We expect that the debate surrounding the issue of trade leakage will resurface and that changes to the scheme may be proposed in the revised budget proposal next year.
Rates and thresholds and deductions
- The tax rate on net income is suggested reduced from 24 % to 23 %
- The adjustment factor, applied to the tax base of dividends, distributions from partnerships, and capital gains from disposal of shares before applying the tax rate, is suggested increased from 1,24 to 1,33. This implies an increase in the effective tax rate for dividends etc. from 29,76 % to 30,59 %.
- The bracket tax threshold and tax rate (levied on gross employment, self employment and pension income) is suggested increased as follows:
|Threshold||Tax rate 2018|
|Under 169 000||(2017: 164 100)||0|
|kr 169 000 - 237 900||(2017: 164 100 - 230 950)||1,4 % (2017: 0,93 %)|
|kr 237 900 - 598 050||(2017: 230 950 - 580 650)||3,3 % (2017: 2,41 %)|
|kr 598 050 - 962 050||(2017: 580 650 - 934 050)||12,4 % (2017: 11,52 %)|
|kr 962 050 -||(2017: 934 050 -)||15,4 % (2017: 14,52 %)|
The result of the suggested changes in the tax rates implies slightly lower marginal tax rates (total 0,12 %):
|Salary||46,7 %||46,6 %|
|Pension||43,6 %||43,5 %|
|Self-employment income||49,9 %||49,8 %|
- It is suggested to increase the minimum deduction (minstefradrag) from 44 % to 45 %, with a maximum amount of NOK 97 610 for employment income and NOK 83 000 for pension income.
- The personal allowance deduction (personfradrag) is suggested changed from NOK 53 150 to NOK 54 750 in tax class 1. Tax class 2 deduction is suggested repealed
- The rates for deduction of travels to work is unchanged except the threshold:
- NOK 1,56 per kilometer up to 50 000 kilometer travel distance, and
- NOK 0,76 per kilometer up to 75 000 kilometer travel distance
- The threshold of NOK 22 000 increased to NOK 22 350
The suggested changes will if passed be in force from 1 January 2018.
Persons who live outside his/her home due to work may claim deduction for additional cost related to free board, lodging and travels to visit home (commuter deductions). It is now suggested that the deductions are linked more to temporary commuter cases where the cooking possibilities in the commuter accommodation is limited. Based on this, the deduction for additional expenses for meals for personnel who has the ability to cook/store food in this home is suggested repealedfrom 1 January 2018 This is because the authorities in these cases consider the commuter not to have any actual additional costs.
Further, the other rates for deduction for meal expensesare reduced by 100 NOK. Also, deduction (free board and lodging) is limited up to 24 months. Again, it is argued that the commuter does not have any actual additional costs as the commuter gets more settled into his or hers new place as time goes by. If the commuter must change commuter accommodation including change of municipality, due to work, a new 24 month period start running. There is no time limit for travels home or for work purposes.
The commuter expenses covered by the employer will continue to be free from tax for the employee and the employer can still provide this free from tax if provided within the applicable thresholds.
- The tax rate and the lower threshold for wealth taxation is suggested unchanged at 0,85 % on net wealth exceeding NOK 1 480 000 (NOK 2 960 000 for married couples).
- It is suggested that the tax base for wealth tax on shares owned by personal shareholders and working capital should be set to 80 % of their fair market value for 2018
Share saving account
A transitional rule enables trust investors to invest (transfer) shares and funds already owned in a share saving account without tax on possible gains. The transitional rule will be valid throughout 2018.
Information about foreign contractors and employees
When a company or a public body gives assignment to foreign contractors for work in Norway, the company/public body is generally obliged to inform the Norwegian authorities about the contract with the foreign based company, as well as inform about the employees working in Norway under this contract. This is done through the RF-1199 form. The rules regarding the extent of the RF-1199 reporting is now suggested changed, as follows:
- The responsibility for the reporting is limited to subcontractors two steps down in the contract chain and one step up
- The company is only responsible for reporting of employees from its own company, not employees of any subcontractor (however, the authorities suggest that they can require this information if it is available with the principal employer).
- The lower limit for reporting of contracts is suggested changed from 10 000 NOK til 20 000 NOK
- The exemption from reporting of assignments performed at a place outside the principal employer's control is now suggested canceled.
- The contractors responsibility for subcontractors tax liabilities when the contractor has not reported correctly is suggested canceled.
My name is Cecilie Beck Landet and I work as an associate lawyer at PwC Tax and Legal Services. I assist clients with general tax advice on Norwegian and international corporate tax law, as well as in connection with national and cross border restructurings. I have worked at PwC Tax and Legal Services since January 2015 and have previously worked with tax law as a research assistant at the University of Oslo and at another law firm.
If you have any questions, comments or input, feel free to contact me!