What could happen to Norway’s most important export industry in the future, as it adapts to the new tax regime?
“Shouldn’t one expect a special tax regime to be adapted to the dynamics of the sector, rather than the other way around?” Ragnar Nystøyl, Chief Analyst at Kontali Analyse asked.
“As the proposal stands, there are a number of problem areas in relation to the correct determination of an income basis for the ground rent tax. The same applies, among other things, to restrictions on associated activities. It appears to be very unclear how this can be solved in practice. This could easily fundamentally change the market dynamics for Norwegian salmon, and dramatically affect both value creation and the number of jobs in the industry,” he told SalmonBusiness.
Shortage
Nystøyl reacted to the market knowledge from investors.
“It seems that there is a great lack of understanding of the dynamics and workings of the industry among those who have drawn up the tax proposal. We are talking about top-trimmed, dynamic, market-adapted, but at the same time fragile machinery, which handles a demanding exercise in sales, logistics and marketing work for Norwegian salmon.”
The proposed so-called standard price is particularly problematic.
“The income side of the tax base must be determined by a standard price, which is not at all representative of the actual income in the industry; few markets are included in the so-called Nasdaq price – neither the USA, Japan nor the rest of Asia are included, it only contains one product quality, and a limited number of the total number of exporters are included in the reporting. Do those who made the proposal to tax our second largest export industry know this? There will be an enormous tax risk in choosing to be a predictable supplier that offers salmon on fixed price contracts? Which in turn is a prerequisite for building brands, or running further processing in Norway – or if you want – creating jobs,” Nystøyl continued.
Theoretical
“A large part of those who buy salmon in the markets are fully dependent on securing their costs by buying salmon on fixed-price contracts. If they don’t get it, they can’t take responsibility for getting deliveries to the supermarkets. Will the market understand – and accept that fixed price agreements are no longer offered for Norwegian salmon, due to too high a tax risk for Norwegian producers? The answer is self-evident, right?” he asked.
Kristiansund-based Nystøyl sees several challenges.
“Marginal taxation of a theoretical basic rent based on such a non-representative standard price can therefore hit a reality in the companies that is completely different. It is worse then that a company can be left powerless in the attempt to achieve the same income base on which it is to be taxed. One is taxed by, for example, NOK 80 (€0.8) per kilo; while a defacto has sold his salmon for NOK 60 (€0.6). If you look at the latest quarterly reports of the listed companies, you will find already published examples of how skewed this can turn out.”
Uncertainty
Nystøyl further pointed out that when it comes to the delimitation challenges, where the base rate is to be calculated from only the sea-based production activity, the uncertainty and the risk of large differences in both adaptation opportunities and adaptation incentives seem to be enormous – bordering on insoluble.
“This can either end up being very competitive, also within Norway. Or alternatively; the administrative burden linked to guidance, control and so on is greatly underestimated,” he said.
The question that Nystøyl and Kontali leave hanging is: – Will this unique, adaptable and to some extent export- and market-oriented sector be subject to and stifled by tax adjustments and suboptimization in order to have predictability for its own tax base?
“In that case, it is not certain that the brand “Norwegian salmon” will be so positively charged and valued in the markets in a few years; since we had to adapt to the tax and not the customer,” he concluded.
