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Norway's Commission Recommends Corporate Tax Rate Cut

by Ulrika Lomas, Tax-News.com, Brussels

08 December 2014


The Tax Commission, appointed by the Government in March last year to review corporate taxation in Norway in light of international developments, submitted its report on December 2, and proposed a cut in both corporate and individual income tax rates, alongside other adjustments to combat corporate base erosion and profit shifting (BEPS).

The Commission noted that the level of Norway's corporate tax rate has stayed comparatively high when, both at a European level and globally, other countries' rates have been lowered. In 2014, the statutory corporate tax rate was 1.7 percent higher than the OECD average, and 4.4 percent higher than the EU average.

It was therefore recommended that there should be a reduction in the country's corporate tax rate to 20 percent from the current rate of 27 percent (in conjunction with a similar cut in its lowest rate of personal income tax), to dissuade companies from shifting profits out of Norway to more tax-friendly countries and to attract international business and investment, particularly having regard to future years when there will be an oil-sector slowdown.

The Commission provided one package of measures estimated to be approximately revenue-neutral, and another proposal involving tax reductions of NOK15bn (USD2.1bn). Overall, to balance the reduction in corporate tax, it decided that there should be a broadening of the tax base.

However, to generate additional revenue and put a greater emphasis on consumption taxes, it also suggested that a withholding tax on margin-based financial income should be introduced and that value added tax (VAT) be placed on financial services on which fees are payable. It also recommended a dual-rate VAT, in which the general rate of 25 percent would be retained but the current zero rate and lowest rate increased to 15 percent, corresponding to the current rate on food.

In addition, it proposed a net tightening of the tax rules applicable to cross-border activities. For example, with reference to the taxation of cross-border income from shares, it advocated raising the low-tax country definition threshold, from two-thirds to three-quarters of the Norwegian tax level, and levying withholding tax only on shareholders resident in low-tax countries.

Amongst other measures to prevent BEPS, the Commission noted that Norway should follow up any recommendations concerning transfer pricing and the arm's length principle resulting from the OECD's project, as well as international developments in the area of information exchange for tax purposes, particularly as regards the automatic exchange of information.

It also included a proposal for a withholding tax on royalties and interest; asked the Ministry of Finance to assess whether bareboat vessel charters should be excluded from the Norwegian special tax regime for shipping companies; recommended that companies registered in Norway should always be deemed resident there; and concluded that there should be a statutory general rule to counter tax avoidance.

Given that the report is to be submitted for public consultation in the near future, and that the Government has already presented its Budget for 2015, it is considered that the earliest date for its recommendations to be acted upon would be 2016.

TAGS: compliance | tax | business | marine | value added tax (VAT) | tax compliance | tax avoidance | royalties | banking | financial services | corporation tax | Norway | fees | ministry of finance | transfer pricing | tax rates | withholding tax | tax reform | services | Europe | Tax

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