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Tax shock for the aquaculture industry – the Norwegian Government proposes a resource rent tax

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The Norwegian Government has announced that the tax burden shall rise, and 28 September 2022 the aquaculture industry got a first taste of what to expect in the national budget for 2023. The Government proposes to introduce a resource rent tax on aquaculture, which will dramatically increase the tax burden for many actors in the industry.

The proposal is launched the same year as the Government increased the capital basis for wealth tax, and the overall tax burden for the industry is becoming perilously high. The proposal is estimated to increase the tax revenue by between NOK 3.65 and 3.8 billion in 2023, and will have significant consequences for the aquaculture industry. The market’s perception of the effect of the proposal has already been reflected in developments on Oslo Stock Exchange in the hours following the release of the proposal.

In this article, we will present an overview of the proposed changes. Further assessments of the consequences are included in another article in the newsletter.

Introducing resource rent tax on aquaculture

According to the Government's proposal, resource rent tax will be introduced with effect from 1 January 2023. The proposal covers the production of salmon, trout and rainbow trout, and implies that a resource rent will be taxed at an effective rate of as much as 40 percent. Including corporation tax, the total effective marginal tax will thus be approximately 62 percent.

How the resource rent tax is designed

The resource rent tax is designed as a cash flow tax, i. e. revenues and investments are taxed on an ongoing basis in the year they are earned/incurred. The resource rent income shall constitute the difference between an established gross income less deductible costs and any negative resource rent income to be carried forward, less a basic tax-free allowance.

According to the Government, the rules will be designed so that only the larger aquaculture farmers will have to pay the resource rent tax. This will be achieved by introducing a basic tax-free allowance of between 4 000 and 5 000 tonnes biomass. The basic tax-free allowance is considered a stipulated deduction for historical purchases of commercial fish farming licences and is granted at a group level. The basic tax-free allowance is calculated based on an estimate of the average profit per tonne of biomass and can be deducted from any positive resource rent income.

The resource rent tax includes revenues from commercial fish farming licences for the production of salmon, trout and rainbow trout, regardless of how the holder of the licence is organized. Development licences are not covered by the resource rent tax. However, development licences that are converted into commercial fish farming licences will be covered by the resource rent tax from the time of conversion. The resource rent tax shall apply to all licences within the geographical scope of the Norwegian Aquaculture Act, out to the continental shelf.

Calculation of income included in the resource rent tax

The annual gross income subject to resource rent tax includes:

The revenues of salmon production shall be determined based on a norm price for salmon on Nasdaq. Revenues from trout and rainbow trout are proposed determined based on actual sale prices.

The resource rent income shall be determined on the basis of the taxable business's total production of salmon, trout and rainbow trout in the fiscal year. If the taxable business has several licences and several locations with aquaculture facilities, the sum of income and deductions associated with its aquaculture activities will constitute the resource rent tax basis.

Deductible costs

Deductible costs in the resource rent income include:

No deduction is given for remuneration for the commercial fish farming licence or costs incurred in connection with the acquisition.

Any negative calculated resource rent income may be carried forward with interest and can be deducted from any positive calculated resource rent income in subsequent years.

When the taxpayer also has activities other than those subject to resource rent tax, such as processing or sales activities, questions may arise as to which costs are associated with the aquaculture activity subject to resource rent tax. The proposal address this by dividing costs which by nature are associated with the resource rent activity but also benefit activities that are not subject to resource rent tax, in a way that provides adequate correlation between the share of the costs and benefit for each activity.

Going forward – the consultative round

The proposal was circulated for consultation on 28 September 2022, with a deadline of 4 January 2023. We encourage affected clients to submit their consultation response to the proposal. Cecilie Amdahl of Advokatfirmaet Schjødt is participating in the Norwegian Bar Association's tax law committee, which will submit its own consultation response to the proposal. Schjødt may also assist affected clients in formulating a response, and provide advice relating to adjustments in connection to the proposal.

 

[1] The corporation tax is calculated before the resource rent tax on aquaculture, and the corporation tax related to income which is also subject to resource rent tax is deducted from the resource rent tax basis, same as for petroleum and hydropower industry. An effective resource rent tax of 40 percent means that the formal resource rate tax is set at 51.3 percent. Including corporation tax, the total effective marginal tax is thus 62 percent.

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