Clarification of the new provisions concerning the ineligibility of cash salary payments for deduction entitlement

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The Directorate of Taxes has received numerous questions concerning the interpretation of the provisions relating to the cash payment of salaries in full or in part.

The new provisions concerning the ineligibility of cash salary payments for deduction entitlement in Section 6-51 of the Tax Act and Section 8-8 of the VAT Act entered into force on 1 January 2011. 

These provisions require payments for goods, services, etc. to be made via a bank in order for them to give entitlement to deductions from general income and deductions for input VAT. The purpose of the provisions is to reduce the use of cash, as it is believed that reducing cash payments will help to eliminate various types of financial crime, including payments made for illegal undeclared labour.

Cash salary payments

One of the questions that the Directorate of Taxes has been asked is whether salary payments can be exempted from Section 6-51 of the Tax Act, so that cash payments can be made and deductions still granted. One argument that has been put forward is that cash salary payments are the most practical option in a number of sectors, particularly in cases where foreign labour is used and the employees do not have a bank account in Norway.

The condition for payment via a bank is aimed at all types of costs and there are therefore no exemptions for any costs. This means that salary costs are also covered, and salary payments must therefore be made via a bank in order for a deduction to be granted for the payment. With regard to this, the Directorate of Taxes notes that it follows from Section 6-51-1 second paragraph of Regulation No. 1158 of 19 November 1999 pursuant to the Tax Act that payments made to a bank in the employee’s home country will be deemed to constitute payment via a bank. If the salary is paid in this way, the employee will be entitled to a deduction.

Partial cash payment

The question has also been raised as to how the provision should be applied in cases where a proportion of the costs for a product or service is paid via a bank and a proportion is paid in cash. 

If the total amount paid for a product, service, etc. exceeds NOK 10,000, only the amount paid via a bank will be eligible for a deduction. The proportion of the total amount that is paid in cash will not be deductible. This applies regardless of whether this amount is over or under NOK 10,000, provided the total amount is over NOK 10,000.

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