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Revised National budget 2021 in Norway – Corporate taxation,VAT and personal taxation

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The Norwegian Revised National Budget was presented today at 1045 am.

Corporate taxes

Additions and clarifications of the rules on withholding tax on interest, royalties, etc.

The rule on withholding tax on interest and royalty payments enters into force on 1 July 2021, while the rule on withholding tax on lease payments for physical assets enters into force on 1 October 2021. Certain additions and clarifications to the legal text are proposed in the revised national budget for 2021.

Rule on tax deduction for NOKUS (CFC)-companies

As the rule is formulated, the withholding tax obligation also includes payments to NOKUS companies. In order to prevent Norwegian participants in the NOKUS company from being double taxed  on their share of profit in the NOKUS company and in accordance with the withholding tax rules, it is proposed that the Norwegian participants shall be entitled to a tax deduction on ordinary income and incremental tax. The deduction shall correspond to the participant's share of the withholding tax paid by the NOKUS company.

The share of withholding tax that is not deductible in the income year can be carried forward for 5 years.

A limited right to refund deductions for withholding tax paid by the NOKUS companies is also proposed. The right is conditional on the NOKUS participant not being able to utilize the deduction in this year's tax settlement and that the taxpayer can prove that he or she will not be liable to tax in Norway for the following 5 income years.

Exemption for NOKUS companies with only Norwegian participants

The government proposes to exempt NOKUS companies from withholding tax when all participants in the NOKUS company at the time of withholding tax payment are subject to tax in Norway.

Transitional rules - related parties

The government proposes to introduce a transitional rule to allow for adjustments with regard to "related parties" before the rule on withholding tax on lease payments for physical assets enters into force on 1 October 2021. Without a transitional rule, lease payments for physical assets would be subject to withholding tax in those cases where the “related parties”-condition has been met at some point during 2021.

New option tax scheme for companies in the start-up and growth phase

As part of the government's facilitation of start-up and growth companies, a new and favorable scheme for taxation of options to employees was introduced in connection with the state budget for 2018. This scheme was expanded in connection with the state budget for 2020 and the revised national budget for 2020. The Ministry of Finance now wants to submit a proposal for a new and more favorable scheme for employee options, which is intended to apply from 2022.

Central to the new scheme is that the threshold of companies that can use the scheme is significantly expanded in order to capture more companies in the growth phase.

The Ministry of Finance points out that the biggest change in the proposal for a new scheme is related to the model for taxation. In the new scheme, the option will only be taxed when the employee realizes the shares. The employee’s total financial benefit is then fully taxed as capital income at a tax rate of 31.68% (2021) in contrast to current rules where the benefit is taxed as salary at a tax rate of 46.4% (highest marginal tax rate in 2021) . The model for taxation will consequently be more favorable and more predictable than under the current scheme.

Under the new scheme, the shares must be valued when the option is granted. The agreed exercise price for the option cannot be set lower than the market value of the share at the time of allotment.

The proposed scheme constitutes State Aid in accordance with the provisions of the EEA Agreement, and must therefore be notified and approved by ESA before it can enter into force. The government plans to present the new scheme in the state budget for 2022, after a consultation round has been completed.

Termination of the scheme of deferred payment of tax and duty claims

As a result of the corona crisis, a scheme has been introduced where deferral of payment can be granted for most tax and duty claims, and for claims collected by the Central Government Collection Agency. The scheme was extended until 30 June 2021 during the consideration of the State Budget for 2021.

In the Ministry of Finance's opinion, the scheme should not be extended beyond what is necessary, as in the current future prospects it is probable that the situation in society can to some extent be normalized after the summer.

The Ministry therefore proposes that the temporary scheme with deferred payment be phased out for all new tax and duty claims from and including 30 June 2021.

For older, deferred claims, it is proposed to extend the payment period by further three months, i.e. until 31 October 2021. It is also proposed that the repayment period be increased from 6 to 12 months. The Ministry does not propose changes to the default interest rate.

Personal taxes

BSU (Young people's housing savings)

The Government suggests to amend the rules for BSU. According to the proposed legislation, deposits on the account may also be used for cost to amend the existing home and maintenance. Now conditions are given. The proposed legislation enters into force as of 1. January 2021.

Voluntary correction of information provided to the tax authorities

The current scheme of voluntary correction of information provided to the tax authorities has in its current form existed since 2010. If the taxpayer voluntarily corrects or adds information about income and wealth abroad or domestic before this is discovered by the authorities through control measures, surtax and possible prosecution can be avoided. 

This scheme has been a success and has provided large tax revenues, even if the numbers of cases have declined in the last years. 

Due to technological changes, international legislation and exchange of information, the authorities now believe that they are not that dependent on information from the taxpayers as before. The tax authorities receive increasingly comprehensive information from abroad and the risk of detection has increased. Due to this the authorities further raises the question of how voluntary the correction now is. 

Therefore, the government believes that there is reason to reconsider the voluntary correction scheme. The Ministry of Finance in collaboration with the tax authorities will consider changes that will be submitted for public consultation.

It is difficult to see what the changes will be. The scheme will probably remain in a similar form since even if the tax authorities receive more information, it is resource intensive to follow up these cases. The tax authorities already receive a lot of information which is not followed up further.  Maybe it will be with a change in relation to full exemption from additional surtax, depending on the scope of the case? But that will reduce the effect of the scheme. Maybe it will set a deadline for voluntary correction? If one considers a voluntary correction, there is at least no reason to wait

VAT

Covid-19 measure - extended period with reduced VAT rate 

Services previously subject to the low VAT rate of 12% have temporarily been reduced to 6% with effect from 31 March 2020. The temporary reduction in the VAT rate was expected to last until the end of June 2021. The Government now suggests that the reduced VAT rate of 6% shall be extended to 30 September 2021. 

VAT registration for British companies following Brexit

The government propose that direct VAT registrations shall be possible for British companies in Norway, also going forward following Brexit. Thus, British companies will not need to appoint a VAT representative in Norway. 

Other types of duties

Wind power

The government has announced that it intends to introduce a production tax on wind power production as from next year. The excise duties shall be moderate since it must be paid by the company regardless of profitability. The proposal for the regulation will be sent for public hearings.

Excise duties on wild fish

As expected, the Government has proposed introducing a new excise duty on marine resources (wild fish). The proposal was already up for public hearing this spring, and there were no material changes.

As a starting point, the excise duties will only be applicable on wild fish fished by a Norwegian registered fishing vessel, hence not on the wild fish fished by foreign vessels.

Discussion cases and clarifications proposed in the Revised National Budget 2021

  • To ensure that the minimum level of old-age pension for single people remains tax-free, the government proposes to increase the rate of the minimum deduction in pension income from 32 per cent to 37 per cent. This will increase the entry point for paying tax on pensions to NOK 218,700.
  • Section 4-13, first paragraph, of the Tax Act contains special rules on the valuation date for shares that have been deleted from the SMB list on the Oslo Stock Exchange. The SMB list was discontinued in 2017, and it is therefore proposed to remove this text from the wording.
  • From July 2021, changes will be made related to how the subsidy under the business compensation scheme is to be calculated. For this reason, the government proposes to change the wording of the law. The current rule is to calculate the subsidy by multiplying the relevant fixed costs by the business' turnover drop and an adjustment factor. The change involves adjusting the model so that the compensation amount rises linearly from zero at the threshold for support (30 percent turnover drop) and up to a certain level of fixed unavoidable costs when the business is completely closed and has no turnover. The consideration behind the change is to reduce adverse effects around the threshold value of 30 percent and reduce the overall level of support, at the same time maintaining an acceptable level of compensation for companies that are completely closed.
  • In the spring of 2020, the scheme for subsidies in the event of temporary lay-offs was introduced. The Government will now extend the scheme by two months (i.e. for July and August 2021). An upper limit of NOK 12.5 million has been proposed for the support received in the period 1 July to 31 August for the individual company. Furthermore, it is proposed that the upper limit at company level should correspond to the total value of the maximum grant in the first two periods. The total grant will then be limited upwards to NOK 21.9 million for the period 15 March to 31 August 2021.

                                                                        ***

This blog post is written by Aija Rusina, Erik Stenvik Granly, Kjetil Øpstad, Marit Barth, Marius Aanstad, Jennifer Wong, Ronja Sommer, Ståle Wangen, Synne Hangeland, Torbjørn Stokke and Vidar Buksrud. 

Ståle Wangen

Ståle Wangen

Jeg heter Ståle Wangen og jobber som advokat i Advokatfirmaet PwC. Jeg leder PwC Norges avdeling for internasjonal skatt og jobber til daglig med å bistå norske og utenlandske virksomheter med skatteplanlegging, strukturering av kjøp og salg av virksomheter, internprising og andre spørsmål knyttet til bedriftsbeskatning i Norge og utlandet. Jeg har mer enn 20 års erfaring med skatterådgivning.

Skatteverdenen blir stadig mer internasjonal og kompleks. Ved kjøp og salg av varer og tjenester utenfor Norges grenser må norske virksomheter håndtere skatteregler både i utlandet og i Norge. PwC har kontorer i de fleste land og vi har et unikt nettverk av skatterådgivere som kan bistå med spesialkompetanse på de fleste områder. Jeg håper mine innspill kan gi deg en alternativ innfallsvinkel til ulike temaer enn hva tradisjonelle nyhetsbrev gir.

Ta gjerne kontakt dersom du har spørsmål, kommentarer eller innspill.

My name is Ståle Wangen and I work as a partner and lawyer in PwC Tax and Legal Services in Oslo. I am head of PwC Norway’s international taxation services, and I have more than 20 years of experience assisting Norwegian and foreign businesses with tax planning, cross border restructuring, mergers and acquisitions (M&A), transfer pricing and other issues related to corporate taxation

Tax world is becoming more international and complex. Norwegian companies must increasingly handle tax rules abroad. PwC has offices almost all over the world and we have a unique network of tax advisors who can assist with expertise in most areas.

Please feel free to contact me if you have any questions, comments or input.

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