These national tax items generated total revenue of about 18 billion crowns,

or about $3.3 billion in 1971. The municipal tax collection was about

8.6 billion crowns ($1.5 billion) for the same year, with income tax accounting for over 90% of the total.

(2) Tax Rates and Timing

Corporations pay a national income tax of 26.5% plus a municipal tax of 20%, an equalization tax of 3% and a special tax of 1. 3% to aid developing nations. In 1973 these taxes represented a total tax burden of 50.8% on the retained earnings of a corporation. As will be discussed later, distributed income is taxed at 24.3%.

In addition to the income taxes, non-personal taxpayers must pay

a tax of 0.7% of the value of their property including ships.

Tax returns for businesses must be submitted before the end of February. Tax is then assessed by the authorities. These assessments may be appealed through several steps. The resultant tax liability is due in equal installments as follows:

Dividends of domestic corporations receive special treatment. Dividends received by a domestic corporation from other domestic corporations are subject to national taxes, but are exempt from other income taxes. Dividends distributed may be deducted from earnings for computing national income taxes, but not for other corporate income taxes such as the municipal income tax. The net effect of these provisions is that the total income tax has been about 50% on undistributed profits.

and about 24% on distributed profits. The taxes on distributed profits are considered as not having been distributed, so the tax of approximately 50% applies to these amounts, making the effective overall corporate income tax rate approximately 42% if half of the profits are distributed.

Individuals are subject to the national income tax on a sliding scale from 0-50%, a municipal income tax of 15 to 20% plus an equalization fund tax of 3% and a special tax for aid to developing nations of 0.5%.

Individuals are required to prepay their estimated taxes and are subject to withholding on salary and dividends. Taxes not covered by withholding must be prepaid by installments as follows:

15 February

15 April

15 August

15 October

An indication of the tax rate on personal incomes is provided by the

following table which applies to a married taxpayer for 1970.

Individuals are subject to a municipal capital tax and a tax on

immovable property. An indication of the tax rates is provided by the following table.

The tax on wealth can have a major impact on those who own ships individually or in partnership. It has been reported that the total tax on some shipowners has exceeded 100% of their taxable income.

Individuals are also subject to tax on inheritances and certain gifts. The tax is on a graduated scale in terms of the amount of the gift as inheritance and the relationship of the deceased and the beneficiary. The more distant the relationship, the higher the tax.

Income taxes for seamen are treated specially. They are pay-asyou-earn taxes, and run approximately 70% of the tax levels applicable to other resident citizens.

(3)

Depreciation Regulations and the Use of Tax Reserves

There are three categories of depreciation, ordinary depreciation, accelerated depreciation and initial depreciation.

Ordinary Depreciation: Ships, machinery, industrial, and commercial buildings and other means of production intended for permanent use are depreciable. In principle, depreciation may begin only after the asset is put into use. The basis for depreciation is normally the acquisition cost and the rates of depreciation are based on the useful working life. These are established by the taxation authorities for most types of

assets. The annual rates of depreciation for machinery vary between 5 and 15%, for buildings between 2 and 3%, for steel petroleum storage tanks between 3 and 5% and for ships between 5 and 8% annually.

The depreciation rates are advisory and subject to consideration each year. Additional depreciation may be claimed if it is possible to prove intensive and exceptional wear and tear.

Accelerated Depreciation:

An additional allowance is available

for productive assets excluding motor cars and commercial buildings. This allowance may be claimed in the year in which the asset is bought and for four subsequent years, at the rate of 50% of the normal annual allowance subject to a maximum of 5% of the cost in any one year, and limited to a total of 15% of the cost of the asset. For example, on an item which would ordinarily be depreciated at 8% per year, the accelerated depreciation would yield the following total depreciation rates in the first four years:

described in the prior paragraph a special initial allowance may be claimed for buildings and plants for the production and storage of goods, or the construction or repair of ships. The initial allowance is limited to 25% of the costs in excess of 500,000 crowns ($87,000) and may be taken within five years of the time production is in progress. For going

concerns, the allowance may be taken from the time at which construction of the asset has started. The initial allowance may not exceed 50% of the assessed income in any one year.

For ships and aircraft an initial allowance may be claimed of up to 25%. (The 500, 000 crown limitation does not apply.) The initial allow ance may also be spread over the period beginning with the year of payment of the first installment on the cost of the asset up to and including the fifth year of operation. It may not exceed 50% of the assessed income from the operation of ships or aircraft in one year.

Tax Free Reserves:

Prior to 1973, enterprises could deduct up

to 25% of their income as computed for municipal tax purposes in any one year (minimum 3,000 kr) and put the amounts into a reserve for subsequent investment in productive assets. These amounts had to be deposited in a special account in the Norges Bank where they draw tax free interest of 3%. These reserves were normally released at the end of four years, but could be released earlier.

When liberated, 15% of the reserves were tax free. If the liberated reserves were used for the acquisition of new productive assets, 85% of the costs were added to the income of the taxpayer in the income year in which the purchase was made. At the same time, the taxpayer could claim deduction for the extraordinary depreciation of the new assets by an equivalent amount. The rest of the purchase price could be written off according to the ordinary depreciation rules.

(4) Capital Gains Treatment

Capital gains realized in the sale of the assets of a business activity are treated as ordinary income. The tax liability of the seller includes gains from the sale of immovable property assuming it was acquired in the prior ten years and not inherited. Capital gains are taxed if derived from insurance claims where payment is for a total loss.