EFTA Surveillance Authority Rejects Norwegian Tax Proposals

by Ulrika Lomas, Tax-News.com, Brussels

29 July 2009

On July 23, the European Free Trade Association’s Surveillance Authority concluded two investigations on tax measures proposed by the Norwegian government. The two proposals – one of which would have exempted the use of natural gas and liquid petroleum gas (LPG) used for all purposes other than the heating of buildings from Norway’s CO2 tax, and the second proposing special tax deductions for certain cooperatives – were both rejected on similar grounds, in that they were not in line with the EEA competition rules.

Investigation into proposed exemptions on use of natural gas and LPG from Norwegian Carbon Dioxide Taxation

Under the plans, the Norwegian government wanted to amend its existing CO2 tax legislation to extend its scope to natural gas and LPG, while simultaneously exempting taxation on their consumption in all situations except for heating of buildings.

The Authority, however, concluded that taxation in such a form would constitute state aid to those who benefit from the exemption, which cannot be justified under the EEA Agreement as it is not compatible with the Authority’s Environmental Aid Guidelines. The Authority's view is that compatibility with the guidelines in this case would require that the minimum level of taxation specified in the European Community’s Energy Taxation Directive (or equivalent measures) must be imposed upon those who benefit from the exemption.

A statement from the Authority noted that, whilst the Energy Taxation Directive has not been incorporated into the EEA Agreement, it has applied the same points of reference as those contained in the Community guidelines when assessing the compatibility of state aid with the functioning of the EEA Agreement. This is done in order to ensure uniform application of state aid provisions and equal conditions of competition throughout the EEA, the Authority further noted.

Investigation into special tax deductions for certain cooperatives

Under the proposed scheme, certain consumer cooperatives and cooperative building societies, as well as cooperatives within the agriculture, forestry and fisheries sectors, would have been entitled to deduct allocations to equity capital from their income, thereby reducing the basis for their income tax. The Norwegian authorities have argued that the scheme would compensate the cooperatives for disadvantages with regard to access to equity capital.

The Authority considered that the scheme constitutes state aid as the scheme would confer an advantage on the cooperatives covered by the scheme. Moreover, the relation between the alleged disadvantage for cooperatives and the tax benefit has not been made sufficiently clear by the Norwegian authorities, opined the Authority. The Authority further assessed the compatibility of the scheme but concluded that it was not compatible with the EEA Agreement.

The Authority’s decision does not deal with cooperatives in the agriculture and fisheries sectors to the extent that their activities fall outside the scope of the state aid rules of the EEA Agreement.

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