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January 12, 2023

Norway | Expert committee propose changes to Norwegian tax system

  • In December 2022, a tax expert committee submitted its report to the Government on proposed changes to the Norwegian tax system.

  • The report has been issued for public consultation with comments due by 15 April 2023.

  • This Alert outlines the proposed changes to corporate income tax measures, value-added tax, and industry measures.

Executive summary

A tax expert committee appointed by the Norwegian Government and chaired by professor Ragnar Torvik (the “Torvik committee”), has proposed extensive changes to reform the Norwegian tax system in its report presented to the Government on 19 December 2022. Although core elements of the current tax system remain materially unchanged the report recommends:

  • Extending the 3% dividend income inclusion rule under the participation exemption method to also cover capital gains, as well as an increase of the overall rate to 5%.  

  • Broadening the general scope of withholding tax on interest, royalty and certain lease payments and bringing liquidation proceeds within the scope of domestic dividend withholding tax, among several other modifications to the corporate tax sphere.

  • Abolishing the Norwegian tonnage tax regime.      

  • Expanding use of the resource rent tax within industries related to fish farming and wild fishing activities, onshore wind power and hydropower.     

  • Abolishing reduced Value-Added Tax (VAT) rates (15% and 12%) and certain industry-specific exemptions (zero-rated services) and instead apply a flat rate of 25%.         

The Torvik committee’s report has been issued for public consultation and responses must be submitted by 15 April 2023. The Norwegian Ministry of Finance will in turn evaluate the proposed changes following the responses received, and thereafter provide any legislative proposals to the Parliament.

Detailed discussion

Corporate income tax


Importantly, the majority of the committee recommends maintaining the nominal corporate income tax rate at 22%. Further no limitations have been proposed to the utilization of tax losses, which can be carried forward indefinitely in line with existing provisions. Only a few specific adjustments have been recommended in respect of the Norwegian participation exemption method, including technical changes to the tax paid-in capital position (see below). The committee also proposes to preserve the existing equity escape rule under the Norwegian interest limitation rules.

The participation exemption method and taxation of ownership income

Based on a comprehensive review of the tax treatment of capital income, including the participation exemption method, the committee sets out several proposed amendments, including:

  • An extension of the 3% dividend income inclusion rule to also cover capital gains, as well as an increase of the overall rate to 5%.

  • Paid-in capital shall no longer follow the individual share and should instead be determined proportionally at the company level, without a right for the shareholders to decide whether the distribution should be classified as a dividend or repayment of paid-in capital. This tax position will also be limited to the shareholder's cost base on each share, restricting the transfer of tax paid-in capital between shareholders. However, the committee has not proposed any requirement to distribute all retained earnings prior to the repayment of paid-in capital.

  • Currently, liquidation proceeds are classified as capital gains under domestic law, which can be advantageous for foreign shareholders. The Torvik committee proposes that liquidation proceeds shall be treated as dividends, which depending on the circumstances, may attract dividend withholding tax.  

Taxation of multinationals, including an extension of the scope of withholding tax on interest, royalty and certain lease payments

Although the committee supports the two-pillar solution for taxation of the digitalized economy - launched by the Organisation for Economic Co-operation and Development/G20's Inclusive Framework in October 2021 – the report raises concerns as to how effectively this initiative will tackle adverse tax competition and profit shifting.

To this end, the committee proposes to extend the scope of the current withholding tax rules on interest, royalty and lease payments for ships, rigs, airplanes and helicopters, which currently apply to related entities tax resident in a low-tax jurisdiction only. Due to the discretionary nature of the low-tax jurisdiction definition and to prevent Norway being used as a flow-through state, the tax committee proposes to extend the rule's scope to cover all interests, royalty and certain lease payments to related parties regardless of whether the recipient is resident in a low-tax jurisdiction or not.

This change would also apply to recipients within the European Economic Area (EEA), regardless of whether the EEA recipient is genuinely established within the EEA or not. To uphold Norway’s obligations under the EEA agreement, the committee recommends to apply a net tax model that allows EEA-based entities to deduct their associated costs before the withholding tax is imposed.

Furthermore, the report recommends that the Ministry of Finance monitors the European Union's (EU) initiative to introduce a shell company directive, and to consider changes to Norwegian law following any resolution by the EU.

Tax depreciation allowances

The committee supports the general principles underlying the current tax depreciation rules and emphasizes that depreciation rates should, to the greatest extent possible, be synchronized with the decline in value of fixed assets. Following a review of the specific depreciation rates, the committee proposes certain reductions:

  • Asset class C (vehicles): 20% on all vehicles instead of 24% (note 30% currently on zero-emission vans)

  • Asset class E (ships, riggs, etc.): 10% instead of 14% to all assets

  • Asset class H (buildings, plants, hotels, etc.): 4% instead of 6% on livestock buildings in agriculture and 2% rather than 4% on hotels, lodging houses, catering premises, among others

Value added tax

Abolish reduced VAT rates and VAT exemptions (zero rate)

To effectively utilize the opportunities for increased tax revenue created by the VAT system, the committee recommends broadening the scope of the VAT base and replacing reduced rates and some of the industry-specific exemptions with a flat rate of 25%.

VAT exemptions for financial services, health care and education

The committee recommends, as a general principle, to limit the use of VAT exemptions that currently apply to health care services, education and financial services, and discusses the inclusion of the public sector and publicly funded services to the VAT system an issue that will require a thorough review.

International trade, digitization and the sharing economy

While VAT challenges linked to cross-border trade continue to arise, the committee highlights the steps already made to establish regulations and systems to ensure that domestic consumption is taxed in Norway. According to the committee, compliance with existing rules can be improved, and there are still gaps, loopholes, etc. within the existing regulations that need to be addressed.

As an example, the committee mentions administrative practice related to branch structures that enable services to be delivered remotely to Norway without domestic or foreign VAT being levied. The committee recommends the review of possible mechanisms to prevent these double non-taxation scenarios.  

In relation to the sharing economy, the committee recommends that digital services (including apps) become subject to VAT through the VAT on e-commerce (VOEC) regime, which is a simplified registration and reporting scheme for foreign providers. The committee emphasizes that further work should be performed to assess the pros and cons of such schemes, and in particular the platform operator’s ability to comply with these regulations. The committee recommends a review of the sectors where it is believed that such an arrangement could be suitable.

Industry specific taxation

Resource rent tax

The tax committee supports the introduction of a resource rent tax in several industries.

According to the committee, resource rent tax should be imposed on industries that can exclusively exploit valuable natural resources and extract so-called resource rent (NO: “grunnrente”) over time. Such industries include fish farming, onshore wind power, fisheries, hydropower and petroleum activities.

Similar to the proposal already issued for public consultation, the committee’s majority proposes to introduce resource rent tax for fish farming at rate of 40%. Unlike the current proposal, the committee recommends that the residual value of existing tangible fixed assets should be factored into the calculation of future resource rent tax. Assuming the tax is designed as a cash flow tax, this will allow taxpayers to expense the residual value of such assets immediately upon implementation of these rules.

Further the committee's majority proposes to introduce a 40% resource rent tax on onshore wind power similar to the current proposal. In the same way as above, it also recommends that the remaining economic value of tangible fixed assets should be factored into the tax base. The committee recommends that the exact design of these rules should be analyzed in more detail.

Furthermore, the committee maintains that the current thresholds applied to resource rent tax on hydropower (output of at least 10,000 kVA) distorts investment decisions and leads to undesirable value shifts. Consequently, the committee proposes to reduce the threshold to 1,500 kVA. In the committee's view, income derived from the sale of guarantees of origin should also be included in the basis for the resource rent tax.

Although the committee does not make any concrete recommendations on wild fishing activities, the committee believes resource rent tax should be devised and introduced to such activities as soon as possible.

The report does not propose any significant changes to the existing petroleum taxation rules.

Repeal of the Norwegian tonnage tax regime

In essence, the committee’s majority points to increased tax revenues and better overall resource allocation in its justification to abolish the Norwegian tonnage tax regime. Further in the majority's view, abolishing the regime will simplify the tax system and reduce administrative costs. However, as a fallback, the committee suggests several limitations and increased tonnage tax rates to better align the regime with its overall objectives, should the Norwegian tonnage tax regime be continued.


For additional information with respect to this Alert, please contact the following:

EY Norway, Oslo


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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