The Government and SV presented their budget settlement on 29 November.

In the settlement, tax on income from employment and wealth tax on residential properties will be increased, while tax deductions for Young People’s Housing Savings Scheme (BSU) will be reduced.

The settlement does not mention tax on ocean farming and onshore wind power, which means that the Government's proposal for resource rent tax and high-price grants remains unchanged. The parties agree on a significant tightening of the rules for exit tax.

The parties of the settlement agreed that the latent exit tax when moving abroad will not expire after five years, which means that in the future exit tax will never expire unless you move back to Norway. In addition, transfers of shares or qualified assets to family members other than spouses will also be subject to exit tax when the recipient is resident abroad. These changes will take effect from 29 November 2022. In addition, the Government will consider further tightening of exit tax rules, which will be presented for Stortinget (the Parliament).

Under the rules on exit tax, the tax is calculated on latent gains on shares and certain other securities the day before becoming resident abroad according to tax treaties or Norwegian domestic law. The way the rules have been until 28 November 2022, this tax will expire if the shares have not actually been realised within five years of the transfer, or a move back to Norway has taken place.

The budget settlement means that the rule that the exit tax expires after five years will end. Hence. after moving abroad, a latent tax will be hanging over your head until a possible move back to Norway. For an unforeseeable future you must therefore comply with reporting obligations in Norway even if you never intend to realise the shares. The budget settlement does not mean that the exit tax becomes payable as long as the shares are not realised.

This change is very problematic for international mobility. It will affect not only wealthy people who move from Norway but also Norwegian and foreign businesses with activities in several countries and employees who move to or from Norway. Given that the rules apply to everyone with unrealised gains of NOK 500,000 or more, there are many who will be affected by such a rule. The change may also be difficult to combine with the rules on free movement in the EEA area. 

The second change is that transfers to family members, even uncles and aunts, will trigger exit tax if the recipient of the shares is resident abroad. Under the current rules, only transfers to a spouse abroad are affected. 

The budget partners also agree that the Government should investigate proposals for further tightening of exit tax rules. The wording of the budget settlement is not crystal clear. It just states that the Government will "issue and propose an exit tax that ensures that unrealised gains" are taxed in Norway. We understand this to mean that they want a scheme in which the exit tax must be paid when moving from Norway.

Such a scheme would most likely be contrary to the rules on free movement of people in the EEA area. It goes much further than the Court of Justice of the European Union has accepted as exit tax for individuals. For moves abroad outside the EEA area, the Government has of course more freedom to act, even if a payable tax will make it difficult to operate or accept employment abroad for Norwegian businesses and Norwegian employees.

As of today, the budget settlement does not affect those who move abroad to reduce their wealth tax. The rules, as proposed by the budget partners, will only affect the possibility of realising shares abroad without any Norwegian tax consequences. The greater restriction on mobility will only happen in the event of new rules for tax payable on unrealised gains when moving abroad.  

The legislative amendments in the budget settlement will take effect already from the date when the settlement was presented, i.e., 29 November. This means something completely new in Norwegian tax legislation. Normally, legislative amendments take effect at the earliest from the date when they are adopted by Stortinget. Certain stop rules have come into effect from the time when the proposition was presented in Stortinget.

The Government has challenged these principles by proposing an effective date for rules on resource rent tax that has not been reviewed. Now it goes even a step further, by having an agreement between three parties gain legal force from the date the agreement is presented. We think this could be problematic and it cannot be ignored that the effective date may be challenged in the Courts. The desire to move that close to the limit of what is legal, cannot be entirely unproblematic for the Government.

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