Last night, only days ahead of a general election the minority Government in Norway is likely not to win, a proposal for dramatic changes to the upstream petroleum tax regime. It was announced at a 18.00 hours Oslo time in a hastily called press conference by the Minister of Finance Mr Sanner (Conservative) and the Minister of Petroleum and Energy Ms Bru (Conservative).
The Minister of Finance said, “In short, the proposal we present today entails that the current rules for depreciation and free income in special tax from next year will be replaced with a cash flow tax with an immediate deduction for investment costs.”
Among the effects will be that the uplift is no longer required and the cash refund for explorations costs incurred will disappear. To compensate for the reduced tax base the petroleum special tax will be raised from 56% to 71, 8% and some additional amendments to the general tax act applicable to the upstream oil & gas sector.
It is clear that this will hit new entrant exploration oriented companies with limited cash flow. For well-established companies with production activities ongoing the negative tax effect may be less onerous.
The proposal will be publicly circulated and open for comments in about a week.
The minister justified the launch with stating that the time was due. The press will be abundant with speculation if this is a last ditch attempt by minority coalition to salvage them from a loss at the general election by attempting to lure voters to side with them rather than with parties placed to the left on the political spectrum. These parties have attacked the government during the election campaign to be in the pocket of the oil lobby.
One thing is for sure. The remaining election campaign for all parties concerned will be different these last few days before the polls on 13 September.
Updated: New press release
The destiny of the Norwegian government’s proposed changes for oil & gas sector will be decided in the short term by the outcome of the parliamentary election due to be held on 13th September. Longer term changes will come. The general political momentum is there. The most exposed components of the fiscal regime will most likely be the exploration cost cash-back and exit refund regimes. But to introduce changes of this nature will require amendments to other components of the special tax law, as well as the general income tax law. A proposal for amendments to tax legislation will have to be circulated for public comment. The government has indicated that a 3 months deadline for comments will be upheld.
The government just posted a press release following last night press conference on the proposed changes to the upstream petroleum tax regime. Unfortunately, in Norwegian only so far.