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Reform to the tax rules on shipping
In a press conference held Friday 7 September 2007, the Norwegian Government announced two proposals to Parliament on shipping taxation in Norway. The proposals will be included in the 2008 Budget, to be presented 5 October 2007:
1. The abolishment of the shipping and tonnage tax system in force in Norway since 1996, combined with a collection of the since then deferred taxes, estimated to NOK 21 billion in total, to be paid over a period of 10 years. 1/3 of the deferred taxes may however be written off if used for environmental investments.
2. A new tonnage tax system for Norwegian shipping companies effective from 2007. The tax regime is said to be similar to the tax regimes available for the industry in the EU.
Abolishment of the present tonnage tax system and collection of deferred tax
Since 1996, the Norwegian shipping taxation system has been a mix of a small tonnage tax, being payable irrespective of profits or losses made by the shipping companies, and no ordinary running taxation of the actual profits and losses made. Unless a shipping company has made distributions to the shareholders or made an exit from the scheme by i.a. disposing of all qualifying assets (like vessels), the companies have enjoyed an indefinite deferral of tax on it's accrued profits. The tax exempted profits may have derived both from operations and gains made by disposals of qualifying assets.
The Ministry of Finance has emphasised a major uncertainty with respect to the estimate of NOK 21 billion in taxes to be collected over the next 10 years. So far, it has not been revealed what bases the Ministry's estimate was made on. As the 2008 Budget and the actual proposal remains to be presented until 5 October 2007, it is not clear at all whether the tax payable will be calculated on the bases of the book values or the market values of the qualifying assets.
The question of how the payable tax will be calculated is subject to a debate in the press and other media, and it has been argued that the Ministry's estimate has been made on the bases of book values . This question may have been, and it may continue to be a subject for further discussions within the Government itself. The deputy minister of Finance made recently a statement that the payable taxes would be calculated on the bases of "actual value".
Traditionally, the question of having a competitive shipping taxation system has divided the Socialist party (of which the Finance Minister is the leader) from the two other parties forming the present Government. Thus, taxation based on book values may in fact be a compromise already made within the Government.
17 September 2007, the Norwegian Shipowner's Association sent a letter to the Ministry of Finance asking for a clarification on how the payable tax will be calculated. Furthermore, the
Ministry is warned that this sudden taxation may force some companies to wind up their business as the statutory required minimum equity capital ratio cannot be met.
The optional tax relief from making environmental investments up till 1/3 of the calculated payable tax has not been explained in more detail.
It remains unclear from what fiscal year the calculation and collection of payable tax will start.
A new "EU-style" tonnage tax system in Norway
The new tonnage tax system to be proposed is said to be similar to the tonnage tax regimes in other European countries. The details have not been revealed so far, but the new system is announced to become effective already from the fiscal year 2007.
Provided that the new system will be similar to other European tonnage tax regimes, some or all of the characteristics below are likely to be found in the proposal .
The new system may be expected to be optional, leaving the shipping companies with the alternative to be subject to tax according to the regular system for taxation of business income. Companies opting for the system may have to stay within the system for a period of ten years. After the first ten years, the companies may probably opt for a new ten year period. It is not unlikely that a group of shipping companies may have to make a common decision in respect of the new tax system for the group shipping companies.
A shipping company may be allowed to be involved in other business than shipping; income from other business than shipping will be taxed according to regular taxation of business income.
Shipping income is likely to be finally tax exempt, and may be distributed from the shipping company without further taxation in the distributing company as such. The shipping company will however, be subject to an annual tonnage tax.
Companies within the new system will probably have to meet certain Flag requirements.
An exit from the tonnage tax system will probably not trigger taxation, but is likely to disqualify the company for tonnage taxation the following ten years.
The proposal on a new tonnage tax system in Norway is announced to be included in the 2008 Budget, due the 5 October 2007.
For further information, please contact Mr. Harald Johannessen, Mr. Per Harg or any of the other tax advisors of Advokatfirmaet Selmer DA, phone +47 23 11 65 00, e-mail: firstname.lastname@example.org or email@example.com. Please visit our website at: www.selmer.no.
The information in this document is of a general nature, and is not intended to be a complete analysis of all possible tax considerations relating to making investments in Norwegian shipping companies. Prospective investors should consult their tax advisors as to the consequences under the present and future tax laws of Norway and elsewhere.
(1) In a white paper on the shipping taxation system made by an expert committee, received by the Ministry of Finance 7 March 2006, the deferred tax was estimated to NOK 10-15 billion in total, based on book values.
(2) The description of the characteristics is based on information on several EU tonnage tax systems in the white paper on the shipping taxation system made by an expert committee, received by the Ministry of Finance 7 March 2006.