Part II Developments in the Member States

on NOX emissions. Transport taxes, in particular, are high (1.2 % of GDP) — more than twice the EU-27
weighted average — owing to a heavy tax burden on vehicles. In contrast, energy taxes, at 1.2 % of GDP, yield
N less revenue than the EU weighted average. Pollution/resource taxes yield 0.2 % of GDP, a comparatively high
o value; note that this amount does not include the special tax on oil companies' profits. Overall, in 2010 the share of
environmental related tax revenues on GDP was 2.6 %, down from 3 % of GDP in 2000.
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Current topics and prospects; policy orientation
a
Tax measures in The Budget Bill for 2012 are deemed to have a largely neutral effect on the overall level of taxes.
y This is in line with the Government’s commitment from 2005 to return taxes to the 2004 level and to keep them at
this level. No major changes in the area of personal taxation have been introduced in 2012 – there was a small
increase of personal allowances and of the threshold above which the national wealth tax is imposed. Furthermore,
the special tax allowance for high expenses due to illness is being phased out. The resources that are made
available are used in the health sector on the expense side of the Budget. In the area of corporate taxation
amendments to the scope of the 3 % rule in the exemption method, to the bad debts deductibility and to the tax
rates in Svalbard have been implemented. Also, as of 2012 the VAT rate on foodstuff is increased from 14 % to
15 %.

Main features of the tax system

Personal income tax
Norway, like several other Nordic countries, has adopted a dual tax system. Income from labour and pensions is
taxed at progressive rates, while the remaining forms of income are (mainly) taxed at a flat rate.

The basic element of the personal income tax is levied on so-called ordinary income, which includes all kinds of
income, but also various allowances. The tax rate on ordinary income is 28 %; this rate combines central
government, county and municipal taxes (Finnmark and Nord-Troms benefit, however, from a lower 24.5 % rate).
The surtax (toppskatt) is the progressive element of the PIT. It is levied on the so-called personal income — i.e.
gross wage income, gross pension income and a calculated income for the self-employed — provided annual
personal income exceeds NOK 490 000 (€ 62 927). The surtax is levied at a rate of 9 % on income between this
threshold and NOK 796 400 (€ 102 275) (7 % in Finnmark and Nord-Troms) and at a rate of 12 % on income
above.

A main element of the tax reform in 2006 was to replace the split model and the imputation system with the
shareholder model. The shareholder model involves a dividend and gains tax equipped with a cost of capital
allowance to ensure neutral treatment of different sources of financing. The taxation of self-employed and
partnerships was also adjusted along these lines, saving higher tax rates than the basic rate of 28 percent for returns
above a cost of capital.

The top marginal tax rates on labour income were reduced in order to narrow the difference in marginal tax rates
between share income and labour income and to stimulate labour supply. A main objective was to solve the
problem of labour income being shifted to shareholder income at lower tax rates.

Corporate taxation
Companies are subject to corporate income tax of 28 %. Income and capital gains are pooled and taxed at the same
rate. Special regimes apply to activities related to the exploration and exploitation of petroleum resources.

Since 2004 an exemption regime for corporate shareholders has been in force. Dividends derived by corporate
shareholders from resident companies, savings banks and unit trusts are in principle exempt from tax, as well as
capital gains on the disposal of shares in such entities. However, 3 % of such dividend income is taxable in order to
balance the deduction of costs related to such income. In general, all expenses incurred in acquiring, securing and
maintaining income are deductible. Royalties and management fees are usually deductible, but must be made on an
arm's-length basis if such payments are made to related parties. Capital gains derived from the sale of business

170 Taxation trends in the European Union