On Wednesday 10 June, the Committee submitted its report on temporary amendments to the Norwegian Petroleum Tax Act (PTA). The matter has been subject to extensive political debate and media coverage. The Parliament is expected to vote on the proposal today, 12 June.
The Committee’s majority believes the situation in the petroleum and supply industries calls for measures to improve the liquidity of the petroleum companies. Without temporary tax measure, the investment activity on the Norwegian shelf will be lower than expected since planned, profitable investment projects will be postponed. The measures may also counteract a negative development with lay-offs, redundancies and bankruptcies. Against this background, the Committee proposes temporary amendments that will provide for earlier deductions, so that tax payments can be postponed and the liquidity of the companies improved.
Immediate deduction of investments and uplift
The Committee specifically proposes immediate deduction of investments in the special tax base with the addition of an uplift of 24 percent. The proposal applies to further defined investments incurred as from the income year 2020 up to and including the income year 2024. The proposal refers to section 3.2 of the Proposition of 12 May 2020.
Normally, production facilities and pipeline are depreciated over six years in the special tax base. The proposal will imply that depreciations for such investments incurred in the income years 2020 and 2021 instead can be deducted immediately. For depreciations in the ordinary tax base, today’s scheme of linear depreciations over six years will be maintained.
The proposed immediate deduction of cost price (and 24 percent uplift) in the special tax base will also apply to costs incurred in acquiring operating assets covered by further defined plans under the PTA, e.g. plan for development and operation (POD) or plan for installation and operation (PIO) provided that the Ministry of Petroleum and Energy receives an application before 1 January 2023 and approves the application before 1 January 2024. The proposal will apply for costs incurred no later than the year of the planned start of production or operation.
Payment of the tax value of losses and unused uplift
The majority proposes that petroleum companies expecting to have uncovered deficits and unused uplift in the income years 2020 and 2021 can claim the tax value paid by the state. Payment of the tax value of losses will give liquidity to companies suffering losses or being in a loss position as a result of immediate deduction.
Taking into consideration consultation input and in order to further secure companies suffering losses a continuous cash flow, the majority proposes that payments should be made in instalments as a “negative instalment tax”. Negative instalment tax means that the tax value of losses and unused uplift will be paid in six instalments throughout the year (i.e. before submitting the tax return) based on the amount the tax value is expected to be for the respective income year. As payments are made throughout the year, the taxpayer’s liquidity will be increased and the creditors’ risk and need for security in the tax claim will be somewhat reduced.
The instalment tax may be modified until the due date of the fourth instalment with effect for the last three instalments, and the taxpayer will be given the opportunity to state its views before the levying or modification of the instalment tax. Further documentation requirements for the negative instalment tax may be laid down in regulations, for example to reduce the risk of abuse.
If the taxpayer claims a refund of the tax value of losses and unused uplift under the negative instalment tax scheme, the taxpayer may not also request a refund from the existing schemes on exploration costs and refund upon discontinuation. In principle, we are of the opinion that existing securities in tax claims under the exploration refund scheme will remain unaffected by the negative instalment tax scheme. On this point, however, the wording of the bill could have been clearer.