The Norwegian tonnage tax regime constitutes lawful state aid and is approved by ESA until 31 December 2017. In connection with the re-notification of the Norwegian tonnage tax regime to EFTA Surveillance Authority (ESA) of 24 May this year, the Norwegian Ministry of Finance has proposed some amendments to the regime. To reduce uncertainty and make it possible for the shipping companies to adapt the proposed limitations on chartering out on bareboat terms, the Norwegian Government has presented transitional rules to ESA implying that affected companies need to adapt the new rules within 31 October 2018.
Earlier announced limitations on chartering out on bareboat terms
The proposed limitations on chartering out on bareboat terms implies that such revenues are only allowed for tonnage taxation under the following cumulative conditions:
- Maximum 50 percent of the company’s or group’s fleet during the income year is chartered out on bareboat terms.
- Maximum contract period of 5 years plus extension for up to 3 years
- Strategic management of vessels chartered out on bareboat terms must be carried out from the EEA.
- Intra-group bareboat chartering out is unconditionally allowed
The rules are expected to come into force on 1 January 2018.
For companies already being taxed according to the Norwegian tonnage tax regime, the Ministry of Finance has proposed a transitional rule implying that they need to adapt the new rules within 31 October 2018. The companies are entitled to tonnage tax treatment until (and including) 31 October 2018. If companies have not adapted to the new rules within this date, they will be subject to the ordinary corporate taxation in November and December 2018.
The Ministry of Finance emphasises that no final approval from ESA has yet been obtained, neither of the proposed changes to the tonnage tax regime or the transitional rules. However, based on experience from other EU countries, we assume that the key discussions relate to what type of bareboat contracts can be accepted and the duration of these contracts.
Updates with regards to chartering in on TC, flag requirements and vessels that are not self-propelled
Chartering in on time charter
In addition to the above, the Ministry of Finance notified a limitation to 90 per cent on the chartering in of non-EEA flagged vessels on time charter or voyage charter terms. According to the Ministry, there have been no objections from ESA with regards to these changes and consequently there is no reason to believe that there will be a change of opinion with regards to this.
For the Norwegian authorities it is of great importance that potential new flag requirements for a certain share of EEA registered tonnage do not undermine the competition of Norwegian shipping companies abroad. According to the Ministry, there are signals from ESA implying that possible new flag requirements will only apply to shipping groups entering the tonnage tax regime with effect from 1 January 2018.
Vessels that are not self-propelled (typical barges)
The Ministry of Finance informs that the Norwegian authorities have proposed to ESA that there might be some clarifications with regards to vessels that are not self-propelled. More precisely the following conditions might apply:
- The vessel has to be a “vessel in traffic”, cf. the Norwegian Tax Act section 8-11
- The vessel has to be a sea going vessel and not mainly operate in inland waterways
- The vessel has to be operated in connection with a self-propelled vessels
- The vessel should not be smaller than 1000 gross registered tons
- The vessel has to be registered in an EEA register
With regards to the two last mentioned conditions (1000 gross registered tons and EEA register), it is assumed that a transitional rule can be implemented implying that the shipping companies must adapt to the new rules within 31 October 2018.
As mentioned above there is no final approval from ESA either with regards to the proposed changes in the Norwegian tonnage tax regime or the transitional rules. However, the Ministry of Finance signals that they are in a constructive dialogue with ESA and that they will continue their work with finalising a decision within short time.
We will come back with updates as soon as we receive new information according to the new rules.
This blogpost is written by Anne Kristine H Haslestad and Hilde Thorstad.
Jeg heter Hilde Thorstad, er partner i Advokatfirmaet PwC, og leder firmaets avdeling for shipping, offshore og oljeservice. Jeg har mer enn 18 års erfaring med skatterådgivning overfor norske og multinasjonale konsern. Mine spesialområder er norsk og internasjonal bedriftsbeskatning, herunder restrukturering over landegrensene, transfer pricing og EU/EØS-skatterett, samt rådgivning til aktører innenfor shipping, offshore og oljeservice.
My name is Hilde Thorstad and I am a partner in PwC Tax & Legal Services. I have more than 18 years of experience with advising Norwegian and multinational groups. I assist clients with general tax advice on Norwegian and international corporate tax law, including cross border restructurings, transfer pricing and EU/EEA tax law, and have a special focus on shipping, offshore and oil service industries.