State budget 2017 - Changes in Corporate taxation and introduction of financial activities tax

The proposal for the State budget for 2017 contains only minor changes in corporate taxation. As expected the general corporate tax rate is proposed reduced from 25% to 24% from 2017. Further, a financial activities tax is proposed introduced from 2017. No comments are made in the State budget on the expected changes in light of the BEPS project and ongoing international tax developments.

Tax rates

The government proposes a reduction of the general corporate tax rate from 25% to 24% from 2017. The proposal is in line with the agreement on taxation in Parliament from may 2016 where it was agreed to lower the corporate income tax rate from 25% to 23% by 2018.

To offset the revenue effects of the reduction in corporate tax rate under the special tax regimes for hydro electric power producers the economic rent is proposed increased by 1.3% percentage points to 34.3%. The special tax rate on petroleum is proposed increased from 53% to 54% and the uplift in the special tax base is proposed reduced from 5.5% to 5.4%.

Corporate taxation

The government proposes to phase out the 10% additional tax depreciation in the acquisition year for machines and other business assets in tax depreciation group d. Thus, business assets in tax depreciation group d will only be tax depreciable at the ordinary rate of 20% in the acquisition year. The government states that the change is intended to ensure that tax depreciations are in line with the actual loss in value of business assets.

Further, the government proposes to increase the depreciation rate for business assets in tax depreciation group c (lorries, buses, delivery trucks, taxi etc) to 24%. The proposal is intended to compensate for the increase in duties on diesel and gas.

Under the Skattefunn tax incentive scheme increased tax deduction is available for eligible R&D costs. The government proposes to increase the amount of R&D costs eligible for increased deductions under the incentive scheme in 2017. The amount of eligible costs for R&D carried out by the taxpayer is proposed increased from NOK 20 million to NOK 25 million and the amount of eligible costs for contract R&D acquired from approved research institutes is proposed increased from NOK 40 million to NOK 50 million. The total eligible R&D costs - both relating to R&D carried out by the taxpayer and contract R&D - is proposed limited to NOK 50 million.

The government issued a proposal on country by country reporting for multinationals in May 2016. Due to the enactment of the new tax administration act from 1 January 2017 the Government has now proposed to amend the new tax administration act to include country by country reporting. The proposed amendments are in line with the proposal on country by country reporting from May 2016 and are, thus, limited to a technical change of the previous proposal to bring it in line with the new tax administration act. The country by country regulation is proposed to come into force from 1 January 2017 with effect for accounting years starting 1 January 2016 and later. Please refer to our previous post on country by country reporting for further information on the proposed regulation.

The proposal does not include any comments on further introduction of expected changes in light of the BEPS project and ongoing international tax developments. In particular, stricter interest deduction limitation and introduction of withholding tax on interest and royalty have previously been pointed out as possible future amendments of the tax law. Thus, such changes will likely be introduced at a later stage.

Financial activities tax

As expected, a new special payroll tax for the financial sector will be implemented from 1 January 2017. The tax rate will be 5% and shall be calculated of the wage base and will imply an increased cost for the financial sector. Thus, the new tax will not ensure the same neutrality as VAT, with the reason that it has not been enough time to develop such a neutral tax within 2017.

The new tax further entails that financial services still will be exempt from VAT in Norway. Also, the current state of law with no deduction for input VAT will be upheld.

Companies where the employees use more than 30% of their time on financial services exempt from VAT will be comprised by the tax.

Further, the corporate tax rate will not be reduced for the financial sector and will thus be 25% also for 2017.

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This blog post is written by Ulrik Kleppen Rafn, Yngvar Solheim and Lars Walby.