This is new:
 
      New rules for the wealth tax assessment of residential and commercial
        property
      Follow-up of the Tax Evasion Committee’s study
      Disallowance of deductions for forms of payment other than bank
        transactions
      Making buyers in the private market responsible
      Change in the taxation of gains and losses on foreign exchange hedging
        agreements within the shipping taxation scheme
      Notification of changes to the value-added tax rules for culture and sports



WEALTH TAX ASSESSMENT OF RESIDENTIAL PROPERTY

Background

Wealth tax was an important topic prior to the general election in 2010. The proposed national budget contains nevertheless few changes in this area. The proposed changes are related primarily to the wealth tax assessment of residential property and some commercial property. The proposals entail heavier wealth taxation of such properties.

The tax assessment value of residential property has previously often been set at around 30% of the cost price for a new building and land for the calculation of wealth tax. This value has not been changed in connection with the sale of the property, but by general percentage adjustments instead.

The Ministry of Finance is proposing an entirely new system for determining the tax assessment value, and the aim of this system is to give a better correlation between the tax assessment value and sales value (market value) of residential properties.


What properties are included?

The proposal applies to all property that is regarded as “residential property”, and it may include all-year residences, commuter residences and rental housing.

However, it does not apply to residences that are rented out as part of the owner’s business activities or property where the greatest share is used as commercial property; these properties are assessed in accordance with the rules for commercial property.  Holiday homes and residences abroad are also not encompassed by the change, and they will, therefore, be assessed the same as before.


Calculating the tax assessment value

The new assessment values for residential property are to be calculated by multiplying the residence’s living area by a percentage of the square metre price for the residence in question. The percentage is to be 25% for the taxpayer’s primary residence and 40% for any secondary residences.
Each taxpayer can only have one primary residence, which is in principle the address where he or she was registered at in the national population registry at the end of the year.
The square metre prices will in turn be based on calculations from Statistics Norway, and they will be differentiated on the basis of:

      type of residence,
      area,
      year built, and
      geographic location.

The last item in particular will mean that where in the country, and where in the municipality, the residence is situated will have a significant impact on the wealth tax now. In addition to the fact that the importance of these factors will increase, it is also key here that the prices will now be updated annually in step with the development of prices for residences.


Increased tax assessment value for many residential properties

It must be expected that the Ministry of Finance’s proposal will entail a significant increase in the tax assessment value – and thereby the wealth tax – associated with many residential properties. The Ministry proposes nevertheless to maintain the so-called “safety-valve”, so that the taxpayer can always request a reduction of the tax assessment value for his primary residence to 30% of the sales value. For secondary residences the corresponding safety valve is 60%.

An increase in the basic tax-free allowance to NOK 700,000 (NOK 1,400,000 for spouses) is also proposed at the same time.


Practical implementation

The new rules on the valuation of residential property will enter into force from the 2010 tax year. The Tax Administration will issue special reporting forms that the property owners must fill in and return to the authorities.



WEALTH TAX ASSESSMENT OF NON-LEASED COMMERCIAL PROPERTY

Background

In the National Budget for 2009 there were changes, for example, to the rules for the wealth tax assessment of leased commercial property. In the budget for 2010, the Ministry of Finance also proposes changes to commercial property that is not rented out, and the aim here is also to give a better correlation between the tax assessment value and the market value.

The proposed changes are to enter into force immediately and be effective from the 2010 tax year.


What properties are included?

The proposal applies to all types of commercial property, including offices, factories, lots, parking garages, stores, workshops, etc. However, it does not include agricultural property, forests and power plants, which will still be valued in accordance with their own special rules. Residential and holiday properties are not encompassed by the standardised rate rule, including residential and holiday property that is rented out for commercial purposes.

More detailed delimitation rules apply to property that is used for multiple purposes, only partially rented out, or where the use or ownership has changed during the past year.


Calculating the tax assessment value

Valuation of non-leased commercial property shall be based to a great extent on the information that the tax authorities collect for leased commercial properties, including information such as: 

      rental income, 
      type of property, 
      area, and 
      location.

Based on this information a standardised square metre rate will be prepared for the non-leased properties. The square metre rate will be multiplied then by the property’s area, and the wealth tax value of the property will be set at 40% of this.

For non-leased commercial property, it is proposed that a safety valve be kept, so that the taxpayer can request a reduction of the wealth tax value to 60% of the property’s market value (documented, for example, by an appraisal or actual sales proceeds).

DISALLOWANCE OF DEDUCTIONS FOR CASH PURCHASES IN EXCESS OF NOK 10,000 ETC.

Tax Evasion Committee

As follow-up of the Tax Evasion Committee’s study to combat undeclared work, a number of proposals have been made in the fight against tax evasion. Both businesses and private individuals may be affected by these proposals.

The disallowance of deductions proposal entails that businesses will not be allowed tax or value-added tax deductions for cash purchases exceeding NOK 10,000.

In addition, it will be risky for private individuals to pay craftsman more than NOK 10,000 in cash. If the craftsman evades tax or does not pay value-added tax, then the private individual may be required to pay part of the bill.


Deductions disallowed for businesses

The aim of the disallowance of deductions proposal is to limit cash sales. The proposal entails that transactions over a certain amount that are settled by cash payments will not allow the buyer to make deductions.
One condition for the allowance of deductions for costs in connection with the calculation of taxable income and for deductions for input value-added tax for the purchase of goods and services will be payment through a bank or an enterprise licensed to perform payment services.

The proposal applies to domestic purchases of goods and services, as well as the import of goods and services from abroad, so that it is of no significance whether the payments are made to a recipient in Norway or abroad.


Payments cannot be split up

Only transactions exceeding NOK 10,000 will be encompassed by the disallowance of deductions scheme, since it is both practical and cost-effective to pay for smaller transactions by cash.

It should, however, not be possible to wriggle out of this limit by splitting up the payments. To avoid evasion, it is proposed that the combined payment for a product or service shall be used for assessment of the limit.


Buyer’s complicity for tax evasion in the private market

Private individuals who pay in excess of NOK 10,000 in cash for the purchase of services, or goods combined with services, may be made complicit in possible tax evasion on the part of the seller. The proposal entails that the buyer may be held directly, as well as jointly and severally, responsible for the business’s tax evasion.
Such responsibility entails that the recovery of the seller’s tax claims related to the transaction may be sought from the buyer. The buyer’s responsibility will be limited as a point of departure to the tax that should have been charged on the payment in question.

The purchase of goods exclusively is excluded here with regard to the complicity of private individual.


Entry into force

It is proposed that the introduction of the disallowance of deductions and complicity enter into force from 1 January 2011.



SHIPPING TAXATION SCHEME

Taxation of currency hedging agreements

The Ministry of Finance proposes an important change to the taxation of currency hedging agreements for companies that are subject to the shipping taxation scheme.

Background
Companies subject to the shipping taxation scheme are exempt from tax on shipping revenues, but financial income is essentially taxable in accordance with the general rules.
There are however exemptions for gains and losses as a result of currency fluctuations on receivables and debts in foreign currencies, as well as interest expenses, where only a percentage corresponding to the relationship between the company’s recognised financial capital and total assets is taxable or deductible. 
Companies that have receivables and debts in foreign currencies may enter into currency hedging agreements to neutralise the company’s currency risk.

In accordance with the existing rules, the company’s gains and losses on currency hedging agreements are fully taxable and deductible in accordance with the general rules.


Ministry’s proposal

The Ministry proposes the introduction of a corresponding distribution formula for gains and losses on currency hedging agreements, so that only the percentage corresponding to the relationship between the company’s financial capital and total assets is taxable or deductible. Both forward currency agreements and currency option agreements are encompassed by the proposal.


Entry into force

The Ministry proposes that the change enter into force for new currency hedging agreements that are entered into from 1 January 2010.