Norwegian Gov’t to Reduce Tax Deductions for Oil & Gas Sector

The Norwegian Government on Friday, May 5, introduced a proposal to reduce the tax deduction called “uplift” in the petroleum tax system from 7.5 per cent to 5.5 per cent. The overall uplift is thereby reduced from 30 per cent to 22 per cent.

The government explains that the proposal will lead to more efficient use of resources and over time lead to increased tax revenues.

The tax increase of the proposal is estimated to 70 billion NOK measured as a net present value over the period 2013-2050. This is equivalent to an annuity of approximately 3 billion 2013-NOK.

In the Revised National Budget 2013 the Government proposes a bill to reduce the uplift to 5.5 per cent for new investments with effect as of 5 May 2013. The uplift is an additional deduction in the tax base for special petroleum tax.

The Government proposes a transition rule for investment projects where the Ministry of Petroleum and Energy has received a plan for development and operation (PDO) or a plan for installation and operation (PIO) prior to 5 May 2013. The transition rule also applies to investments where application for exemption or written notification of any significant deviation from PDO or PIO is received by the Ministry of Petroleum and Energy prior to 5 May 2013. The transition rule only applies to investments incurred up to the same year as production starts or operation of the facility starts. For investments covered by the transition rule the current uplift of 7.5 per cent will apply.

The change in the uplift implies that oil companies will cover a larger share of their investment costs. Consequently, a larger share of the risk of cost overruns will also be carried by the companies.

“This will give rise to more cost awareness. The petroleum tax system will still be investment friendly,”  said the government in a statement.