Committee proposes changes to the power tax rules

In June 2018, the government appointed a committee (the Sanderud Committee), which was tasked with reviewing the tax rules for hydropower plants. The Committee's report, NOU 2019:16, was presented 30 September 2019. A number of changes are proposed to the current power tax regime, and below we will describe the most important points in the Committee's proposal.

1. BACKGROUND
The Sanderud Committee was given a broad mandate to propose changes to the tax rules for hydropower plants, i.a. in order to strengthen companies' incentives to make profitable investments in the power industry.

In addition to ordinary corporate tax, the hydropower industry is subject to a number of special schemes that the Committee has reviewed in more detail. These are resource rent tax, municipal natural resource extraction tax, concession tax and concession fee, as well as property tax.

2. THE COMMITTEE'S PROPOSAL – MAIN POINTS
The following are the Committee's main conclusions and suggestions. On some of the points, the Committee has divided into a majority and a minority, but below we have addressed the solutions endorsed by the majority.

Resource rent tax:

  • It is proposed that the resource rent tax should be continued, as an accrued income tax. However, the threshold is proposed reduced from 10,000 kVA to 1,500 kVA. Revenue from the sale of Guarantees of Origin related to hydropower is included in the basis for the resource rent tax.
  • An amount equal to the normal rate of return shall continue to be shielded against the additional tax. The risk-free interest rate is proposed continued as today and is set equal to interest rate of 12-month Exchequer bills without surcharge.
  • The Committee is of the opinion that the resource rent tax should be considered calculated at company level rather than power plant level.

Property tax:

  • It is proposed that the basis for property tax for hydropower plants shall be the tax-depreciated value of the assets. The value of production equipment, production installations and waterfall rights shall not be included in the basis for property tax. This will result in a significant reduction in the property tax for older power plants, where large parts of the investments are already written off.

Concession power and concession fees:

  • Concession power and concession fees are calculated independent of the profitability of the power plant. This can prevent socio-economically profitable investments, and the Committee's proposal is therefore to abolish the system of concession power and concession fees.

Municipal natural resource extraction tax:

  • The municipal natural resource extraction tax will not normally affect the companies' investment incentive, since it is set off krone by krone against state corporate tax. The Committee is of the opinion that the limit for municipal natural resource extraction tax should be considered changed, cf. the proposal to change the lower limit for resource rent tax.

Wind power:

  • In addition to the specific proposals for changes to the current power tax rules described above, the Committee has recommended that a review should be made of whether resource rent tax and municipal natural resource extraction tax should also be introduced for wind-power plants.

3. REVENUE NEUTRALITY
The Committee's proposal is estimated to result in an annual reduction in public revenues of NOK 630 million, and similarly, the companies' revenues will increase correspondingly. If these changes are to be revenue-neutral for the public authorities, this requires, according to the Committee, that the tax rate for resource rent income must be increased by 2 percentage points to 39 percent, provided the Committee's proposal for setting a risk-free non-taxable income interest rate.

4. THE ROAD AHEAD
The Ministry of Finance has sent the Committee's recommendations on public hearing. The deadline for submitting comments is 1 January 2020. Since several of the proposals entail a significant change in the distribution of income between state, municipality and county, we assume that there will also be proposals for schemes that will address this.

The Committee's report can be read in its entirety here (Norwegian only).

Lawyers

Hugo P. Matre
Marius Sollund
Sindre Søndenå Andersen
Hallvard Gilje Aarseth

Published

01. October 2019