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Hearing proposal for important changes in the Norwegian petroleum tax regime from 2022

On the 3rd of September 2021, the Ministry of Finance released a proposal for several changes to the Petroleum Tax Act. The Government proposes a cash-based tax system, meaning that the current rules for deducting investments as tax depreciation with uplift are replaced by immediate tax deduction. The purpose is to ensure that the profitability of new projects is the same before and after tax.
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The proposal

The proposed changes can briefly be summarized as:

  • Investment costs (§3b fixed assets) are deductible immediately in the Petroleum Revenue Tax (PRT) base. No uplift is granted. This shall include inter alia costs incurred for the acquisition of production facilities and pipelines.
  • Calculated corporate tax shall be deductible from the PRT base, and the special tax rate is therefore technically increased from 56 per cent to 71.8 per cent to maintain an effective tax rate of 78 percent.
  • The new regime shall apply to new investments only, and not investments covered by the temporary incentive rules for new developments approved prior to 2022.
  • No changes are proposed to the tax depreciation rules for calculating the ordinary corporate tax basis: The changes will only apply to the special tax base.
  • Negative PRT basis will be refunded annually by the Norwegian Government, both during the exploration phase and the development/production/abandonment phases.
  • Work will be done to analyze if/how the amount of refund could be made available as security for third party financing (along the lines of the existing rules for pledging of exploration refund claims).
  • The current tax regimes on exploration refund, carry forward on losses of interests and cessation refund will be repealed.
  • The tax value of existing losses and uplift carried forward as of 31 December 2021 is to be refunded by the Norwegian Government.

Consequences of the proposed changes

The Ministry of Finance calculates that the immediate revenue effect will be to increase the companies’ liquidity through reduced tax payments, while over time there will be slight increase of tax revenue measured at net present value.  Naturally, the effect for individual companies will vary.

It is also stated that the Ministry of Finance is (still) assessing whether or not to introduce interest limitation rules similar to those applied under the General Tax Act.

The proposal was circulated for consultation on 3 September 2021, with a consultation deadline of 3 December 2021. The Ministry of Finance aims for the proposed changes to enter into force with effect from the income year 2022.