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    Farstad outraged by proposed changes to shipping tax in Norway

    News // September 11, 2007

    Norwegian offshore support vessel operator Farstad has issued a strongly worded statement about the proposed changes in the tax regime in Norway which were announced late last week.

    Said Farstad: "On Friday afternoon the Norwegian government informed that in the budget proposal for 2008 they will present a proposal for a new tonnage tax system for the shipping industry in Norway. The new system will be applicable as from January 1st 2007. No further consequences considered, this new system would have been positive for Farstad Shipping."

    "However, in order to be allowed into the new system, the government proposes that companies within the current system shall pay tax on earnings which so far has not been taxable. When Farstad Shipping in 1997 decided to enter into the current system, we had a strong intention to grow the company within a competitive Norwegian tonnage tax system. At that time we planned to be a long term operator within a stable Norwegian tax system."

    "Since entering into the current system in 1997, we have invested approximately NKr 5.7 billions in the system. During this period the net increase of the fleet is nine vessels. In addition we have now on order 10 new vessels, representing an investment of NKr 4.3 billion. A large part of these 10 billions is invested in vessels built in Norway and fitted with Norwegian equipment. These investments are partly financed by the capital now requested to be paid as tax."

    "Farstad Shipping has according to the current rules treated this tax as untaxed equity. Our intention has been to remain within the current system, which means that, unless rules were seriously broken, the tax would have remained untaxed equity in the balance sheet."

    "The fact that the Government now proposes this tax to be paid is looked upon by Farstad Shipping as an obvious breach of promise and a severe punishment to a company that has been loyal to the system and developed a strong and sound shipping company based upon the maritime cluster in our region and within the framework presented by the authorities. Once more the authorities have demonstrated a total lack of understanding for the need of stable long-term conditions within our industry. We are sorry to realize that entering into the current shipping tax system in 1997 seems to have been a wrong decision."

    "How to correctly calculate what the Government states as the accrued tax obligations within the current system is still unclear. However, information we got during Monday on how this tax obligation will be interpreted, may have the consequence that Farstad Shipping's tax obligation will increase with approximately NKr 1 billion, in the worst case even more. This equals NKr 25 per share and will reduce our equity ratio from 44 per cent to 33 per cent."

    Said Farstad: "It is obvious that the introduction of this tax payment will have serious consequences for the further development of the company. Our relative competitiveness will be severely hampered compared to competitors that are operating under other tax regimes. It will immediate reduce our future investment ability in new tonnage with approximately NKr 5 billion. This will specially hurt Norwegian yards and suppliers."

    "Other consequences for Farstad Shipping of the new tax law will have to be further examined. It is a paradox that the Government's proposal is being presented almost at the same time as Farstad Shipping shall have the naming ceremony for our new multipurpose and environmental friendly vessel Far Sapphire here in Ålesund. This will be the biggest vessel of our fleet and has a building price of approximately NKr 500 million. The vessel is a Rolls Royce Marine design and has been developed in our region in close relationship between the designer and Farstad Shipping. It is built at a local yard, Aker Langsten in Tomrefjord. A major part of the equipment used in the vessel is Norwegian. The vessel will have Norwegian crew and which means 30 new employees in the company."

    "On Saturday the 15th September the vessel will also be presented to the public in Ålesund. We wish that decision makers of the new tax rules would have taken this opportunity to visit the vessel to experience what kind of advanced technological products are developed in Norway in close relationship between ship-owners, designers and equipment suppliers. This state of the art technology also improves the suppliers' competitive strength in the international markets. The tax amount calculated above corresponds to an investment of 8-10 of these type of vessels."

     

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