Revised National Budget for 2024

Corporate Taxation

Follow-up on the Tax Committee's Report

The Tax Committee's (Torvik Committee's) report on the Norwegian tax system was presented in December 2022.

The Revised National Budget reveals that the Government does not intend to follow up on the committee's report with a tax reform involving major systemic changes and tax shifts. 

The Government will maintain the corporate tax rate at 22 percent, in line with the Hurdal Platform's goal of a predictable and responsible tax policy for businesses.

The Torvik Committee also proposed restrictive measures for the participation exemption method, including that dividend income currently taxed at 3 percent (effective tax rate of 0.66 percent) should be taxed at 5 percent, and that capital gains on shares should also be subject to a 5 percent tax. The Government will consider this further in connection with the Parliament's request for action.

The committee also proposed to tighten-up the rules for so-called private consumption in companies, i.e., where a personal company owner and the company achieve an unduly favorable taxation by allowing the company to cover the owner's private expenses. The Government agrees with the committee that private consumption in companies that are not taxed correctly can damage the tax system's redistributive effect, reduce tax revenues, and weaken the legitimacy of the tax system. In their view, the rules should be targeted and not too intrusive. It is challenging to balance the Tax Authorities need for control and the taxpayers' need for predictability. The Ministry of Finance has sent a proposal on the taxation of private consumption in companies for consultation in the spring of 2022 and is still working on adjustments after the consultation.

The Government will maintain the rates for tax on wealth and specify that there is no plan to introduce a new inheritance tax in this parliamentary period. There is also no plan for an increase of the taxation of housing or pensions, as the committee had proposed in its report.

Proposed Changes for Securities Funds

Under current rules, securities funds that emigrate from Norway in connection with a merger may trigger tax, called “Exit-tax”,  on gains from shares the fund owns in companies outside the EEA. Shares within the EEA can be transferred tax-free in the merger.

The Government proposes to amend the Tax Act § 9-14 fourth paragraph letter b, so that securities funds domiciled in Norway upon relocation also receive a tax exemption for shares owned outside the EEA. The change means that no tax is triggered on shares covered by the participation exemption method within the EEA, or on shares outside the EEA.

The change will, in the Ministry's view, create a better coherence in the regulations, by not triggering tax liability in an otherwise tax-free merger, in addition to the fact that an actual realization of shares outside the EEA is already tax-free for securities funds under the Tax Act § 10-20 second paragraph.

Supplementary Tax - Cash Flow Tax and Qualified Refundable Tax Deductions

The Supplementary Tax Act (Pillar II) and associated regulations were enacted at the beginning of 2024, and subsequently, there has been a need for some adjustments and corrections of deficiencies to be in line with other countries' interpretation and application of the model regulations.

Supplementary tax is primarily triggered when the effective tax rate is lower than the minimum tax rate of 15 percent. An unintended effect of a strict interpretation of these rules is that this can sometimes result in a very low calculated effective tax rate, due to the tax value of deductions being paid out to the taxpayer. This can be particularly relevant in the resource rent taxation. 

To ensure a stronger anchoring in the model rules, the Ministry of Finance proposes that payments under the cash flow tax should be treated according to the rules for qualified refundable tax deductions. This means that payments under the cash flow tax do not reduce the tax when calculating adjusted tax, but should instead be included as income when calculating adjusted profit.

Clarifications in Legislation

Resource Rent Tax for Wind Power Plants

The resource rent tax for wind power plants owned by companies with partnership taxation, such as general partnerships and limited partnerships, is determined using the net method. This means that the resource rent income is first determined for the wind power plant as a whole, and then distributed among the participants. This is also the basic method that applies to the taxation of hydropower plants, but for hydropower, there is an exception that means the tax is determined using the gross method if the participants sell most of the power production on an independent basis.

The Ministry proposes a change in the Tax Act §§ 10-40 and 18-10 ninth paragraph so that taxpayers within the resource rent tax for wind power are taxed using the same method that applies to hydropower.

Resource Rent Tax for Hydropower Plants

The resource rent tax for hydropower should as a starting point be valued at spot market price. As an exemption, the hydropower can be valued at contract price if the company has a long-term purchase contract with a minimum duration of seven years or more. In the National Budget for 2024, the Government proposed to extend the exception to also include contracts with a duration of between three and seven years for contracts entered into from 1 January 2024 and onwards. In the Revised National Budget, the Government specifies that the exception for contracts with a minimum duration of seven years or more still applies to contracts entered into from 1 January 2024 and onwards.

Clarifications in the Rules for Historical Operating Assets Related to Wind Power Production

The Ministry proposes changes to the Tax Act § 18-10 concerning tax depreciation and adjustment of the tax value for historical operating assets related to wind power production. The main purpose of the changes is to clarify and make it clear that the right to adjust the tax value applies to all depreciable operating assets related to wind power production, not just operating assets that have previously been subject to accelerated depreciation, and to clarify that the basis for depreciation cannot include directly deducted operating assets or capitalized costs that generate resource rent, such as the acquisition of land or other services to the landowner or municipality.

Realisation of merger and demerger receivables 

With effect from income year 2023, simplified rules have been introduced for calculating gains and losses on the realisation of receivables after a group merger or demerger. This is meant as codification of Norwegian tax exemption practice. The simplification implies that merger/demerger receivables can be converted into share capital without tax consequences automatically without applying for tax exemption. An optional transitional rule has been introduced, allowing companies to adjust the difference between the tax and accounting value of a merger/demerger receivable without taxation, provided that both the parent and subsidiary companies make the same decision to make use of this rule.

In the Revised National Budget, The Ministry of Finance clarifies that the simplified rules also cover receivables that were established in income year 2023 before the amendment, but where the subsidiary part of the merger/demerger was disposed of before the simplification rules had effect.

The Ministry of Finance further clarifies that it is the parent and subsidiary companies at the time the receivable was established that are decisive. Therefore, it is irrelevant if a subsidiary has been disposed of, as long as the creditor and debtor (originally parent and subsidiary companies) both treat the receivable in accordance with the simplified rules.

Personal Tax

The revised national budget does not bring any surprises in the area of personal tax and social security. The tax rates and brackets remain unchanged, the long-term plans for changes in the areas of employment income, social security and pensions continue, and the concrete changes are mostly corrections or clarifications of the wording of the law. However, there are a few things to note:

• The announced phase-out of the additional employer's social security contribution is still scheduled to take place from 1 January 2025, and consequently, we will likely see a concrete proposal presented in the national budget in the fall. Employers can therefore confidently continue with their reporting routines in regards to employer's social security contributions for the remainder of the year. The government also points out that the scheme has had a limited intended effect, partly because the labor market has been tight in 2023 and so far in 2024. As we now begin to see improvements in the economy, it is sensible that companies should no longer have to bear this extra cost.
  
• In the area of social security, it is proposed to increase the product charge in the fishing industry to 2 percent from 1 July 2024, in line with a recommendation from the Ministry of Trade, Industry and Fisheries. The reason for the change is indications that payouts of unemployment benefits and sickness benefits to fishermen have increased in 2024. For those unfamiliar with the product charge, this is a fee intended to cover the difference between the social security contribution that fishermen pay at 7.8 percent and up to the general social security contribution for business tax at 11 percent, as well as costs for collective occupational injury insurance, insurance for additional sick pay, and support for unemployed in the industry.
  
• In the pension area, a new public AFP (early retirement pension) has been introduced, inspired by the existing AFP in the private sector. This means that the tax rules must be technically adjusted to mirror those that apply to private AFP. The consequence of this is that the deduction for pension tax will vary in line with how much of the old-age pension from the National Insurance Scheme is taken out, in the same way as has been practiced in the private sector since 2011.
  

Value Added Tax (VAT)

Repayment of Deducted VAT on the Purchase of Passenger Vehicles

The Government will change the rules on repayment/reversal of VAT in the event of a change of use of passenger vehicles. The goal, according to the Government, is to "make the rules more neutral", meaning that the total tax burden for passenger vehicles subject to the repayment obligation should be more similar to that which applies to cars sold in the consumer market. The repayment rules affect passenger vehicles that have been used as taxis, rental cars, or lease cars.

However, the export sale of used cars does not trigger an obligation to reverse deducted input VAT. This is current law today, but is now clarified in the legal text.

The change essentially involves increasing the binding period, i.e., the period during which a reallocation triggers a repayment obligation, from 4 to 8 years and that the repayment amount should be based on the assumed residual value at the time of reversal, as opposed to the current lump-sum rules.

As such vehicles are typically taken out of operation after a maximum of four years, the change will presumptively lead to a repayment of tax for all passenger vehicles affected by the rules. The new way of calculating the repayment amount will lead to significantly higher tax costs and a considerably more cumbersome process when reallocating such vehicles. 

The rule change is expected to have a major negative impact on the taxi industry, car rental industry, and leasing companies, in addition to the rule change potentially hitting car-sharing services and car subscription services very hard. 

The new rules will come into force from 1 July 2024.

Possible Changes in VAT Treatment on the Sale of Services Between Head Office and Branch

The Ministry of Finance is considering possible changes related to VAT on cross-border service transactions. This work is being carried out in several stages, and the first stage was implemented from 1 January 2023, when a general VAT liability was introduced on all remotely deliverable services from abroad to recipients in the Norwegian VAT area. 

Another aspect included in the assessments is cross-border services between head offices and branches. Under current rules, a head office/branch in Norway can acquire services from a head office/branch abroad without triggering a reverse charge VAT liability in Norway. In the Ministry's view, this is a breach with the destination principle and can lead to a competitive advantage for multinational enterprises. The Ministry is therefore investigating various alternatives to "solve the problem" as referred to in the budget, as they want a greater degree of VAT applicability where the service is used, as well as neutrality. The Ministry aims to send a proposal for change for consultation during the fall of 2024. It is expected that this proposal could potentially have a significant impact for companies with extensive transactions between head office and branch without being in a position to fully deduct  input VAT in Norway.

Excise Duties

One-off registration tax for Passenger Cars and for Wheelchair Accessible Taxis

As a result of changes in the VAT rules for the reversal of VAT on the sale of vehicles where the buyer has had the right to deduct VAT, the government proposes to reduce the weight component in the one-off registration tax for all passenger cars and remove the one-off registration tax for wheelchair accessible taxis. This so that the changes overall do not increase state revenues.

The one-off registration tax for passenger cars is determined based on weight and emissions of CO2 and NOx.

The government proposes to reduce the weight component by 90 øre for all passenger cars, which according to the Ministry of Finance will reduce state revenues by approximately 200 million NOK per year. Furthermore, the government proposes to introduce an exemption from the one-off registration tax for passenger cars in the so-called tax group k. These are passenger cars that are adapted for and used for the transport of wheelchair users. The proposal will reduce state revenues by approximately 50 million NOK per year.

Reduced CO2 Tax for Quota-Obligated Shipping

In connection with the state budget for 2024, a reduced rate in the CO2 tax on mineral products for quota-obligated shipping was introduced. Quota-obligated shipping refers to emissions from ships over 5,000 gross tonnes, where the quota obligation will be gradually introduced in 2024 and 2025 and that there will be a quota obligation for all emissions from 2026. The quota obligation covers both domestic and international shipping. The reduced rate has not been put into effect pending clarifications with the ESA.

The reduced rate was originally to be implemented as an annual refund scheme, but after new assessments, this can be implemented as a direct exemption. A direct exemption will result in significantly lower administrative costs for the tax authorities and reduce the liquidity disadvantage for the quota-obligated. The exemption will mean that quota-obligated customers can buy fuel from suppliers registered for excise duty by the tax authorities at a reduced rate. Quota-obligated who buy fuel from suppliers not registered for excise duty with the tax authorities can apply for a refund. Direct exemption can only be granted with effect going forward, and pending the introduction of the exemption, the government plans to implement the reduced rate by providing a refund for the period from 1 January 2024 until the exemption is introduced.