Many of the specialist issues on which the office works are linked to differences in tax levels. Enterprises which are covered by shelf taxation are subject to a marginal tax rate of 78 percent (25 percent corporation tax plus 53 percent special tax for the 2016 income year), while profits from onshore-based operations are taxed at 25 percent. The rate can be even lower in other countries. The tax system thus gives an incentive to place as much as possible of a company’s revenues taxed under the onshore tax regime or abroad and to have as many costs as possible deducted under the offshore tax regime.
The areas that are subject to audits will depend on the resources that the office has available at any one time and the priorities that have been established. Some examples of audit areas are given below.
The substantial difference in tax rate between the shelf and onshore/international tax rates leads to many issues linked to internal pricing. Most oil companies are part of major multinational corporations and many internal pricing cases concern the issue of whether or not the Norwegian company incurs expenses which are higher than would be anticipated under market conditions.
Many major companies have their own insurance companies (captives) which insure all the company’s activities. In many cases, the petroleum tax authorities have concluded that internal prices that are applied in such transactions are not in accordance with the arm's length principle. The result is that companies have their tax deduction for insurance premiums reduced.
A foreign company will have a tax incentive to charge a Norwegian subsidiary a higher rate of interest than the market rate. The office therefore assesses the conditions that Norwegian companies achieve when they take out loans from associated companies. The office also assesses many other factors linked to internal loans and capital transfers in relation to Norwegian and international tax rules.
Parent companies and other companies within a group can provide services of various types which benefit other companies in the group. Costs for such services which cannot be attributed to a specific company will often be distributed between the companies which benefit from the service. The office will check that the company that is liable to pay tax to Norway is not being allocated costs which are of no relevance to the shelf activity, and that the allocation reflects the benefits that the company gains through the services.
Similarly, associated companies buy and sell direct services to and from the Norwegian enterprise, and in this context it is the task of the office to assess the prices charged for these services.
The companies often sell crude oil to associated companies. To avoid internal pricing issues linked to petroleum sales, the authorities stipulate what are known as ‘norm prices’ for each field. This is done by an independent body, the Petroleum Price Board. In the companies’ tax returns, posted sales revenues are replaced by revenues based on norm prices. For an increasing number of oil fields, norm prices are not stipulated during the start-up phase of production. Gas accounts for a substantial proportion of total petroleum production. Following the abolition of the Gas Negotiation Committee in 2002, a steadily increasing proportion has been sold to associated companies. No norm price is set for gas and assessing whether sales are taking place at market prices can be a complicated and time-consuming task.
Some oil companies’ activities take place both on the shelf and on land. In such cases, the allocation of revenues and costs between the two tax regimes must be investigated. An in-depth understanding of the nature of the enterprise is often needed to assess the extent to which it belongs under the shelf regime or the onshore regime.
Follow-up of transfers of shares in production licences
Shares in production licences may not be transferred without the consent of the Ministry of Finance as regards the tax implications. This is stipulated in the Petroleum Tax Act Section 10. Consent may be given in the form of a Section 10 administrative decision. On 1 July 2009, the Ministry of Finance also adopted a regulation covering the most commonly occurring transaction types, so that applications for consent and the subsequent issuing of individual decisions could be replaced by a description of the transaction. Consent for the transfer of shares in production licences is considered to have been given if the transaction fulfils the requirements laid down in the regulation, and if information concerning the transaction and the transfer agreement are sent to the Ministry of Finance and the Petroleum Tax Office. . In an attachment to their tax return, companies must provide the necessary information, so that the office is able to perform the necessary checks linked to the transfers.