– Not neutral – E24

DNB is the world’s largest bank for the seafood industry, with loans, guarantees and credits to the sector totaling NOK 75 billion globally.

The bank’s director of seafood, Anne Hvistendahl, does not take a positive view of the government’s proposal to introduce a ground rent tax on the salmon industry.

– The proposed arrangement means that the ground rent tax is not neutral, as I wrote in DNB advisory response.

The DNB explains that the base rental tax is primarily a socially effective tax, because the ordinary return is protected from the tax on the base rent, and in this sense has a neutral effect on the company’s investment decisions. In this sense, economically profitable investments will be carried out regardless of the tax on the base rent.

But DNB believes that two basic conditions must be met for the proposal to be truly tax neutral: that the yield before and after the ground rent tax is the same in percentage terms and that access to capital is not affected.

– We consider that these two conditions have not been met Consultation notewrites Hvistendal.

The government itself assumes that the proposed land rent tax will have a neutral effect on investments and the level of industry activity.

Lack of access to capital

– In our estimation, the tax proposal will include a lower percentage return after the ground rent tax than it did before this tax. The proposal would also reduce access to capital for the industry, Hvistendahl writes as well.

She also points out that the way the bank sees the salmon market going forward, the income from the proposed base rental tax (the proceeds) is very likely to be higher than the roughly £4 billion that has been assumed.

– In our opinion, this means that proceedsproceedstax revenue It can be purchased at a lower than suggested tax rate.

DNB stresses that regardless of the structure of the tax system, it is important for the bank that businesses are able to service their loans.

“From a lender and creditor point of view, it would be an advantage if a cap was set on what the total effective tax rate could be in percentage terms to obtain assurance that companies can actually service the debt,” the bank writes.

It is also important for companies to be able to make the ongoing investments necessary to maintain their earning capacity and thus maintain a reasonable level of credit risk they represent.

Ramifications

DNB also fears that reduced access to capital and reduced appetite for investment will weaken the supplier industry.

The supplier industry is responsible for a lot of innovations in the industry and so a weak supplier industry will be able to dampen future growth and value creation opportunities.

However, the DNB is positive because the government is considering calculating the tax on the so-called standard rate tip. This is done to prevent companies that trade inside from being able to make tax adjustments.

– Based on the fact that the goal is to collect a certain amount of tax revenue and at the same time influence the creation of pre-tax value as little as possible, we look positively at the government considering changing the structure of the proposal by considering the standard price board.

Refers to the Faroe Islands

As an alternative to the ground rent tax, DNB says they have experience with the land lease model used in the Faroe Islands. There, the tax rate varies with the price of salmon, with an annual adjustment based on cost trends in the industry.

– In our opinion, this model works well – and has a low administrative cost, both for the industry and for the entities.

The government flatly refused to postpone the land rent tax, which will be introduced after the new year. However, there is room for modifications to the model. The deadline for consultation on the government’s proposal ends on January 4.