Newsletter from Shipping Offshore
| 12th September 2007Wikborg Rein has published a newsletter named "The Government’s proposal of a new tax regime for shipping companies - turn of ten years tax exemption".
Since 1996, shipping companies in Norway have benefited from a special tax arrangement. The companies have not paid tax on profits from shipping activities as long as the profits have been kept within the companies and the companies have adhered to the conditions of the shipping tax regime. The profit is subject to tax only if distributed to the owners or if the conditions are violated, or if the company voluntarily withdraws from the arrangement. The companies have instead paid a tonnage tax.On Friday 7 September 2007, the Government made two announcements regarding the Norwegian shipping tax regime:
1) The existing shipping tax regime shall be ended. This means that non-taxed profit accumulated since 1996 shall now be subject to taxation, but in such a way that the tax shall be allocated over 10 years. Up to 1/3 of the tax can be annulled if the companies undertake allocations and investments within environmental measures.
2) A new shipping tax regime shall be introduced based on the EU model. In practice this means tax exemption on profits generated from shipping activities, but a low tonnage tax shall be payable. The way in which this differs from the existing arrangement on taxation is that a definitive tax exemption shall be introduced – not just a deferral of tax.
The details of the new proposals are not yet known. The written information that has been published is presently limited to the government’s short press release published on 7 September. Many questions remain unanswered both with regards to the transitional provisions in connection with the phasing out of the existing regime as well as with regards to the content of the new arrangement.
An essential issue is whether unrealized gains on ships and new building contracts will be subject to tax under the transitional provisions.
The shipping tax regimes within the various EU countries are not identical, even if they are all based on the EU’s state aid guidelines. A key question is, for example, to what extent will profit by sale of ships and new building contracts be tax-free under the new arrangement.
The proposal means that shipping companies that have developed their business under the existing shipping tax regime in Norway will be "punished" by a reversal of ten years tax exemption. Future investments will, however, be tax-free. Shipping companies that have been subject to Norwegian shipping tax have invested the non-taxed profits into new ships and new business activities. Shipping companies that have not planned to distribute their un-taxed profits or withdraw from the regime have not disclosed a deferred tax as a liability in their financial accounts. Consequently, the proposal will considerably weaken the companies’ equity, liquidity and investment possibilities. On the contrary, shipping companies who have established themselves in other jurisdictions in order to obtain tax exemption are now in a position to relocate their business back home again and gain non-tax. If they dare. If that is the case it would not be surprising if they meet a number of shipping companies at the doorstep – on their way out of Norway.
