The 2007 overhaul of the Norwegian tonnage tax regime proved controversial, due to the protests and lawsuits that followed the government's decision to tax retrospectively income that was previously tax exempt. In 2010 the Supreme Court ruled that the retrospective taxation was not permissible and should be reversed. This decision has restored confidence in the tonnage tax regime. All in all, the Norwegian tax package has now become very competitive and shipowners, both in Norway and internationally, are showing increased interest in the Norwegian tonnage tax system.
Norway's tonnage tax regime was first introduced in the mid-1990s, but has since undergone a number of changes. The overhaul that took place in 2007 considerably improved the regime, in particular by introducing a final tax exemption for shipping income. Although the new rules and final tax exemption were welcomed as being competitive and a step in the right direction, the retrospective taxation of previously untaxed profits was seen as unconstitutional and signalled a risk of the further politicisation of the Norwegian tax system. It was thought that many shipowners would look elsewhere to establish themselves, as it could no longer be said with confidence that the Norwegian tonnage tax system offered the desired certainty and stability.
Since then, views have changed. Shipowners - at least those which were not hit by the retrospective taxation - have embraced the Norwegian tonnage tax system as it operates today. The emphasis is on the beneficial features of the scheme and not the political risks associated therewith. The Supreme Court's decision to set aside the retrospective taxation as unconstitutional has further significantly contributed to the restoration of faith in the Norwegian tax system.
There is growing interest in the Norwegian tonnage tax system from both Norwegian and international shipowners. Given the historical background, and the fact that Norway is often regarded as a 'high tax' territory, the interest from international shipowners is perhaps surprising. However, such interest makes much more sense when assessing the combined benefits of the tonnage tax regime and the general Norwegian tax system.
The tonnage tax regime offers full tax exemption on shipping income, including bareboat income and gains from the sale of vessels, as well as related management activities. The tonnage tax regime also allows for the inclusion of a wide range of offshore vessels, which is not possible in some EU countries.
Dividends can be distributed without taxation to Norwegian and EU shareholders as a result of the Norwegian participation exemption. Norway does not impose withholding tax on interest. Overall, the regime offers flexibility on holding structures and financing; and Norway also has a broad set of double tax treaties, generally creating a good framework for international shipping activities.
The Norwegian tax package can thus now be considered very competitive in comparison to the offerings of other jurisdictions. Added to this competitive advantage is the fact that Norway is an attractive location for international shipping activities, due to a well-developed cluster of shipowners, yards, equipment producers, banks, insurers and diverse service providers, which affords a sophisticated infrastructure that is difficult to better in other tax-friendly countries.
For further information on this topic please contact Gaute Gjelsten, Anders Myklebust or Are Zachariassen at Wikborg Rein' by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email ([email protected], [email protected] or [email protected]).