Norway International Update – Q2 2024

1.1 Abolition of the additional payroll tax from January 1, 2025

In 2023, the government introduced an additional payroll tax of 5 percentage points on salary income exceeding NOK 750,000. In 2024, the threshold was increased from NOK 750,000 to NOK 850,000. The additional tax was intended as a temporary measure.

In the Revised National Budget 2024, the government announced that this temporary taxation of employers will be completely abolished as of 1 January 2025.

1.2 Limitations on the taxation of securities funds upon relocation

Securities funds are not taxable for gains and do not have a right to deduct losses from the sale (realization) of shares in companies domiciled outside the EEA. However, securities funds that cease to be domiciled in Norway, for example through a tax-free cross-border merger, can trigger tax liability on latent gains on shares that do not qualify for the exemption method (shares in companies outside the EEA).

The current regulations involve an inconsistent differential treatment of taxation upon realization (tax exemption) and relocation (no exemption). To create consistency in the rules, the government therefore proposes that securities funds will not be taxed for latent gains on shares in companies domiciled outside the EEA as a result of a cross-border relocation.

With the proposed change, there will thus be equal tax consequences (exemption) between shares in companies domiciled in countries within the EEA (the exemption method) and shares in companies domiciled in countries outside the EEA (the special rule for securities funds) when a fund relocates from Norway.

The Ministry of Finance proposed that the change was to apply from 14 May 2024.

1.3 Consultation period over for the proposal of tightening the exit tax rules

In March 2024, the Ministry of Finance’s proposed a tightening of the exit tax rules. In our previous newsletter for Q1, we provided an overview of the proposal. The proposed changes were to apply to relocations and transfers occurring from 20 March 2024 and onwards.

Since then, the proposal has been up for consultation. The consultation period is now over, and the government has received several comments to the proposal. The consultation inputs have primarily consisted of objections as to whether the triggering of exit tax upon the taxpayer’s death, also applies to taxpayers who established tax residency outside Norway before March 20, 2024. There have also been several comments questioning whether the proposal is in conflict with EEA law.

It is therefore likely that the proposal will be somewhat moderated because of the objections in the consultation round.

1.4 Value added tax

1.4.1   VAT on remotely supplied services

Under current rules, VAT is not imposed on remotely supplied services between different geographical establishments within the same legal entity (e.g., head office and branch). This is due to the fact that transfer within the same legal entity is not considered a supply that triggers VAT.

The lack of taxation of services consumed in Norway is considered to be in conflict with a fundamental principle in tax law, the destination principle. The Ministry of Finance is therefore working on an amendment proposal to expand the taxation of remotely supplied services that are to be consumed in Norway.

It is expected that proposals for legislative changes will be sent out for consultation during second half of 2024.

1.4.2 Decision from the Tax Appeals Board regarding import of intragroup services

The Tax Appeals Board recently rendered a decision regarding import of intragroup services. The case concerned the question of VAT on remotely supplied services received by two branches resident in Norway (A and B) from the respective branches’ head offices abroad (D and H). The Norwegian branches were active in the insurance industry, which is exempt from VAT in Norway. The services were produced by the parent company (C) and invoiced to the respective head offices D and H.

According to the Norwegian VAT Act remotely supplied services purchased by a recipient abroad should be subject to reverse charge VAT in Norway if the services are intended for use in Norway, provided that the services were not subject to VAT abroad.

The Tax Appeals Board assumed that services acquired by D from C were intended for use by branch A, and services purchased by H from C were intended for use by branch B. As evidence of the use, the board relied on the internal invoicing between the head office and the branch.

Since D and H were part of a VAT group with C abroad, the services were not subject to VAT abroad.

The Tax Appeals Board further assumed that the VAT group registration abroad did not result in identification between C and respectively D and H, so that the services could not be considered as self-produced (where transfer between head office and branch would not have triggered VAT). The reassessment of VAT was thus upheld.

1.4.3 Proposed taxation on income for aquaculture companies on the continental shelf

In April, The Ministry of Finance proposed to introduce tax liability to Norway for non-resident companies and individuals who will have income from aquaculture and related activities and work, in the 200-mile zones and on the Norwegian continental shelf.

The proposal implies:

• Tax liability for non-resident entities active with exploration and production of aquatic organisms (aquaculture), (currently this only applies to aquaculture of fish for human consumption such as salmon, trout, and rainbow trout).
• Tax liability for various forms of service provision and auxiliary activities related to aquaculture in the 200-mile zones and on the Norwegian continental shelf.
• Tax liability for non-resident workers who have income related to mineral activities, exploitation of renewable energy resources (offshore wind), and carbon management on the continental shelf.
• Non-resident individuals’ wealth related to business activities carried out by self-employed individuals on the continental shelf and/or in the 200-mile zones and which are taxable under the new tax provisions, are subject to net wealth tax to Norway in the same way as for other subjects with limited tax liabilities.

The ability to tax non-residents’ activities and work can be limited in tax treaties entered into between Norway and the relevant home jurisdiction of relevant entities and individuals.

The changes will take effect from the income year 2025.

1.4.4 Expansion of VAT exemption for acquisitions for official use by American forces and their contractors

Norway entered a supplementary agreement with the US on defense cooperation (SDCA) on 16 April 2021, which came into effect on 17 June 2022. The agreement provides VAT exemptions for acquisitions for official use by American forces and their contractors.

Under the existing regulations, if there is a business in the supply chain that has sales exempt from the Norwegian VAT Act, the exemption in the VAT regulations does not apply to sales to this business. In such cases, the relevant entity can apply for a refund of the incurred VAT costs. In the Revised National Budget, the government proposes to allow direct exemptions also in cases where there is a business in the supply chain that has sales that are exempt from the VAT Act.

The proposal will be sent out for consultation and the aim is that the changes will take effect from 1 July 2024.

4.1 Legislation on sustainability reporting has been adopted by the Norwegian Parliament

On 22 March 2024, the Norwegian Ministry of Finance presented a legislative proposal for the implementation of the Corporate Sustainability Reporting Directive (CSRD) into Norwegian law (Prop. 57. L (2023-2024)), including proposed amendments to the Norwegian Accounting Act and several other laws. The CSRD will require in-scope companies to report on sustainability-related issues in line with the detailed set of reporting standards (ESRS) developed by the European Financial Reporting Advisory Group.

On 21 June 2024, the Norwegian Parliament approved the proposed legislative amendments. The amendments have not yet been considered by the King in Council, which means that the enforcement date has not been set. It is expected that the amendments will come into effect by January 1, 2025.

Furthermore, on April 29, the European Council of the European Union approved a directive amending the CSRD to provide more time to apply the ESRS for certain sectors and non-EU companies. The directive postpones the adoption of sector-specific sustainability reporting standards for EU companies and general sustainability reporting standards for non-EU companies to 30 June 2026 (from June 30, 2024).

1.2 EU formally adopts the Corporate Sustainability Due Diligence Directive

On 24 May 2024, the Council of the European Union formally adopted the Corporate Sustainability Due Diligence Directive (also known as CSDDD or CS3D). The directive aims to enhance the protection of the environment and human rights in the EU and globally by introducing a due diligence obligation for large companies, which requires a risk-based approach to identify and address potential and actual adverse human rights and environmental impacts within the companies’ own operations and broader business operations.

After the entry into force of the directive, the member states will have two years to implement the regulations into national law. The CSDDD will apply based on the following size thresholds and timeline (including non-EU companies reaching the same turnover thresholds in the EU):

• From 2027 for companies with more than 5 000 employees and €1 500 million turnover
• From 2028 for companies with more than 3 000 employees and €900 million turnover
• From 2029 for companies with more than 1 000 employees and €450 million turnover

Before the CSDDD can be implemented in Norwegian law, the EEA Joint Committee must first agree to include the directive in the EEA Agreement. The implementation of the directive in Norwegian law will require amendments to Norwegian regulations. The CSDDD primarily affects the Transparency Act, which came into effect on 1 July 2022.

1.3 EU adopts 14th package of sanctions against Russia

On June 24, 2024, the EU adopted its 14th sanctions package against Russia. These sanctions aim to impact key sectors of the Russian economy, including energy, finance, and trade, and to make it more difficult to circumvent EU sanctions. The sanctions include restrictive measures against an additional 116 individuals and entities. Norwegian authorities have not yet commented on the sanctions package. However, it is expected to be implemented in Norwegian law, as Norway has so far adopted all thirteen sanctions packages from the EU against Russia, with only minor national adjustments.

5.1 Offshore wind update

The Norwegian government has declared an ambition to award acreage for 30 GW of offshore wind power within 2040. This sets the scene for a significant new renewable energy industry off the coast of Norway, with a number of Norwegian and international players competing for acreage, licenses and state aid.

The first auction was held in late March this year, for a bottom-fixed project of 1,500 MW in the southern part of the North Sea, Sørlige Nordsjø II. The auction was won by Ventyr, a consortium of Parkwind (Belgium) and Ingka (the Netherlands), with NorSea Group (Norway) as a strategic industrial partner. Ventyr signed a contract for difference (CfD) with the Ministry of Energy on 17 April 2024. The CfD is the government’s chosen instrument for allocation of state aid to the project, giving the project a power price hedge of NOK 1.15/kWh. The total state aid under the CfD is capped at NOK 23 billion. Ventyr delivered a plan for a project-specific impact assessment to the Ministry on 29 May 2024, which is currently out for public consultation until 4 September 2024.

The state aid for Sørlige Nordsjø II was notified to and approved by the EFTA Surveillance Authority under the Temporary Crises and Transition Framework (TCFT). The next area to be developed, Utsira Nord, is a deep-water area for floating offshore wind closer to the coast. This area was originally set to be awarded in parallel with Sørlige Nordsjø II but has been postponed. The time frame does not allow for the state aid to be granted under TCFT, so this second project will be notified under CEEAG, the general Guidelines on State aid for climate, environmental protection, and energy. The Ministry of Energy plans to conduct a public consultation on the criteria for receiving state aid to the Utsira Nord development during the summer of 2024, and hopes to have approval from the EFTA Surveillance authority before the end of the year. The consultation and CEEAG notification will cover not only Utsira Nord, but also state aid for other floating offshore wind areas. The consultation is expected to be published before the summer of 2024, and the Ministry now plans to award acreage at Utsira Nord in 2025, along with other areas in what is referred to as “the 2025 round”.

5.2 Onshore wind update

The Norwegian Water Resources and Energy Directorate (NVE) has been instructed by the government to prioritize renewable power projects and grid development in Norway’s most northern county Finnmark. The aim is to have new power production capacity and grid reinforcements in place by 2030 which exceed the power consumption from Hammerfest LNG, whose gas-fired power supply is being phased out and replaced with power from shore as a climate mitigating measure within 2030. This will reduce annual CO2 emissions by 850,000 tons, while at the same time maintaining or improving the availability of renewable electricity for other industrial purposes in Finnmark.

NVE set a common deadline 22 April 2024 for all developers to submit notifications of new power production projects in Finnmark and received project descriptions for 26 projects with a total output of 10,800 MW and 37 TWh of annual production. With planned grid reinforcements, there is room for approximately 800 MW of new generation capacity in Finnmark in the coming years. On 24 June 2024, NVE announced that 12 of the 26 generation projects will advance to the next stage and be submitted for public consultation in the fall of 2024. 11 of these projects are new onshore wind power developments, while the last is a plan for expansion of a hydropower plant.

NVE’s coordinated licensing process for new developments in Finnmark is the first of its kind in Norway and will involve a selection of projects in several phases, aiming to identify the best projects with the least negative impact to public interests, the natural environment and reindeer husbandry. The licensing authorities now give priority to Finnmark projects, and NVE has set a relatively ambitious timeline, planning to grant licenses for new production projects in Finnmark in 2027. A consequence is that projects in other parts of the country receive less attention and must expect longer licensing lead times.

After a broad political settlement was reached on the design of the controversial resource rent tax for onshore wind, several foreign investors have signalled a plan to withdraw from Norway. There are currently several yielding onshore wind farms in the market, and this is a trend that is expected to continue.

5.3 Pressure from EU on implementation of RED II and other energy sector legislation

Norway has recently received significant pressure from EU Energy Commissioner Kadri Simson because of our late implementation of energy sector EU legislation. In March, the Commissioner sent a letter to the Norwegian government where she set a deadline for a decision on including the 2018 Renewable Energy Directive (RED II) in the European Economic Area agreement within 13 August 2024. The Commissioner warned of possible consequences if Norway fails to implement the legislation, without going into specifics.

The initiative caused political controversy in Norway, where one of the two parties in the government (the Centre Party) is strongly opposed to implementing the Clean Energy Package and other EU legislation – particularly on the energy sector – for fear of giving up national sovereignty and control of natural resources to ACER. The Prime Minister has stated that Norway will not be pressured by the EU on the timeline. Currently, it seems that the governing parties may reach a compromise on RED II (and possibly RED III), while implementation of the rest of the Clean Energy Package is still a political issue which looks hard to resolve in the current political landscape in Norway. Energy companies and the industry association Renewables Norway follow the debate closely, hoping for a full implementation of the EU legislation in order to avoid possible counter-measures from the EU – which may ultimately have consequences for Norwegian participation in the internal market for energy.

The consultation paper regarding the Norwegian implementation of changes to the capital requirements regulation (CRR III) was presented for public consultation on 5 June with deadline set to 5 September. The consultation includes, inter alia, the NFSA’s proposals for the national discretions available under the amending regulation, which are:

• Continuation of the current valuation principles for real estate when calculating the loan-to-value-ratio for the collateral pool in covered-bond-issuing institutions,
• The output floor will not only apply at the highest level of consolidation,
• CRR III transitional arrangements for calculating the output floor will not be introduced,
• Loans with four or more residential properties as collateral will be categorized as loans backed by real estate, and recategorization of these loans as corporate exposures should be investigated further,
• Transitional arrangements for the use of credit ratings for exposures to institutions which assume that the institution receives state aid in a crisis situation should not be adopted.

The Securitization Regulation, which has applied in the EU since 2019, is an important element in the development of EU’s Capital Markets Union (CMU). The Regulation lays out a framework for traditional and synthetic securitization and for the actors involved in the process. Norwegian rules implementing the Regulation have already been adopted by the Norwegian parliament but have not yet entered into force. It will still take some time before Norwegian implementation, which will, among other things, depend on the Norwegian legislative process.

On 1 October, new legislation will come into effect to clarify the consumers’ right to pay with cash. The amendments to the Financial Contracts Act states that consumers may make payments in cash in the premises where business regularly sells goods or services to consumers if the goods can be paid for with other payment solutions in or in immediate connection to the sales premises. The rules are limited to NOK 20 000 and includes exceptions for sales in unmanned premises, vending machines, and premises where only a limited number of people have access.

7.1 Norwegian bond market

The Norwegian bond market has been very active throughout the first half of the year, with issue levels close to the record year 2021. There have been 64 corporate bond issuances so far, which is just nine shy of the total number of issuances in 2023. Issuers have issued nearly NOK 70 billion in bonds, 21 billion less than the total amount in 2023. If activity remains high throughout the year, 2024 will greatly surpass 2023 both in number of issuances and in total amount. Only two green bonds have been issued so far this year, and the decline in number of green bonds is a continuing trend from last year.

Closing in on summer holiday, there are several bond issues currently being marketed and the market is not showing signs of slowing down. There is still inflow of cash to the high yield funds, and the funds are also benefiting from good return on current issuances with high coupons. The number of defaults remain low, but some cases have emerged (the latest being Waldorf Production). In total, the effect is that the high yield funds have cash available, and the market will potentially remain strong in H2.

Repeat issuers continue to remain active in the market, but notably the number of new issuers is substantial. We have seen several issuers issuing bonds as part of the preparation for an IPO and to gain experience with the capital markets. In addition to the number of new issuers, the variety of jurisdictions is also notable. We have had issuers from a total of 15 different jurisdictions so far in 2024. A good sign for the Norwegian high yield market is that we have seen several issuers with no apparent “link” to Norway, which shows that the Norwegian high yield market is very attractive for foreign issuers. The sector variation has been good, with 8 sectors having five or more issuers. Oil and gas services is the largest sector so far, with 9 issuers. Shipping, real estate and oil and gas E&P have been other large sectors. Regarding use of proceeds, refinancing of existing bond issues is as always one of the main use of proceeds, but we have seen a substantial part of the proceeds being used for refinancing existing debt other than bonds, as well as further growth.

USD dominated issuances is largest both in number of issuances and amount. USD was largest last year as well, but the difference is greater so far this year. A part of the explanation is that the Norwegian high yield market has a diverse investor base, with a substantial number of foreign investors. Such investors typically prefer USD or EUR bonds. In addition, issuers operating in USD-industries (oil and gas and shipping) have been very active, which have a significant impact on the USD numbers. That is also an explanation for the size of the issuances this year, where we have had several large issuances so far. In total, six issuances are over USD 300 million, all but one in the oil and gas industry.

Interest rate has been equally split between fixed and floating interest, with investors showing good interest for both. It will be exciting to see if the outlook on a slower decline in interest rates will have an effect in H2.

The trend of shorter term on the bonds is continuing. A majority of the issuances have a four-year tenor, and only two have a tenor of more than five years. Compared to last year, the shift towards shorter terms is notable.

7.2 Norwegian bank lending market

The bank lending market is also active, although the main bulk of activity is related to refinancings of existing facilities. With bank lending slowing down significantly in 2023, there was a need for activity to pick up in 2024 if the banks’ lending portfolios were not to decrease. This has also been the case for the first half of 2024. Banks have been active to pitch for new transaction at competitive pricing terms, and the Norwegian banks are generally open for new business, across all business segments. The higher interest rate environment does however result in a more selective market, where we note a trend where solid cash flows and steady business have an advantage when it comes to securing bank lending as banks are preparing for interest rates to remain “higher for longer”. Many borrowers therefore experience more scrutiny of their models and more time spent on preparing the credit case to make sure the business can sustain the higher interest rates also for the long term.

The M&A market has remained muted through the second quarter, but as M&A activity is slowly getting momentum so is the leveraged financing environment. The Norwegian banks have traditionally been conservative in their leveraged lending strategy, which has resulted in a low default level for leveraged loan historically. We expect the Norwegian banks to gradually adapt to the international leveraged financing trends when it comes to loan terms and covenants, but to remain focused on lending to buyouts where the opening leverage is not overly aggressive.

In summary, Norwegian bank have ample capital available and are generally open for business which can show resilience in the current interest rate environment. There should be good opportunities for dealmaking across various business segments in the second half of 2024 also in the bank lending sphere.

8.1 Market trends

• The transaction market is still challenging with different perceptions of market value/pricing. However, we are currently seeing that the market is cautiously picking up in terms of new transactions. The transaction market is expected to continue to pick up in Q3/Q4.
• We have seen sales of standalone commercial buildings and sales of whole portfolios, mainly logistics and office transactions (preferable “value-add”), but also residential buildings and portfolios. We note that there are both Norwegian and foreign investors on the buyer side.
• The transaction volume close to the end of Q2 is about NOK 40 billion. The volume is driven by few, but large transactions. Twelve of this year’s transactions account for nearly 70 per cent of the volume (figures from DNB Næringsmegling).
• The brokers’ guidance on yield levels seems reasonable – with prime yield still at around 4.75. The expectations seem to be that the yield has reached its top level, and that it will remain unchanged for the rest of 2024, however as always subject to interest levels.
• Due to increased construction costs, we have seen a dramatic decline in the sales and development of new residential properties.
• The commercial rental market in Oslo is continuing to be pretty solid with low vacancy. We note that there is an increased focus on tenants’ ability to pay rent and the security structure.

8.2 Legal Update

• A unanimous Standing Committee on Justice in the Norwegian Parliament supports the mandatory registration of real property ownership in Norway and a ban on the use of so-called “blanco deeds” (Nw: blankoskjøte), but where an exception to the ban should be considered for development projects.
• The Tenancy Act Committee, mandated to consider whether changes should be made to the current Tenancy Act or whether a completely new Tenancy Act should be drafted, is expected to provide its final report in October 2024. The Tenancy Act Committee proposes to extend the contract length from three to five years and a right for the tenant to both extend and terminate lease agreements at their own discretion.
• New EU directives and climate goals may in the future put pressure on property owners to reduce energy consumption, for example through the recent Energy Performance of Buildings Directive (not yet implemented in Norway).

 10.1 Wiersholm is taking a significant step into the future with Newcode, an innovative and exciting company in the AI industry

Wiersholm has entered a new strategic partnership with Newcode, which provides us with direct access to advanced AI solutions, positioning us at the forefront of AI development in the legal sector.

In close collaboration with our skilled attorneys, Newcode will develop customized solutions tailored to the daily work of lawyers.

Our goal is to allow artificial intelligence to handle the necessary and more routine tasks, enabling us to focus our expertise and resources on strategic and creative tasks. This will not only add value for our clients but also enhance our own operations.

Read more here.

10.2 Wiersholm strengthens its focus on the seafood industry with new recruitments

Erik Staurset Andresen joins Wiersholm as partner and Sigrid Ratvik Østvik as senior associate. Both will join the firm’s seafood team and started on July 1, 2024.

The seafood industry is one of Norway’s most important and fastest growing industries, and we strongly believe that the industry will continue to grow and develop in the coming years. The seafood industry is a strategically important focus area for Wiersholm. With the recruitment of Erik and Sigrid, who both have important specialist expertise and extensive experience from the industry, we now have a complete seafood team that can assist clients with all issues in the industry.

Staurset Andresen has extensive experience from all aspects of fisheries and aquaculture law, both as a lawyer in the Norwegian Directorate of Fisheries and later as a lawyer and advisor to the industry. His experience includes, among other things, contractual and regulatory issues for both land-based aquaculture, fjord-based aquaculture and exposed offshore aquaculture. He also assists companies in the fisheries sector. Staurset Andresen is considered one of the foremost experts and advisors in Norway in his field. He is a member of the Norwegian Bar Association’s expert committee on fisheries and aquaculture law and has been named one of Norway’s best lawyers in fisheries and aquaculture by the Norwegian Financial Daily lawyer survey and several international ranking agencies for legal services.

Ratvik Østvik grew up in the fisheries and aquaculture industry in Frøya and Trondheim, and now has extensive experience both as an associate and senior associate in regulatory and contractual matters, and from the quality department of the second largest salmon farmer in the world, Salmar ASA. In 2021, she completed her master’s degree in law at the University of Oslo, where she specialised in aquaculture law and wrote her master’s thesis on the regulation of biosecurity cooperation in the aquaculture industry. Ratvik Østvik is a regular columnist for IntraFish, the world’s leading news source for seafood and aquaculture, and has been named one of Norway’s promising talents in several acknowledged rankings.

10.3 Rankings and acknowledgement

Reflecting upon the first half of 2024, we are humble to acknowledge that Wiersholm has maintained robust performance in both national and internationally recognised rankings. It shows the weight and breadth of what we do. We have always placed great emphasis on professional strength and development at Wiersholm, and we are pleased that this is also reflected in the rankings.

In the second quarter of 2024, it was announced that Wiersholm topped the comprehensive and independent lawyer survey Prospera, both overall and among organisations that spend more than NOK 7 million on legal services per year. The Norwegian business community has spoken – Wiersholm has the most satisfied clients in the industry.

In addition to being number one in ‘Best overall Performance’ in both categories, Wiersholm takes first place in the categories ‘willingness to recommend’ and ‘brand strength’ among the largest buyers of legal services.

The feedback we get in this survey are highly appreciated, as it confirms what we are good at, but also what we need to work on to improve. Every day we strive to be the best at what our clients want, and we will continue to combine a high level of professionalism with a solid understanding of our clients, and simply be really nice people to work with.

10. 4 Save the date – upcoming events

IBA Annual Conference 2024

From 15-20 September 2024, the IBA Annual Conference will take place in Mexico City. At Wiersholm we are looking forward to the conference, and our firm will be represented by our Managing Partner Stephan L. Jervell, accompanied by our partners Jarle Kvam and Anne Lise Ellingsen Gryte.

We will be reaching out separately to set up 1:1-meetings and other touchpoints during the week.

Please feel free to contact our team coordinator, Lotte Midttun Bakken (loba@wiersholm) with any questions you might have concerning our presence and activities in Mexico City.

Nordic Buy Out Forum 2024

On December 5, 2024, Wiersholm is hosting the 14^th edition of the Nordic Buy Out Forum – the largest and most important conference for M&A practitioners in the Nordics.

Last year we had a record number of participants and a great line-up of speakers who deep dived into the four main topics M&A trends and outlook, AI, Private Equity and Challenges in Value Creation Strategy Execution, and Grow the pie – focusing on investments driving both purpose and profit.

Full agenda and details for the 2024 Forum, but you may already register here.

We hope to see you in Oslo in December.