Provisional amendments to the Norwegian petroleum tax regime
In response to the oil price crisis emerging in the spring of 2020, the Norwegian parliament has enacted provisional amendments to the oil tax system, designed to avoid a sharp reduction in new investment decisions and to improve the financial situation of companies incurring tax losses. The provisional amendments are set out in a new section 11 of the Petroleum Tax Act (PTA).
The main provisional amendments are:
- Direct expensing of investments in production and pipeline facilities (cf PTA section 3 b) instead of depreciation over six years. Direct expensing will only apply for Special Petroleum Tax (SPT) purposes. Such general direct expensing of investments applies for costs incurred in income years 2020 and 2021.
- Investments in production and pipeline facilities according to development plans (PDO or PIO) approved by the MPE after 12 May 2020 are also eligible for direct expensing for SPT purposes in the year of investment. The plan must be received by the MPE before 1 January 2023 and approved before 1 January 2024. The same applies to similar investments comprised by an application to the MPE for exemption from or amendment to a formal PDO or PIO. Direct expensing of such PDO/PIO investments may be claimed until and including the year of planned production or operation start-up as set out in the PDO/PIO.
- The SPT uplift for directly expensed investments is increased from 20.8% to 24% of the investment amount. The full uplift amount can be claimed in the investment year.
- Companies incurring tax losses in the income years 2020 and 2021 may claim a cash refund from the state of the tax value of such losses. The value is calculated by applying the nominal tax rates (22% and 56%, respectively) to company tax and SPT losses. Losses claimed refunded under this scheme will not be eligible for cash refunds according to the exploration or exit loss schemes.
- The 2020/2021 cash refund will be pre-paid from the state before the tax assessment for the relevant income year is determined, in the form of "negative" instalment tax. E&P companies normally pre-pay estimated tax for the relevant income year ("instalment tax") in 6 instalments; 3 during the last 6 months of the income year and 3 during the first 6 months of the following year. A final settlement is made when the tax assessment is determined early October of the year following the income year. This instalment tax may now be negative, i.e. the taxpayer may claim cash refunds from the state of the tax value of expected losses, over the same time period as the ordinary "positive" instalment tax would be payable. The negative instalment tax amount is determined by the OTO, with a right for the taxpayer to comment prior to such determination.