Up Again: Government relief and tax

Government relief and tax Q&A
Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

The Norwegian government has issued a new temporary act on restructuring. The act is designed to help companies with a restructuring of their debt. We have made a fact sheet where you can find more information about the new act. You will find information about the terms to initiate a restructuring, the features of the new act and how a restructuring will affect companies, owners and contracting parties. Click here to read our article covering the new temporary act on restructuring.

The government has also introduced an aid scheme to compensate for companies who have suffered a significant loss of turnover due to the coronavirus pandemic. The scheme will compensate 80-90 % of the unavoidable fixed costs of companies with a minimum loss of turnover of 30 %. For more information and to see if your company is entitled to compensation, learn more here.

What is the position with respect to the applicability of emergency tax measures, including what they are and apply to, when they are expected to be phased out on or following a return to business, and whether any transitional periods are likely to apply.

Only limited tax related measures have been applied. The main tax related measures are as follows: (i) Norwegian companies can carry back losses in 2020 of up to NOK 30 million against taxable profits from 2018 and 2019, and will receive the tax amount in 2021 when the tax return for 2020 has been assessed. (ii) The low VAT rate at 12% has been reduced to 7% in the period from 1 April 2020 to 31 October 2020. (iii) The payroll tax rate for May and June 2020 has been reduced with 4% points (generally from 14.1% to 10.1%). (iv) The air passenger tax has been suspended for flights in the period from 1 January 2020 to 31 October 2020. Further, certain tax payment deadlines have been postponed. Norwegian companies' deadline to pay second term of the corporate income tax has been postponed from 15 April to 1 September 2020. The deadline to pay employers social contributions tax has been postponed from 15 May 2020 until 15 August 2020. The deadline to pay VAT for January and February 2020 has been postponed from 10 April 2020 to 10 June 2020. There may be additional postponements, but we expect them to be phased out during 2020.

Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of payment obligations (and therefore likely pressure on cash flow) and/or filing of returns?

Postponement of tax payment obligations should be considered, cf. above.

Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

In most cases, emergency tax measures should not significantly impact sales or reorganisations, but each transactions should be assessed carefully.

Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

It has been proposed that oil companies deduct capital expenditures incurred 2020 and 2021 in full (as opposed to tax depreciations) in the same year when calculating the oil surtax at 56%, but not when calculating the ordinary income tax at 22% on the same income (the general tax deprecations rules will apply when calculating the ordinary income tax).

Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

Several sectors are requesting amendments that are beneficial for them, in particular the oil industry.

Which taxes might be increased to address the financial burden caused by the crisis, for example, a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth) b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

No indications that Norway will increase tax rates applicable for Norwegian companies

Are there other actions that ought to be considered by businesses in Norway? For example to revisit past tax filings to claim carry back of losses, revise or update preliminary tax assessments or claim bad debt relief for VAT output tax.

Norwegian companies may cancel dividends that have been decided but not yet paid out to the shareholders, and thus avoid Norwegian dividend taxation (including Norwegian withholding tax on dividends).

What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

If your business has temporarily closed, there will in several cases be a delay between the incurrence of costs to restart your business and the consequent receipt of income.  Consider how you will finance that gap.  In particular, if you have any remaining availability under any revolving credit facility, note that there will likely be a draw-stop on new funding if a Default (or occasionally Event of Default) is continuing. It would be advisable to be in close contact with your bank in order to manoeuvre through your financial challenges. The Norwegian government has put in place several financial aid packages, such as guarantee schemes making it easier and cheaper for banks to grant loans to businesses in financial needs as well as direct financial support for loss of income related to the COVID-19 lockdown. Contact DLA Piper for more information and the eligibility of such state support schemes.

How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

Before considering funding a return to business by incurring additional indebtedness, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation. It might be that the leverage of your additional finance is maxed out and, thus, any additional indebtedness incurred will trigger an Event of Default. Further, if the margin is subject to a ratchet, this will likely increase. If additional indebtedness is required, consider whether a wavier, or indeed full covenant re-set, will be needed for future test dates (and then also consider when would be an appropriate time to try to determine what those re-set covenants should be) and whether the additional funding can be financed under your existing facility agreements. Particular considerations include (i) the decrease in revenue/EBITDA over the lockdown period, (ii) costs for restarting the business and (iii) payment of any deferred payments (i.e. rental payments, business rates, tax and/or VAT).

Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

In some circumstances, it may not be possible to agree on a waiver or amendment to your maintenance financial covenants so it may be prudent now to review any equity cure rights in your credit agreement. Further, given the negative impact on financial condition on a number of businesses, if the margin that you pay is subject to a ratchet it will likely increase as the financial condition deteriorates (e.g. as leverage increases) and the margin is usually set at the highest level if an Event of Default is continuing. In general, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation.

What practicalities do you need to consider in relation to audit requirements?

Consider the deadlines to deliver to your lenders your audited financial statements and the practicalities of your auditors being able to carry out their audit.  Will there be sufficient time and access to allow the auditors to gather sufficient, appropriate evidence and finalise their report before the deadline. If your deadline for submitting audited accounts has been postponed, make sure that any reporting obligations agreed with your lenders are also complied with or postponed, if possible. In general, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation.

What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

You will need to consider what proportion of your lenders need to consent to the requested amendment or waiver. Amendments to financial covenants generally require consent of majority lenders (typically 66,7%). As a practical point, in our experience, lenders tend to be more receptive to requests for amendments and waivers if a borrower presents to them well thought out and reasoned plans to address any issues in the business, supported by appropriate evidence/forecasts. In general, it is recommended to review your credit agreement to make sure that you have an overview of the applicable undertakings and covenants, and further, to reach out to your lenders in due time to discuss and negotiate your current situation.

Dealing with creditors, including amendments and waivers - if I can’t comply with the terms of my bond covenants who do I need to notify?

This depends on the terms and conditions of the bonds. Typically, there will be an obligation by the issuer in the terms and conditions to notify the trustee/agent (typically Nordic Trustee in the Norwegian market) under the bonds (with a copy to the bondholders) of any event or circumstance which is, or could constitute, an event of default under the bonds. The bond documentation usually also prescribe that such notification shall only be made by the issuer to the trustee/agent who will then have an obligation to notify the bondholders. This is indeed the case with the standard terms of Nordic Trustee. If the bonds are listed, you should, in addition to the applicable legislation (such as the EU Market Abuse Regulation, 596/2014), also look to the issuer regulations applicable to the relevant exchange to make sure that these are complied with.

Dealing with creditors, including amendments and waivers – if I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

Amendments/waivers will be governed by the terms of the bond issue. Generally, the issuer and the trustee/agent may agree to waive or amend any of the terms, provided that such waiver or amendment is not detrimental to the interest of the bondholders or such waiver or amendment is required by applicable law, court ruling or administration decision. For other amendments and waivers a bondholders' meeting may be required.  If the bonds are listed, you should, in addition to the applicable legislation (such as the EU Market Abuse Regulation, 596/2014), also look to the issuer regulations applicable to the relevant exchange to make sure that these are complied with.

Dealing with creditors, including amendments and waivers – what is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

The call of meetings of bondholders will be governed by the terms of the bond issue or, in some cases, separate contractual agreements, e.g. trustee agreement or agency agreement and will typically allow both the issuer and the bondholders to call for a bondholder meeting. It may be agreed that the bondholders' right to call for a bondholder meeting is limited to, e.g. request by bondholders holding not less than 1/10 of the aggregate principal amount of the bonds. The proportion of bondholders that need to consent to changes vary in each bond issuance and depends on the matter to be discussed. It can be anything from simple majority (i.e. more than 50%) to a majority requirement of 66-80% of the bondholders (most often two thirds), depending on the subject matter.

Is the availability of any return to business funding or relief either conditioned on the use of proceeds for green or social purposes or linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

The state aid packages are to provide economic relief in different situations and are subject to different terms and conditions. However, none are conditioned upon the use of proceeds for green or social purposes, nor to sustainability-related outcomes.