Norway increases oil taxes amid industry warnings
BY KJETIL MALKENES HOVLAND
OSLO -- The government of Norway said that it would increase taxes on oil companies and multinationals to finance tax relief to its struggling mainland industry, but the oil sector warned projects to boost the country's falling oil output might be shelved.
"Some sectors are performing very well, pushing prices and salaries higher. At the same times, businesses that can't increase prices because they depend on global markets are squeezed by high costs and lower demand from abroad" said Prime Minister Jens Stoltenberg at an Oslo press conference because his plans were stock sensitive.
The government said it would reduce the general corporate tax to 27% from 28% as of 2014. This would shave $410 million off the annual tax bill for the mainland industry, as well as 86.23 million annually for those who are self-employed, the government said. Oil companies would not benefit from the cut, the government said, because it was offset by an increase in the special petroleum tax to 51% from 50%.
Neighboring Sweden recently cut its corporate tax to 22%, and Denmark plans to reach the same level by 2016.
Mr. Stoltenberg slammed oil companies for a number of cost overruns on big projects, and said the companies would have to pay a bigger share of the investments from now on.
"We think we give a better signal to the oil companies when they must now bear a bigger share of the investments themselves, not the least because we need more cost awareness in that sector" said Mr. Stoltenberg.
The 24 oil projects under development offshore Norway have experienced cost overruns of $8.4 billion compared to the original plans, according to government figures. Mr. Stoltenberg said "90% of this is paid for by the society."
Oil companies would still be able to deduct most of their investment costs, but slightly less than before. By reducing a tax deduction called the "uplift" oil companies' tax bill was expected to increase by $12.07 billion in current value between 2013 and 2050, the government said, or slightly below $520 million annually.
Statoil, was not available for comment.
The Norwegian Oil and Gas association said it worried the changes could undermine Norway's reputation as a stable environment for oil company investments, and warned that marginally profitable oil and gas projects could be shelved.
Due to a high oil price, some offshore projects "have pretty high break-even prices" Norwegian Oil and Gas spokesman Erling Kvadsheim told the Wall Street Journal. "I don't think this measure in itself will necessarily affect those, but some of the more expensive projects to increase the oil recovery on mature fields may be impacted."
The tax changes were part of a plan to save Norway's struggling manufacturing industry, hit by lower demand from a crisis-stricken Europe as well as higher wages and operating costs in Norway. Norway's wage growth is expected to slow to 3.5% in 2013, but is still high enough to erode the competitiveness of companies competing in the international market.
"What we do today is an important contribution to strengthen the competitiveness of Norwegian businesses" said Minister of Finance Sigbjorn Johnsen.
Some of the bill for the tax cuts would go to big corporations. The government said it planned to reduce multinational companies' ability to shift profits from Norway into low-tax countries through internal loans. Lowering interest deductions on such loans would increase tax revenues by $520 million annually, the government said. Mr. Stoltenberg said erosion of tax income was a big problem for many countries, referring to the tax strategy of companies such as the Starbucks coffee shop chain in the United States.
"Starbucks paid less tax than one single coffee shack in London" Mr. Stoltenberg said.
In addition, a higher tax rate on second and third homes would increase Norway's tax revenues by an additional $86.23 million annually, the government said.
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