When the world around us changes, so does our regulatory framework. Thus, we are faced with anything from new laws and regulations to changes in tax regimes and liquidity requirements.
DNB’s ambition is to live up to the requirements and expectations of society at all times. This means that we must have an organisation with two fundamental abilities: Flexibility and adaptability.
Over the last few years, DNB has adapted to a number of new regulations and requirements that go a long way in changing banks’ business models. At the same time, the financial services industry is being hit by a technological revolution and radical changes in customer behaviour, which in turn result in new regulations and requirements.
In the period ahead, established financial services will be challenged by new companies with new business models. The EU’s revised Payment Services Directive, PSD2, opens up for giving competing banks, technology companies and other players that do not offer bank accounts themselves, direct access to banks’ payment infrastructure and the opportunity to aggregate account information and debit accounts on behalf of customers. This liberalisation will pave the way for a strong increase in the number of new service providers in several areas of banks’ operations, which will intensify competition in the market, while giving consumers greater freedom of choice.
The financial services industry is subject to strict regulatory control and a number of requirements. The growth in financial service production outside the established financial services industry raises complex questions related to everything from deposit guarantees, measures against money laundering and the financing of terrorism, equity capital requirements to ensure financial stability and privacy protection requirements. These are important tasks in society which the financial services industry is loyally complying with, and which will become even more critical when completely new players enter the scene. It is important that the authorities facilitate competition based on fair regulatory parameters in the best interest of the customers. The promotion of competition on equal terms is positive, but must not be at the expense of consumer protection and confidence in financial services and their infrastructure.
The EU’s revised Payment Services Directive, PSD2
PSD2 entered into effect in the EU on 13 January 2018 and will have a profound impact on the regulatory framework for the payment services market. The directive has not yet been formally incorporated in the EEA Agreement, and no deadline has thus been set for its implementation in Norway.
The directive regulates payments in general, including online payments, and goes a long way in defining new rules of the game for payment service providers. Among other things, banks have to give third party providers direct access to customers’ account balances and transaction history, and the opportunity to transfer money to and from accounts, subject to customer approval. Such third party providers may be other banks, players in the retail industry, pure payment service providers, large IT companies or fintech companies that do not offer accounts themselves. Banks cannot charge a higher price than the ordinary price charged to the end customer.
Allowing third parties to access account information and initiate payments is more common in other countries than in Norway, such as in Sweden, the United Kingdom, China and the US. Based on experience from these markets, there is reason to believe that many consumers will want to take such services into use now that they are regulated and made generally available throughout the European Economic Area.
The directive also introduces strict security regulations through requirements for customer authentication, protection against fraud and enhanced consumer rights. The guidelines of the European Banking Authority, EBA, for the security of payments initiated by customers through third party providers are of great importance to public trust in payment services and the security of funds deposited in accounts. These regulations are expected to enter into force in September 2019.
PSD2 could pose a threat to traditional banks, as the banks’ value chain and customer base will be opened up to new players. However, the changes also give banks the opportunity to develop new products, services and business models. Technology is changing the industry fast, and customer expectations are changing even faster.
The Norwegian Ministry of Finance has circulated for public comment amendments to the Financial Institutions Act, the Financial Supervision Act and the Payment System Act, which will implement the public law aspects of PSD2. Correspondingly, the Ministry of Justice and Public Security has circulated for public comment a proposal for a new Financial Contracts Act, which will implement the private law aspects of the directive. PSD2 will be introduced in Norway in the autumn of 2018 at the earliest, but many players will probably adapt their operations in accordance with the effective date in the EU. DNB is actively following the Norwegian authorities’ work to implement PSD2 and is making a considerable effort to adapt the bank’s operations to the new regulations and exploit new opportunities.
New Personal Data Act will strengthen consumer rights
The Ministry of Justice and Public Security has circulated a draft for a new Personal Data Act for public comment. The Act will implement the EU’s General Data Protection Regulation (GDPR) in Norwegian law. One of the main drivers behind the need for new regulations is the fact that digital channels have led to a significant increase in the amount of personal data that is stored about individuals. The new Act implies major changes for almost everyone engaged in business operations. DNB is well prepared, as the bank has long experience in safeguarding large amounts of information about its customers.
The purpose of GDPR is to strengthen and harmonise privacy protection when processing personal data. In addition, the free flow of digital services in the European market will be facilitated, and information processing will generally be more transparent and predictable for consumers. Among other things, a new right will be introduced for consumers to receive all personal data companies have stored about them and to have the information corrected, deleted or transferred from one service provider to another. The Norwegian Data Protection Authority will be given the opportunity to levy high non-compliance fees.
GDPR will be implemented in Norwegian law through a referral provision in the new Personal Data Act. This is in line with the EEA Agreement and implies that the regulation will be introduced “as is”. The new regulation enters into force in the EU on 25 May 2018. DNB is working to ensure compliance with future requirements.
Capital and liquidity requirements
CAPITAL ADEQUACY REQUIREMENTS FOR BANKS
The EU capital requirements regulations, called the CRR/CRD IV regulations, entered into force on 1 January 2014. CRR is the regulation, while CRD IV is the directive. The regulations are based on the Basel Committee’s recommendations from December 2010 on capital and liquidity standards, Basel III. The CRR/CRD IV regulations include requirements for own funds, long-term funding and liquidity reserves. The regulations apply to all banks within the EEA and will be implemented gradually up to 2019.
The CRR/CRD IV regulations are EEA relevant, but have not yet been included in the EEA Agreement. The requirements in CRR/CRD IV have nevertheless generally been implemented in Norwegian law in the Financial Institutions Act including regulations. The EEA/EFTA countries and the EU are working on formally incorporating CRR and CRD IV in the EEA Agreement. In the National Budget for 2018, the Ministry of Finance stated that the Norwegian government will seek to get permission to retain Norwegian rules that in some areas differ from the EU regulations.
The capital adequacy regulations are based on three so-called pillars. Pillar 1 encompasses minimum requirements and buffer requirements determined by the political authorities. Pillar 2 contains requirements which come in addition to the other requirements and are intended to reflect institution-specific capital requirements relating to risks which are not covered, or are only partly covered, by Pillar 1. The Pillar 2 requirements are individual and depend on an assessment made by Finanstilsynet (the Financial Supervisory Authority of Norway) regarding risk in the relevant bank. Pillar 3 is about the disclosure of information.
As of 31 December 2017, DNB has a total Pillar 1 requirement for common equity Tier 1 capital of 13.6 per cent. The counter-cyclical buffer requirement is the weighted average of the buffer rates for the countries where the bank has credit exposures. The rate in Norway is 2.0 per cent, but several countries where DNB has exposures, have set the requirement at zero per cent. For DNB, the effective counter-cyclical buffer requirement is thus reduced to approximately 1.6 per cent. Finanstilsynet has set the Pillar 2 requirement for DNB at 1.6 per cent. Overall, this gave a common equity Tier 1 capital requirement for DNB of approximately 15.2 per cent under Pillar 1 and 2 at year-end 2017.
It is necessary to have a margin over the total common equity Tier 1 capital requirement to take into account fluctuations in exchange rates and market prices. In the opinion of Finanstilsynet, DNB should have a margin of approximately 1 percentage point, which means that the Group needed to have a common equity Tier 1 capital ratio of approximately 16.1 per cent at year-end 2017. The reason why Finanstilsynet has set this margin is that DNB must be able to retain normal lending growth during a downturn while the capitalisation of the Group must help ensure access to the capital markets even under difficult market conditions. At end-December 2017, the DNB Group had a common equity Tier 1 capital ratio of 16.4 per cent.
Basel I floor to be replaced
The capital adequacy requirements to be met by banks are formulated as minimum requirements for own funds in per cent of the bank’s assets. The assets must be risk-weighted based on the assumed risk of losses. The former Basel I regulations included standardised risk weights for different types of assets. With effect from 2007, the Basel II standards allowed banks to use their own models to calculate risk weights (the IRB approach). To avoid that the models used would give too low risk weights, a floor was specified for how low the total value of risk-weighted assets could be. The value could not be lower than 80 per cent of what it would have been under the Basel I regulations. This is the so-called Basel I floor.
Norway is the only country that has chosen to retain such a floor for risk-weighted assets. One of the implications of this is that Norwegian banks appear less capitalised in international comparisons than if the EU regulations had been used.
In December 2017, the Basel Committee adopted changes in several parts of the Basel III standards for capital adequacy assessments, aiming, among other things, to ensure greater consistency between banks’ reported capital adequacy figures and capital requirements. The changes include adjustments to the standardised approach and the IRB approach, and the introduction of a new capital floor. The new capital floor requirement will reduce differences in risk weights and result in more harmonised capital requirements across national borders. However, the changes in Basel III are not planned to take effect until 1 January 2022, with a five-year phase-in period. The EU is expected to adopt the recommendations by amending its legislation. This legislation will also be applicable in Norway through the EEA agreement.
Norwegian legislation does not fully reflect the requirements in CRR and CRD IV. The Norwegian Ministry of Finance has therefore given Finanstilsynet a mandate to propose how the remaining parts of CRR and CRD IV should be implemented in Norway. As part of this process, Finanstilsynet will also consider a new capital floor based on the Basel Committee’s proposed new standardised approach. The new floor requirement will probably replace the Basel I floor, but it is unclear how it will be designed and coordinated with the EU regulations. Finanstilsynet has been given a deadline in mid-April 2018 to present its recommendations.
Lower capital requirements for corporate loans
In March 2017, the Norwegian government announced that the EU regulations on reduced capital requirements for loans to small and medium-sized enterprises (the SME supporting factor) will be introduced in Norway. However, this will not happen until CRR/CRD IV has been included in the EEA Agreement. The SME supporting factor implies that the ordinary capital requirement for loans to SMEs of up to EUR 1.5 million will be reduced by 23.8 per cent. The European Commission has proposed to continue and extend the SME supporting factor by reducing the capital requirement by a further 15 per cent for amounts in excess of EUR 1.5 million. On the assumption that the SME supporting factor will have effect for all Norwegian banks, its introduction will have a positive impact on the access to capital and value generation in the business community.
Non-risk based capital requirement, leverage ratio
As a supplement to the risk-weighted capital requirements and as a measure to counter adjustments and gaps in the regulations, the EU will introduce a non-risk based capital requirement, “leverage ratio”. The European Commission has, based on a recommendation from the European Banking Authority, EBA, proposed the introduction of a minimum requirement of 3 per cent.
In Norway, the Ministry of Finance has set the minimum leverage ratio requirement at 3 per cent as of 30 June 2017. All Norwegian banks must have a buffer on top of the minimum requirement of minimum 2 per cent. Systemically important banks (O-SIIs) must have an additional buffer of minimum 1 per cent. As a systemically important bank in Norway, the total requirement for DNB will thus be 6 per cent. At end-December 2017, DNB had a leverage ratio of 7.2 per cent.
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LIQUIDITY REQUIREMENTS FOR BANKS
The EU capital requirements regulations include stipulations on two quantitative liquidity requirements, the Liquidity Coverage Ratio, LCR, and the Net Stable Funding Ratio, NSFR. The LCR regulations came into effect in the EU as of 1 October 2015, with a gradual phase-in up to 2018. In November 2016, the European Commission presented its proposal for the calculation of the NSFR requirement. It is not yet clear when the NSFR requirement will be introduced.
In Norway, the LCR has been introduced ahead of the EU schedule. The O-SIIs were required to meet the 100 per cent LCR requirement as early as from 31 December 2015. For other banks, the LCR had to be minimum 80 per cent as of 31 December 2016, and 100 per cent as of 31 December 2017.
As of 30 September 2017, the Ministry of Finance introduced an LCR requirement for significant currencies. Currencies are considered significant if the aggregate liabilities denominated in that currency amount to 5 per cent or more of the bank’s total liabilities. Banks whose significant currency is euro or US dollars, including DNB, must have a liquidity reserve in NOK of at least 50 per cent. The changes came into effect on 30 September 2017.
Finanstilsynet has given its recommendation to the Ministry of Finance, stating that the NSFR should be introduced as a minimum requirement for the O-SIIs and other enterprises with total assets in excess of NOK 20 billion as soon as a final decision on the NSFR has been reached in the EU. Until the NSFR has been introduced in Norway, Finanstilsynet will continue to use liquidity indicator 1 when monitoring the bank’s long-term funding. Liquidity indicator 1 will be phased out in 2018 and replaced by the NSFR.
NEW RULES ON CRISIS MANAGEMENT
The financial crisis demonstrated the need for better solutions for the winding-up and restructuring of banks. The EU has introduced extensive regulations in this field, the Bank Recovery and Resolution Directive, BRRD.
The purpose of the directive is to establish a crisis management system which ensures financial stability by giving banks and the authorities the tools required to prevent and handle crises at an early stage. The crisis management system shall ensure that large banks can be wound up or refinanced without threatening financial stability, while deposits and public funds are protected.
Resolution fund and deposit guarantee fund
Under the BRRD, each country will establish a national resolution fund to be used by the resolution authorities as a crisis management tool. In accordance with the revised Deposit Guarantee Directive, DGSD, each country must also have a deposit guarantee fund.
The Norwegian deposit guarantee scheme currently covers NOK 2 million per depositor per bank. DGSD basically implies that Norway must lower its guarantee to EUR 100 000. The government is in talks with the EU to continue to retain Norway’s high deposit guarantee level when the revised DGS directive is implemented in the EEA Agreement.
The new regulations will ensure better protection of deposits
Internal recapitalisation (bail-in)
A key element in the BRRD is that any losses in connection with the liquidation or recapitalisation of a bank shall be borne by the bank’s investors and not by the taxpayers. Thus, the directive opens up for internal recapitalisation, so called “bail-in”, of banks’ liabilities. This means that unsecured creditors may experience, as part of a crisis solution, that their debt is written down and/or converted into equity. Losses will thus be covered, and the bank will be recapitalised and able to continue its operations. In such a situation, investors cannot demand that a bank be wound up in accordance with general liquidation rules, and thus lose leverage with the authorities in cases where the continued operation of a bank is considered to be important to financial stability and the economy.
According to the BRRD, bail-in should be the final alternative, and such measures should not be initiated until the bank is close to insolvency. An underlying principle is that investors, as a minimum, should receive the same financial return as if the bank had been liquidated according to normal insolvency proceedings. Deposits covered by the deposit guarantee will normally be protected from losses.
Minimum requirements for subordinated liabilities
All banks in the EU must have a minimum level of own funds and eligible liabilities (Minimum Requirement for Own Funds and Eligible Liabilities, MREL) that can be written down or converted into equity (bail‐in) when a bank is close to liquidation. The requirement consists of a component to cover the need for write-downs and a component to cover the need for recapitalisation. Initially, each component should equal the bank’s total capital requirement including buffers, whereby the MREL will be twice the total capital requirement. However, the MREL will be determined individually for each bank, and there is significant national scope of action with respect to how the regulations are formulated. No Norwegian regulations have yet been proposed.
The BRRD sets a number of other requirements. Among other things, banks must prepare recovery plans describing how they will strengthen their capital adequacy and improve their liquidity and funding if their position is significantly impaired. The plans must be approved by the national supervisory authorities. The authorities, on the other hand, must prepare resolution plans for the banks. This will be resource-demanding for the finance industry and entail new, extensive processes vis-à-vis the supervisory authorities.
The legal process in Norway
The Ministry of Finance has put forward a proposal to the Norwegian parliament (Stortinget) on the implementation of BRRD and DGSD in Norwegian law. Among other things, the Ministry proposes that plans be drawn up for the recovery and crisis management of individual banks, and that Finanstilsynet be given new tools to intervene at an early stage when banks have or may get financial problems. Internal recapitalisation and improved protection of deposits are the most significant changes compared with prevailing law.
Norway currently has one of the best capitalised deposit guarantee funds in Europe. At year-end 2016, the fund amounted to NOK 32.5 billion, equivalent to 2.75 per cent of total guaranteed deposits. In line with the EU directives, the Ministry of Finance proposes to transfer these funds to two new funds that will finance the deposit guarantee and resolution measures. The directives require that the two funds in total constitute minimum 1.8 per cent of guaranteed deposits by 2024. Consequently, the two Norwegian funds will, already on the effective date, be capitalised to a level that exceeds the target set by the EU several years ahead in time.
The Ministry of Finance proposes to retain the requirement of annual payments from the banks to the funds. Payments from DNB to the funds will be higher than today. This is mainly due to the fact that DNB Boligkreditt and DNB Næringskreditt will also be required to contribute to the resolution fund. Today, these companies do not pay levies to the Norwegian Banks’ Guarantee Fund.
IMPORTANT REGULATIONS PENDING INCORPORATION IN THE EEA AGREEMENT
In 2016, the Norwegian parliament agreed to connect Norway to the EU supervisory authority for banking, insurance and securities. This connection is necessary to get the framework conditions in place in order to ensure that the Norwegian financial services industry will still have access to the entire EEA market. However, a lot of work still remains. At the start of 2018, more than 250 directives and regulations on financial services had still not been incorporated in the EEA Agreement, including PSD2, CRR/CRD IV, BRRD and DGSD. The financial services industry is interested in speeding up this process. In order to ensure equal competitive terms, it is important that new regulations are introduced at the same time in the EU and in the EEA/EFTA countries in the future.
MiFID II and MiFIR to be implemented in Norway from 2018
The EU’s new regulations on securities markets (MiFID II and MiFIR) entered into force in the EU on 3 January 2018, but had not yet been incorporated in the EEA agreement at year-end 2017. The new regulations aim to strengthen investor protection, reduce risks, increase efficiency, and ensure more transparent financial markets. Through the EEA agreement, the Norwegian securities markets are part of the single market and closely integrated with the European market. In order to have a well-functioning securities market, it is important that Norwegian rules conform to EU rules. Finanstilsynet has therefore adopted regulations that place Norwegian investment firms under the same requirements as their counterparts in the EU. The objective is to ensure that Norwegian investment firms are subject to the same regulatory framework and can be treated in line with investment firms in the EU. The regulations entered into force on 1 January 2018.
Debt register and marketing of consumer loans
During 2017, the Norwegian government and Finanstilsynet introduced a number of measures to ensure sound credit assessments in banks and protect consumers against irresponsible lending practices, including guidelines for consumer loans, regulations on the marketing of credit, regulations on the invoicing of credit card debt and a new Act whereby private players can be granted licences to provide credit information in connection with credit scoring.
Consumer finance is a highly relevant topic in DNB in light of the bank’s new strategy for consumer loans, credit cards and purchase financing. DNB aims to earn the customer relationship by taking a clear position as a responsible supplier of such services.
Guidelines for the treatment of consumer loans and credit cards
The guidelines aim to reduce the risk that customers incur levels of debt that they are later unable to service, while contributing to sound banks. The guidelines apply to all unsecured credit to consumers, including credit and payment cards. Among other things, the guidelines set requirements for debt servicing capacity, maximum loan-to-income ratio and instalment payments.
Regulation governing the marketing of credit
The purpose of the regulation is to prevent persistent and aggressive marketing that turns customers’ attention away from the potential negative consequences of high borrowing. The marketing of credit shall not highlight how readily available it is. In addition, the opportunity to highlight additional benefits such as miles, discounts, recruitment gifts and insurance will be restricted. Also, there is a ban on marketing credit through door-to-door sales. The regulation entered into force on 1 July 2017.
Regulation on invoicing of credit card debt
The regulation requires, among other things, that the amount field on invoices from financial undertakings show the overall outstanding credit. The purpose is to ensure that customers are given adequate information about their actual debt and on how it can be repaid. Financial undertakings were required to adapt to the regulation no later than 15 June 2017.
New Act on credit information companies
As of 1 November 2017, private players can get a licence to establish companies providing credit information in connection with credit scoring. Banks are thus given the opportunity to check how much credit and consumer debt a new loan applicant already has, and can make a better credit scoring of the customer. Credit information companies must have a licence from the authorities and be subject to public supervision. According to the Act, all financial undertakings that provide consumer credit have a duty to report or make available information about all unsecured debt to credit information companies.
Savings and pensions
Share savings account
As of 1 September 2017, a scheme has been introduced which allows private individuals to establish a share savings account. The purpose is to make it easier and more flexible for individuals to save in shares, in order to increase private ownership in Norwegian companies. Norwegians will thus to a greater extent than today take part in the value creation in the Norwegian business community. A share savings account will allow private individuals to reinvest in other shares and mutual funds without triggering tax. Gains are not taxed until at a later date when the funds are withdrawn from the share savings account. To facilitate the transition to a share savings account, the Norwegian parliament has adopted a transitional rule which will remain in force throughout 2018, whereby customers can transfer shares and mutual funds to the share savings account without taxation.
New pension saving scheme
For many employees, the total pension entitlements earned through occupational pension schemes and the National Insurance Scheme provide a retirement pension which is insufficient. Thus, there is a need for supplementary private pension savings. In connection with the consideration of the Revised National Budget for 2017, the Norwegian parliament decided to replace the former scheme for tax-favoured individual pension savings, IPS, with a new scheme. The former scheme was little used, mainly because the rate of income tax on pension payments was higher than the tax deduction at the time money was deposited in the scheme.
The new IPS scheme came into force on 1 November 2017 and implies tax deductions on ordinary income for deposits of maximum NOK 40 000 per year. The balance is exempt from wealth tax, and returns are not subject to general taxation. Pension payments will not be taxed as pension income with bracket tax and social security contributions, but as ordinary income. The money can be withdrawn at the age of 62 at the earliest. Payments must be spread over a period of at least ten years, and can as a rule not be terminated until the customer turns 80.
Own pension account
A large majority of employees in the private sector have defined-contribution occupational pension schemes. The product in itself is transparent. However, it gets more complicated as employees receive a pension capital certificate every time they change jobs and must keep track of and take responsibility for these certificates themselves.
In the autumn of 2017, the Ministry of Finance circulated for public comment draft legislation to introduce an Own Pension Account. The proposal implies that pension capital certificates from previous employers are combined and transferred to the current employer’s pension scheme, unless the employee reserves the right to deny this. Gathering all the money in one place will be favourable for most employees. Very many people currently have several small pension capital certificates from previous employers in different companies. Through the Own Pension Account, the individual employee can combine all accumulated pension entitlements, achieve lower costs, get a better overview of and be more actively involved in the management of the funds. The government is expected to present draft legislation to the Norwegian parliament after the wage settlement in the spring of 2018.
Taxes and fees for the financial services industry
International developments in the regulatory framework concerning tax affect all companies with international operations. Through the project “Base Erosion and Profit Shifting”, BEPS, the OECD has given recommendations that will lead to greater correlation between local tax rules, increased transparency and taxation where values are created. BEPS will be implemented by changing local tax rules and tax treaties, as well as the OECD Transfer Pricing Guidelines.
Within the EU, a directive has been adopted to implement BEPS in a consistent manner. The Anti-Tax Avoidance Directive includes several requirements to counter tax avoidance and aggressive tax planning, and will be implemented in the EU by 1 January 2019.
Norway has signalled that the measures recommended in BEPS will be implemented in Norwegian law as soon as possible. Interest limitation rules and country-by-country reporting to the tax authorities are examples of changes based on the BEPS recommendations.
OECD Transfer Pricing Guidelines
In 2017, the OECD Transfer Pricing Guidelines were updated to include stricter and more detailed documentation requirements, adjusted rules for pricing internal transactions and a new reporting requirement, including country-by-country reporting to the tax authorities.
Country-by-country reporting to the tax authorities
In accordance with the BEPS recommendation, Norway has introduced country-by-country (CbC) reporting from 2017 for multinational companies with a consolidated turnover of over EUR 750 million for the 2016 fiscal year. The ultimate parent company reports to the tax authorities in its home country. Country-by-country reports shall be exchanged automatically between tax authorities in all countries where the company has subsidiaries or permanent operation facilities. The purpose is to ensure increased transparency and give the tax authorities a basis for assessing whether a company is taxed where values are created, and thus identify where there is a need for closer inspection. The report shall include total turnover, both internal and external, pre-tax profits, tax paid and accrued, capital, tangible assets and the number of employees in each country where the company has operations.
Multilateral treaty for effective amendments to tax treaties
In 2017, a multilateral treaty was signed by more than 70 countries, including Norway. The treaty provides a new and efficient way to amend tax treaties, which is otherwise a very time-consuming process, as amendments generally require renegotiation of each tax treaty. The treaty is intended to ensure effective implementation of BEPS recommendations that require changes in the wording of tax treaties. There are more than 3 000 such treaties worldwide. The treaty will enter into force subject to specific terms that are likely to be fulfilled in 2018, and will thereby be effective from 2019.
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EXPANSION OF THE INTEREST LIMITATION RULE
In 2017, a consultation paper was issued to extend the current interest limitation rule to include interest on external loans. At the same time, an exception rule was proposed to shield ordinary loans. It has been announced that the new rules will probably not take effect until from the 2019 fiscal year.
FINANCIAL ACTIVITIES TAX
The financial activities tax is unchanged for 2018 at 5 per cent on companies’ payroll and 25 per cent on profits. The tax rate for companies that are not liable to financial activities tax has been reduced to 23 per cent, which means that the tax burden for companies subject to financial activities tax increases compared with other companies.
WITHHOLDING TAX ON INTEREST PAID OUT OF NORWAY
In 2016, the Norwegian government announced that it would review a proposal to introduce withholding tax on cross-border interest payments. It is not known when a concrete proposal may be circulated for public comment. Withholding tax on cross-border interest payments will be a Norwegian tax on international creditors.
TAXATION OF INSURANCE AND PENSION COMPANIES
A proposal has been circulated for public comment to restrict insurance and pension companies’ access to claim deductions for provisions. Furthermore, it has been proposed that income and expenses in the common or investment choice portfolios of life insurance and pension companies should be taxed in accordance with the accounting treatment of these items. In the Ministry’s opinion, the current rules do not function as intended, as they give non-life insurance companies a tax advantage in the form of deductions for provisions. For life insurance and pension companies, the opportunity to claim deductions for provisions has had unintended effects in the form of large losses carried forward and low payable taxes. The rules will enter into force immediately, with effect from the 2018 fiscal year. Transitional rules have been proposed.
AMERICAN TAX REFORM
The US has adopted an extensive tax reform that will apply from 2018. The corporate income tax rate will be reduced, while the tax base will be broadened. Here are some of the changes:
The nominal corporate income tax rate, the federal rate, is reduced from 35 to 21 per cent. Rules have been introduced to limit the deductibility of net interest expenses. In addition, an “additional tax”, Base Erosion Anti-Abuse Tax (BEAT), has been introduced on certain payments to foreign (non-US) related companies. BEAT may lead to double taxation for, among others, foreign banks that have operations in the United States.