Published on February 14th, 2018 | by James Ayre0
Norwegian Finance Ministry Denies That Tax Rules Constitute State Aid For Oil Exploration
February 14th, 2018 by James Ayre
Following on the beginning of an investigation into Norway’s tax rules, as they relate to possibly being considered to be state aid for oil exploration, the country’s finance ministry has issued a public statement denying such a situation.
“The Ministry maintains that the Norwegian rules on reimbursement of exploration costs and interest on carry forward of losses…do not constitute state aid under Article 61 of the EEA Agreement, and are therefore in compliance with the EEA (European Economic Area) law,” a letter issued by the Norwegian finance ministry reads.
Reuters provides more:
“Norway allows companies to deduct 78% of their exploration costs from taxable income. Since 2005, companies without taxable income have been reimbursed for the value of this benefit directly in cash. Bellona’s complaint focuses on those provisions for the up-front cash flow reimbursement of exploration costs, which the organization argues are in breach of state aid rules of the EEA.
“This has so far amounted to over 100 billion Norwegian crowns ($12.54 billion). In 2014 alone, the government paid 14.2 billion Norwegian crowns in reimbursements to the petroleum sector.
“The government argues that the scheme can generate trillions of crowns in future tax payments for the state. Bellona says that the state, as tax collector, should not trade such benefits for future gain.”
The argument used in the public statement from the finance ministry to counter this assertion reads: “This means that if income is derived from petroleum activity taxed at a rate of 78%, the state, through the tax system, should cover a corresponding share of the cost incurred to earn this income.”
While that argument has a sort of logical consistency to it, Norway’s practices certainly are something of an outlier in Europe, and very arguably part of the reason that oil and gas development exploration in the Arctic Barents Sea is now ongoing. Potential losses will be covered by the state.
It’s interesting to note here that Norway’s exploration of Arctic oil and gas reserves is coming at a time when China and Russia seem to be coming to some sort of arrangement as regarding polar sea trade routes and the future extraction/development of resources in the Arctic — a so-called “Polar Silk Road” that will apparently include the Northwest Passage, as China now considers it to be international waters (rather then territorial waters, much less the internal waters that Canada asserts).