Political consensus on resource rent tax for onshore wind farms

The proposal will still have to be formally voted over before it is put into law, but at this point this should be a mere formality. 

The main changes include (1) the effective tax rate will be reduced from the proposed 35 percent to 25 percent, (2) the transitional rules for historic investments have been improved by adjusting up the tax base for resource rent tax purposes by 40 percent and introducing accelerated depreciations, (3) for new wind farms, the tax value of negative resource rent will be paid out to the taxpayer rather than carried forward.

Change in tax rate

The resource rent tax rate has been highly contentious, especially after the resource rent tax rate on aquaculture was reduced from the proposed 40 percent to 25 percent effective tax, which the industry and political opposition has used as an argument for reducing also the resource rent tax rate on onshore wind. 

From the original 40 percent effective tax rate proposed in September 2022, through the reduced 35 percent effective tax proposed in October 2023, the rate is now finally agreed at an effective tax rate of 25 percent. Due to the sequential method of calculating the resource rent income, whereby corporate income tax on resource rent related income is deducted from the taxable resource rent income, the technical tax rate is 32.1 percent (resulting in an effective resource rent tax of 25 percent). 

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Improved transitional rules for existing wind farms

One of the key discussion points in the political process has been the treatment of existing wind farms. The original proposal (in Sept. 2022) did not include any transitional rules, which was highly criticized by both the industry and the political opposition, especially since a large portion of the existing wind farms were built in the period 2015-2021 where an accelerated 5 year linear depreciation regime was in place resulting in a lot of the wind farms potentially going into the resource rent regime with limited, to no, depreciable tax base without transitional rules. 

This was addressed to some degree in the proposal put forth in October 2023, however, the proposal only eliminated the effects of the special 5 year linear depreciation regime, and did not grant any additional step up in depreciable tax base for the period from the investment was made till the introduction of the resource rent tax. Further, depreciations were intended to be done according to the normal depreciation regime, i.e. on a declining balance basis with yearly depreciation ranging from 4-20 percent. 

The now agreed approach includes the transitional rules from the previous proposal, i.e. that the 5 year special regime is eliminated through an exercise where the tax base is calculated as if depreciations had been made according to the (maximum) ordinary depreciation rates. 

In addition, the new approach includes a step-up of 40 percent, meaning that after one has calculated the tax base according to the regular depreciation regime, this is then multiplied with 1.4. However, this is upwards capped at 85 percent of historical costs, i.e. if the tax base after multiplying with 1.4 exceeds 85 percent of the historical cost, the tax base should be adjusted down to equal 85 percent of historical costs. 

In addition to the step up, it has also been agreed to include an accelerated depreciation regime, whereby the calculated tax base is depreciated linearly over 5 years in the resource rent tax.  

Deduction for corporate income tax on resource rent related income

As briefly mentioned above, the resource rent tax is calculated using a sequential model whereby computed corporate income tax on resource rent related income is deducted from the taxable resource rent income. The calculation of the corporate income tax on resource rent related income should as a starting point be made using the same income and costs as in the resource rent tax, multiplied by the current tax rate (22 percent). 

On the cost side, depreciations should be included in the calculation. However, there are adjustments that have to be made due to the introduction of the transitional rules described in the previous section, which means that the depreciations in corporate income tax on resource rent related income will not equal the depreciations in the resource rent tax.  

Firstly, the depreciable tax base should equal the adjusted tax base used in the resource rent tax, i.e. including both the elimination of the special 5 year linear depreciations made prior to the introduction of the resource rent tax, and the 40 percent step up. 

However, the depreciation method differs from the 5 year linear that shall be used in the resource rent tax going forward. Instead, the depreciations on the original tax base - meaning the tax base without the adjustment made in the transitional rules - should equal the depreciations for CIT. This means that for this portion of the resource rent tax base, the depreciated amounts should be the same both in CIT and corporate income tax on resource rent related income.

For the remaining portion, i.e. the increased portion of the tax base due to the transitional rules - including both the increase due to elimination of the special 5 year linear depreciations made prior to the introduction of the resource rent tax, and the 40 percent step up - should be depreciated according to the ordinary depreciation regime. The ordinary depreciation regime entails depreciations on a declining balance basis with yearly depreciation ranging from 4-20 percent depending on type of asset. 

Cash payment for tax value of negative resource rent income for new wind farms

For existing wind farms, negative resource rent income will be carried forward with a risk free interest as originally proposed. However, with a view to attracting new investments into windpower, it has been agreed that for new wind farms the tax value of negative resource rent income should be paid out to the taxpayer rather than carried forward. Such payments will, however, not be made before the Norwegian Tax Authorities have controlled the tax assessments (and such controls may therefore delay the payments). In addition, this part of the proposal is subject to approval from the EFTA Surveillance Authority.