On 8 June 2020, the Norwegian Government and the major opposition parties agreed on temporary tax stimulus measures for the oil and gas companies.
The main features are:
- Oil and gas companies can depreciate 100% of investments against special tax basis (56%) in the year of investment in 2020 and 2021
- The uplift is increased from 20.8% (5.2% per year over four years) to 24% in the year of investment
- Companies making tax losses may receive cash refund of tax value through the income year in 2020 and 2021
- The temporary measures will apply for investments made in 2020 and 2021 and also for projects where a development plan has been submitted by end of 2022 and sanctioned by end of 2023 until production start-up
The Norwegian Government’s proposal for the Norwegian upstream sector was issued on 12 May 2020 along with the revised national budget. The Government does not have a majority of the seats in Parliament and has since then negotiated with the opposition to reach an agreement.
Special tax and ordinary tax
Oil and gas companies operating within the Norwegian jurisdiction are subject to the general corporate tax of 22% and a special tax of 56% in a ring-fenced petroleum tax system.
Measures agreed in line with the 12 May proposal
100% depreciation against special tax basis
Companies can depreciate 100% of all investments against the special tax basis (56%) in year of investment in 2020 and 2021, as well as for investments in project development (PUD/PAD) delivered by the end of 2022 and sanctioned by the end of 2023 and up to start of production as detailed in the PDO. A proposal from the industry and supported by the major opposition parties to also allow 100% depreciation of investments in the ordinary tax basis (22%) was rejected by the Government as part of the agreement.
The formula for interest deduction will be based on tax written down values in the special tax base. As there will be 100% write down in the special tax basis, this essentially means that the companies can only claim 22% interest cost deduction for financing of investments that fall under this temporary regime (and not partly 78%, as under the current regime).
Agreed measures that differ from the 12 May proposal
The uplift provides an additional deduction from the special tax base of 20.8% (5.2% annually for four years). The Government had proposed a one-year uplift in the investment year of 10%. This would have had an immediate cash effect, but a decrease in the total uplift.
The agreed measure is a 24% uplift in year one for the same period and projects as described above, i.e. a significantly more favorable uplift than the proposal.
Negative tax instalments
Under the temporary stimulus measures, companies expecting a tax loss may receive cash payments of the tax value of their losses in 2020 and 2021. The proposal was for such cash payment to be claimed in the annual tax return that would be refunded in November in the year after the income year. Instead, companies may claim cash refunds throughout the year.
Eivind Galta, Partner, Tax, + 47 902 711 42
Astrid Foyn-Bruun, Nordic Energy Leader, +47 415 12 989