The Minister of Finance, Siv Jensen, presented the draft National Budget 2019 on October 8, 2018 to the Parliament. The presentation of the budget will be followed by a cycle of parliamentary hearings and debates on the budget, which will last until mid-December. The Budget presents the policies for the implementation of economic policy and projections for the Norwegian economy. It makes proposal regarding corporate taxation, personal taxation, interest deduction rule, corporate tax residency rule.
Corporate tax rate
The Government proposes the reduction in corporate tax rate from 23% to 22% in effect from January 1, 2019. The tax rate on hydroelectric powerplants was proposed to increase by 1.3% to 37% to offset the reduction in tax on ordinary income and an increase of the petroleum special tax rate from 55% to 56% was proposed to maintain the overall 78% tax on activities conducted on the Norwegian Continental Shelf under this budget. Tax on financial activities will be maintained at 25%.
Corporate Tax residency rule
The Government has proposed some amendments in corporate tax residency rules based on a proposal from a Commission appointed to review the corporate taxation in Norway and this rule would take effect from the fiscal year 2019. It implies that companies incorporated in Norway and foreign companies performing effective management in Norway will be deemed resident in Norway and liable to pay tax on their worldwide income. However, a company resident in another state under a tax treaty will not be deemed resident in Norway.
Interest limitation rule
The Norwegian Government proposes changes to the rules on interest limitation. The interest limitation rule restrains multinational groups’ ability to reduce corporate income tax in Norway by excessive debt financing of Norwegian subsidiaries. The Norwegian tax legislation already has a rule that limits highly leveraged companies’ deduction for interest paid to related parties. The deduction is capped if net interest exceeds 25% of taxable earnings before interest, taxes, depreciation and amortization (EBITDA), and if net interest exceeds a de minimis threshold of NOK 5 million. The de minimis threshold in the new rule is increased to NOK 25 million in net interest and escape clause would allow full deduction of interest paid to independent parties if the equity ratio of the company equals or exceeds the equity ratio in the group’s consolidated financial statements. Under this proposal, certain adjustments to the accounting numbers have to be made when calculating the equity ratio. Ms. Jensen says that a high de minimis threshold and an escape clause based on companies’ equity ratio make the rule more focused towards profit shifting and strategic allocation of third-party debt. This is an important step in implementing the OECD’s BEPS recommendations. The Norwegian government is implementing the BEPS initiative in line with EU ATAD (Anti-Tax Avoidance Directive).
Withholding tax
The Budget proposes introducing a withholding tax on interest payments, and payments for the use of intellectual property rights (royalties), and lease payments relating to certain tangible assets.
GAAR
The Government proposed to announce a statutory general anti-avoidance rule that would permit the tax authority to set aside tax-motivated transactions that conflict with the purpose of the tax rules.
Personal tax
This budget includes reduction in personal income tax rate from 23% to 22%. In the draft budget proposal for 2019, the Government proposes to make tip income subject to the general reporting requirements. Finance Minister says that the employers will be liable to report tip income, deduct taxes and pay employers’ national insurance contributions from 2019. By considering tip income as ordinary income, employees can earn increased rights under the National Insurance, like pension rights and sickness benefits. Also, new book-keeping rules will require employers to keep record of received tip income as of 2019.
