New rules for the taxation of benefits in kind come into force on 1 January 2019. Here is an overview of the most important changes, as well as some details of issues yet to be clarified.
Benefits in kind received as part of an employment relationship are defined as salary
Such benefits are, for tax purposes, non-cash benefits which the employee receives in the course of an employment relationship and which provide a personal financial gain. Such benefits must normally – and as a general rule – be taxed in the same way as ordinary salary. However, there are certain specific exceptions from this tax rule, and these are set out in the Norwegian Tax Act and associated regulations. A typical exception is that relating to what has to date been called “reasonable staff discounts in an employment relationship”. The tax obligation is also clear in cases where an employee receives benefits in kind from a party other than their direct employer, where there is a sufficiently strong link between the employment relationship and the benefit (in kind) provided by the third party.
Staff discounts – annual cap
New rules for staff discounts have been adopted. According to these, discounts given by employers to their employees in connection with the purchase of goods and services which are bought or sold by the business may not exceed 50 per cent of the retail sales price. In the National Budget, it has further been proposed that the total tax-free staff discount be capped at NOK 7,000 p.a. This will also include discounts given by the employer’s suppliers/customers, provided that the good/service is one that is bought or sold in connection with the employer’s business activities.
The new rules represent a significant tightening of current practices in sectors that import and distribute goods which, under the previous rules, were designated “significant capital goods”, e.g. in the motor trade. The previous rule that enabled employees to buy a motor vehicle every third year has now been revoked. The NOK 7,000 annual tax-free limit for staff discounts will, with effect from 1 January 2019, also apply to these business sectors.
In our view, the size of the benefit will not be calculated on the basis of the “list price”, but the price that most customers will be able to achieve, since only discounts over and above these amounts may be deemed to constitute a benefit relating to an employment relationship. Exceptions from this starting point may nonetheless be envisaged, and we recommend that their reasonableness be assessed on a case by case basis.
Extension of employers’ duty to report
This summer, Norway’s Tax Administration Act and Tax Payment Act were amended such that the employer is now liable for reporting to the tax authorities and paying Employers’ National Insurance Contributions (NICs), etc, on all taxable benefits that the employee also receives from third parties as a result of their employment relationship. These statutory amendments and forthcoming changes in their associated regulations will come into effect from 1 January 2019.
The duty to report includes a duty to pay NICs on benefits employees receive from third parties
The rule relating to employers’ duty to report benefits in kind that employees receive from third parties is not new. What is new, is the tightening up of the employer’s duty to report benefits received from third parties on the employee’s payslip and to pay NICs on the amount of the benefit. Each employee will still be responsible for reporting all the financial benefits they themselves receive from third parties as a result of their employment relationship. Employers will probably now find that they have been given greater responsibility for reporting than they have experienced to be the case previously. Regulations setting out more detailed requirements with respect to routines, scope, deadlines, etc, will be issued further down the line.
The duty to report applies to:
a. Benefits employees receive from “business partners”
b. When the employer has provided a service in order for the employee to qualify for a benefit
The Ministry has determined that the duty to report and pay tax, etc, shall apply to discounts that employees receive from their employer’s business partners. The term “business partners” is meant to encompass all those parties with whom the employer has entered into contracts for the purchase and sale of goods and services. This also includes benefits deriving from the employee’s purchase of goods/services from third parties which are subsequently refunded by the employer – typically airline tickets which accrue bonus points that may be used privately.
Discounts on goods and services that the employee receives from parties other than the employer’s business partners will be taxable if the employer provides such a third party with some service to enable the employee to obtain a discount.
Discounts from third parties will not be taxable or reportable when the employee simply passes on the offer of a discount to their employees. Discounts that are unilateral marketing initiatives, “neighbourhood discounts”, and similar profiling discounts are neither taxable or reportable.
Grey areas: What does it mean when it says that the employer must have performed some service to enable the employee to obtain a benefit? Or how far does the notion of “passing on” stretch? Not much more can be said on this for the moment.
The duty to report to the tax authorities means that the employer must obtain information from the third parties concerned regarding benefits provided to employees. However, there are no reactions or sanctions that may be imposed for failure to fulfil this duty, as long as the employer has done what may be reasonably expected to obtain information from employees and third parties. It has been determined that the deadline for dating and reporting such employee benefits in the company’s monthly report (A-melding) shall be two months after the benefit has been received.
The duty to report will include taxable discounts from third parties and all discounts that employees receive on the purchase of goods and services bought or sold in the course of the employer’s business activities. (Where a tax-free limit of NOK 7,000 applies.)