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Daniel Herde |
Marnie Jeffreys |
Contrary to the budget proposals for fiscal year 2016, there were no BEPS-related or other strictly international tax measures included in the latest budget statement announced on October 6, but it still included tax plans for businesses.
First, the government proposed that the general corporate tax rate should be reduced from 25% to 24% for the 2017 financial year. The proposal is in line with the tax agreement between the political parties in parliament, where it was resolved that the corporate tax rate should be reduced from 25% to 23% by 2018.
Secondly, the government proposed a "financial activities tax" with effect from 2017, which could have impact on both Norwegian and foreign tax resident companies.
Financial activities tax
Under existing rules, financial services generally are exempt from VAT in Norway. With the aim of making up for the fiscal loss caused by this exemption, the financial activities tax has been proposed, which would be implemented through two elements:
1) Entities engaged in financial activities will be subject to a 5% tax based on bonuses paid to employees. An entity will be deemed to be engaged in financial activities when the entity's employees are engaged in activities covered by the definition of "financial and insurance activities" in Eurostat's NACE Rev. 2 (different groups of activities made for statistical purposes by Eurostat) industrial area K. It should be noted that the industry code under which the business is registered will not be used to determine whether the tax applies. Instead, the business's actual activity will be taken into consideration. Holding companies with no employees will not be subject to the financial activities tax; and
2) The employee compensation used as a basis for the 5% tax will be the same as that used for the Norwegian social security contribution levied on employers. Furthermore, the 5% tax will be deductible when computing the corporate income tax due.
In addition to the above-mentioned 5% tax, the ordinary corporate tax rate for entities comprised by the new financial tax regime will remain at 25% (i.e. it will not be reduced to 24%).
There are two exemptions from the above rules:
1) If the compensation paid to employees engaged in financial activities is less than 30% of the total employee compensation paid by the entity, the financial activities tax will not apply. The exemption shields entities that are only to a limited degree engaged in financial activities from the financial activities tax; and
2) If the employee compensation relating to financial activities that are subject to Norwegian VAT exceeds 70% of the total employee compensation paid by the entity, the financial activities tax will not apply. This exemption aims to avoid entities being subject to both Norwegian VAT and financial activities tax at the same time.
The financial activities tax will apply for financial services offered in Norway, regardless of whether the services are sold in Norway or exported. Similarly, financial services offered abroad will not be subject to the financial activities tax.
The conditions apply on an entity level, and if the conditions are fulfilled. Both elements of the financial activities tax will apply to the entity as a whole. Furthermore, the 5% tax is not connected to the entity's tax liability to Norway, but to the salary cost for payroll tax purposes.
Although the corporate tax rate may differ between companies within a group due to the financial activities tax, no measures are yet proposed that would restrict the ability to make group contributions to transfer taxable profits between group entities (i.e. from a company subject to 25% corporate tax to a company subject to 24% corporate tax).
It is likely that the proposal will be approved by the Norwegian parliament, but changes and clarifications may be made in the near future, especially with regards to the financial activities tax.
Daniel Herde (dherde@deloitte.no) and Marnie Jeffreys (majeffreys@deloitte.no)
Deloitte Norway
Tel: +47 482 21 973
Website: www.deloitte.no
