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The government announced at a press conference today that they will propose certain measures for the petroleum sector and the related supply industry.
The government proposes targeted, temporary amendments in the petroleum tax legislation. The purpose of these proposals is to contribute to maintain the level of activity and the employment within the oil and gas sector and the supply industry during the COVID -19 pandemic. The proposals are largely in line with a recent initiative from the petroleum industry. The formal legislative proposal will be presented to the Parliament on 12 May 2020.
According to the current Petroleum Tax Law depreciation of tangible assets are tax deductible with up to 16 2/3 % annually from the year in which the investment takes place. An important part of the proposal from the government is a temporary amendment of the Petroleum Tax Act allowing companies subject to special petroleum tax to make an immediate tax deduction of the full amount of investments made, in the basis for the special petroleum tax in the year of investment. The proposal is limited to investments made in 2020 and 2021, and for investments covered by development plans for fields (PDO) and transportation infrastructure (PIO) submitted within end of 2021 and approved within end of 2022. Any investment made after 2024 is not covered by the proposal.
According to the current Petroleum Tax Law the basis for the special petroleum tax shall be reduced with uplift (Norw. friinntekt) calculated on the same bases as depreciations described above, at a rate 5.2% annually over a 4 year period (in total 20.8%).The government proposes that the uplift shall be reduced to 10% in the investment year. In our view, this part of the proposal is somewhat inconsequent because it reduces the effect of the immediate tax deduction proposed for investments made in 2020 and 2021. We assume the government will give its reason for a reduction of uplift in the proposition 12 May.
Furthermore, the government proposes that companies not in tax position shall be entitled to a pay out from the State of the tax value (currently 78%) of the tax loss in the income years 2020 and 2021, i.e. a sort of a refund scheme in addition to the existing exploration refund scheme and discontinuation refund scheme.
The Government states that it will review the proposed measures in relation its international obligations arising out of the EEA Agreement. According to Article 61(1) EEA all selective aid measures in favour of certain undertakings or sectors of the economy are prohibited and must be approved by the EFTA Surveillance Authority in Brussels. In a recent decision, the Authority considered that the annual exploration cost refund scheme did not constitute state aid within the meaning of Article 61(1) of the EEA Agreement due to its general and limited application to the petroleum sector. To the extent the new measures are likewise limited to the petroleum sector and general in its application within that sector, the Norwegian Government may put into force the measures without prior approval from the Authority. However, it cannot be excluded that certain NGOs will complain to the Authority. It is our firm view that such a complaint not will be successful in that the scope for granting state aid to countervail the severe consequences of the COVID -19 pandemic is wide and much wider than under normal circumstances. Thus, there is a limited risk, if any, to face a repayment of the aid granted under this scheme.
In addition, the government expressed at the press conference that certain measures with an environmental profile will be presented to the Parliament in late May 2020.