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Special payroll tax for the financial sector in Norway?

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On May 4, the Government and the opposition parties announced that they aim to present a new tax for the financial sector when the national budget for 2017 is presented. The Government has not yet commented on what kind of tax this will be, but according to sources the Norwegian newspaper Dagens Næringsliv has talked to, the new tax for the financial sector will be formed after the current special payroll tax model in Denmark (in Danish: “lønnssumsavgift”)

 Financial services are currently VAT exempt. Both in Norway and in the EU, there have been discussions and assessments for several years regarding how this sector may be taxed or how VAT may be levied. Now it seems like the Government will present a proposal that will provide the Government an estimated income of 3.5 billion yearly from 2017.

VAT or other kind of taxation for the financial sector

On May 4, the Government and most of the opposition parties presented a common plan for taxation in the following years. One of the items in the plan states that a “financial sector tax” will be introduced from 2017. It is further stated that it will be a tax on the value added through financial services, and that the tax is a result of the VAT exemption for financial services.

We were surprised when we heard the wording “financial sector tax”, as it in the Norwegian tax reform presented earlier this year was stated that the Government would like to levy VAT or something similar to VAT on financial services. Further, we got the impression that a model similar to the one they have in Denmark was as good as out of the question.

In light of this, we were very surprised that the Government now seems to plan an introduction of the same system as in Denmark. On the other hand, it is understandable that they seem to go for a model that is already implemented in one of our neighbouring countries, where we can use some of the experience they already have. Further, it would be a substantial amount of challenges in introducing VAT on financial services.

Will it be a «Danish» special payroll tax?

According to the sources Dagens Næringsliv has it information from, the Government will introduce a model similar to the Danish one. In Denmark they have a so-called special payroll tax. This is a tax that is not levied directly on services supplied, but an extra tax on salary and/or margins.

Thus, it seems like financial services will still be exempt from VAT in Norway. Further, the current state of law with no deduction for input VAT will be upheld. Thus, the Government will impose a new tax that will not ensure the same neutrality as VAT, which they previously has stated as a goal.

Extra taxation of the financial sector’s salary and/or margins will imply an increased cost for the sector and we note that parties within the sector are negative to an additional tax.

Further details on the model and implementation for the additional tax for the financial sector will be presented in the national budget for 2017. This will be presented in October 2016. We are anxious to see the continuation of this!

How will the new “financial sector tax” affect foreign suppliers?

There has not been any information or speculations on how the Government will ensure similar taxation of Norwegian and foreign suppliers of financial services on the Norwegian market.

When the Government still was of the opinion that some sort of VAT should be levied on financial services, it was mentioned that a simplified registration scheme similar to the one Norway has for VAT on electronical services could ensure similar taxation of foreign suppliers. However, we assume that this will not be applicable if the Danish model is introduced.

Please also bear in mind that the Government has not confirmed that the “financial sector tax” will be similar to the model of special payroll tax in Denmark, this has only appeared in the media. There is thus still a lot of uncertainty regarding the taxation of the financial sector. We will of course give you updates as soon as more information is available from the Government.

Synne Hangeland

Synne Hangeland

Jeg heter Synne Hangeland og jeg jobber som advokat i Advokatfirmaet PwC. Til daglig jobber jeg med å bistå næringsdrivende med rådgivning om merverdiavgift. Jeg har jobbet med merverdiavgift siden 2013, og bistår både nasjonale og internasjonale selskaper. Merverdiavgift er et område med stadige lovendringer og et komplisert regelverk. Målet mitt er derfor å spre kunnskap og gi gode og nyttige råd.

Ta gjerne kontakt med meg dersom det er noe du lurer på.

My name is Synne Hangeland and I work as a lawyer at PwC Tax and Legal Services. I assist clients with general VAT advice on Norwegian and international VAT matters, as well as in connection with national and cross border restructurings. I have worked at PwC Tax and Legal Services since 2013. If you have any questions, comments or input, feel free to contact me!

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