The Norwegian petroleum tax act : is the Norwegian petroleum tax act neutral to investment decisions and treatment of companies with respect to tax position?
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This thesis evaluates the neutrality of the Norwegian Petroleum Tax Act (PTA) in light of theories on neutral taxation by Boadway & Bruce (1984), Fane (1987) and Sandmo (1989). More specific, we investigate if there is neutral fiscal treatment of equity based capital investments in the onshore and offshore tax regimes and furthermore if decisions offshore are affected by tax position. Relevant research is presented and applied in a descriptive analysis of the current fiscal system offshore to reveal systemic distortive properties. Our analysis show that companies in theory should be indifferent to the distribution of tax allowances. Furthermore, we find that the petroleum tax act is not in accordance with theory regarding how normal returns are shielded from special tax. Our analysis will illustrate if the favourable tax allowances offshore are proportional with the high marginal tax rate, thus making it neutral to onshore investments. According to theory and systemic features in the PTA and the regulatory system, companies should value tax allowances as risk free cash flows. Company behaviour tells us otherwise, which may imply that the authorities make wrong assumptions about company behaviour under uncertainty. It could also imply that companies are not differentiating between risky and risk free cash flow due to valuation methods applied offshore. This is also supported by theory. To analyse both perspectives in regards to neutral taxation, a deterministic discounted cash flow model is applied and compared to a study by Lund (2012). According to theory and the authorities’ perspective, our findings suggest neutral treatment with respect to tax position and investment incentives offshore due to favourable tax allowances. From the industry’s perspective, where risky and risk free cash flows are not differentiated, the industry is likely to perceive a favouring of companies in tax position. Investment incentives between offshore or onshore are dependent on the discount rate employed, and our findings are inconclusive.