Loss of deduction for cash payments

Making payments in cash will result in the loss of both tax  and value-added tax (VAT) deductions.  

To avoid losing tax and VAT deductions, payment for goods and services must be made via a bank or an enterprise authorised to provide payment services.

This rule also applies to private persons who, for example, let their own residences or other real property and want to deduct the costs related to the taxable letting.

The purpose of the provisions is to counteract tax and duty evasions. Payment 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 reduce unfair competitive advantages and redistribute the costs in society caused by tax evasion.

NOK 10,000

The provisions apply to cash payments of NOK 10,000 or more. If payment for a supply is split into several partial payments, the total payment is considered when applying the threshold amount. Payments for ongoing or periodic services are considered collectively for all costs that are deductible in the same year. If a cash payment results in a deduction loss, the amount should not be included in the asset’s basis for tax depreciation or in the input tax value upon future realisation. Deductions granted in the tax calculation but considered lost as a result of the means of payment, must be recognised as income in the year in which the payment is made. VAT deducted from a turnover statement must be reversed during the period in which the payment is made.

The provisions concerning tax-related loss of deductions for cash payments apply to all costs incurred as of 1 January 2011. For VAT, the provisions apply to goods and services that are delivered as of the same date.

The provisions are included in section 6-51 of the Taxation Act and section 8-8 of the Value Added Tax Act. The Ministry of Finance has issued regulations pursuant to the provisions; see FSFIN section 6-51-1.