The proposal
The proposal was one of several tax measures which the government introduced to finance increased public spending as a result of the current global economic situation.
1. Tax payers and activities
The proposal aims at targeting the larger players in the industry. Therefore, all production up to 4 to 5,000 tons are exempted (the final number to be set when a formal proposal is sent to parliament). Even though the income is assessed per entity, the exemption is applied on a group basis. According to the government this would effectively shield approximately 65 to 70% of the aquaculture companies from the source rent taxation.
The proposal comprised farming of trout, rainbow trout and salmon. Land based aquaculture falls outside the scope of the proposal.
For purposes of these rules a group exists when one company or individual (incl. certain related parties) has more than 50% of the votes in another entity. Votes held by different group entities are viewed in combination.
2. Computation
The tax consists of two components: firstly, a natural resources tax to the local municipality. This is computed as a function of the kilos of fish produced. The rates will be set by the parliament in the annual budget. The government estimates that the total revenue to the municipalities will be approximately MNOK 750 for 2023. In addition, the current production duty is continued and estimated to yield the same revenue for 2023.
Secondly, the relevant taxpayers will be subject to a source rent taxation. The basis for this component is the annual gross revenue from the sale of trout, rainbow trout and salmon plus consideration for depreciable assets sold during the course of the income year. From this gross basis, the following deductions are permitted:
- A threshold deduction intended to shield the production of 4-5,000 tons of fish (the amount to be set by the parliament in the annual budget); computed per company or group.
- Ordinary deductible production expenses such as hatchery fish, feed and labor costs etc.
- Cost price of assets purchased during the course of the income year (only applicable for assets purchased after 1 January 2023. For older depreciable assets the annual depreciation is applied).
- Municipal real estate tax
- Research duties
- A computed corporate income tax
- Carried over negative source rent taxation from previous years (but ordinary tax losses carried forward may not be deducted in the basis)
Notably, the purchase price for new permits is not deductible in the basis.
3. Rates
The government aims at an effective 40% tax rate for the source rent tax. As the corporate income tax will be deductible in the basis that entails a formal rate of 51.3%. The total effective tax rate is then ≈ 62%.
Way forward
The proposal is intended to be effective as of 1 January 2023. However, it is now submitted to a public consultation until 3 January 2023 and would be adopted in January or February 2023 at the earliest. This has historically not been viewed as retroactive legislation in Norway.
Even though it is expected that the proposal will meet fierce opposition from the industry and both local and national politicians we expect it to be adopted, but perhaps in a slightly modified version.
