Loss of deduction upon cash payment

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Making payments in cash will result in loss of the right to both a deduction in the tax calculation and a deduction for VAT.

Payment for goods and services must be made via a bank or another enterprise which is authorised to mediate payments in order for the right to deductions in the tax calculation and deductions for VAT not to be lost.

This rule also applies to private individuals who, for example, let their home or other real property and wish to claim a deduction for expenses linked to the taxable rent.

The purpose of the provisions is to reduce tax evasion. Paying via a bank increases the traceability of the transaction and makes it more difficult for unprofessional businesses to conceal their turnover. The provisions also help to reduce the distortion of competition and the redistribution of costs within society as a result of tax avoidance.

NOK 10,000

The provisions apply to cash payments of NOK 10,000 or more. If payment for a delivery is split into a number of instalments, it is the total payment which applies in relation to the threshold amount. Payments for ongoing or periodic services are considered collectively for all costs which are deducted during a particular year.

If payment is made in cash with the result that the deduction entitlement is lost, the amount should not be included in either the asset’s basis for depreciation for tax purposes or the input tax value upon future realisation.

Deductions which are granted during the tax calculation but lost as a result of the means of payment must be recognised as income in the year in which the payment is made. VAT that is deducted from a turnover statement must be reversed during the period in which the payment is made.

The rules concerning the tax-related loss of deductions in connection with cash payments apply to all costs incurred from 1 January 2011 onwards. For VAT, the regulations apply to goods and services which are delivered from the same date.

These rules have been incorporated into Section 6-51 of the Tax Act and Section 8-8 of the VAT Act. The Ministry of Finance has issued regulations pursuant to the provisions, Section 6-51-1 of the FSFIN Regulations .

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