The Government is proposing central government compensation for enterprises that experience a revenue fall of at least 30 % due to the coronavirus outbreak. The compensation amount will depend on how much revenue has dropped, the size of unavoidable fixed costs, and whether the enterprise has been ordered by the state to close.
‘The compensation scheme will assist those that are financially hard hit by the virus outbreak and help to ensure that viable companies make it through the crisis. This measure is needed to avert unnecessary bankruptcies and preserve jobs so people still have a job and go to when we all take back our everyday lives,’ said Minister of Finance Jan Tore Sanner (Conservative Party).
‘It is important that the scheme’s impact is both solid and wide-reaching. That is why all taxable enterprises registered in Norway that are severely affected by the coronavirus will be able to apply for compensation. But we are mindful that those ordered to close by the state will be hurt the most, so they will receive the highest compensation,’ said Minster of Trade and Industry Iselin Nybø (Liberal Party).
On Friday 27 March the Government proposed principles for the compensation scheme and announced it would supply details of a framework and limitations for the scheme this week. The Storting endorsed the proposal on Tuesday 31 March.
On Friday 3 April the Government planned to propose the following in a Proposition to the Storting:
Companies with at least a 30 % drop in revenue compared to the same month the year before will be covered by the compensation scheme. For March, the rate will be 20 %, since Norway’s strict infection control measures were first introduced on 12 March.
The scheme will initially apply to March, April and May, and payments will be made after the fact, based on actual revenues during the months in question.
A two-part model for calculating compensation is envisaged:
- Enterprises ordered by the central government to shut down will have up to 90 % of their unavoidable fixed costs per month covered. Calculated as follows:
Reduction in revenue x unavoidable fixed costs x adjustment factor of 90 %
- Companies not required to close but which still have a revenue reduction of 30% or more (20 % in March) will receive compensation calculated as follows:
Reduction in revenue x (avoidable fixed costs – own share of NOK 10 000) x adjustment factor of 80 %
The lower limit for compensation is NOK 5 000. We envisage an upper limit of NOK 30 million per month per enterprise and a higher upper limit for corporate groups, provided such an arrangement can be approved by the EFTA Surveillance Authority (ESA). The Government will propose determining the final limits later, in specific regulations.
‘The adjustment factors of 90 % and 80 % are a clear signal to building owners, landlords and others who collect the costs from the companies that they too must assume part of the bill,’ said the Minister of Finance.
The scheme will be administered by the Norwegian Tax Administration. The application process is to be largely automated using a digital service under development in collaboration with Finance Norway. The enterprises themselves report revenue for the month they are applying for as well as their revenue in the same month the year before and unavoidable fixed costs. The digital service will have a built-in control system to verify the applicant and the amount being sought against a variety of register-based data and cross checks. If all criteria are met, a determination will be made within the system and payment will be made automatically. There will also be a manual processing system for eligible applications that do not go through the automatic procedure.
‘We have underscored that the scheme is to be simple, and that compensation for March should be able to arrive in the companies’ accounts in April. We know the urgency many of them feel,’ Mr Sanner said.
In addition to automatic controls and cross-checks during the application process, there will be subsequent audits to detect cheating and fraud. Applicants must be able to document their figures at a later date, and to have an accountant’s or auditor’s confirmation that the stated amounts are correct.
‘This will not be a treasure trove for unprincipled actors. Reviews will be conducted later that can lead to sanctions for anyone who tries to cheat,’ said Ms Nybø.
The Confederation of Norwegian Enterprise, the Enterprise Federation of Norway, the Norwegian Confederation of Trade Unions, Finance Norway and SMB Norway have cooperated in the preparation of the scheme. The goal has been to quickly introduce a simple scheme with wide-ranging effect while acknowledging a risk that guaranteeing fairness to the last millimetre may be impossible. Accordingly, after the first payment is made in April, an assessment will be made of the need to adjust the scheme before the next round.
‘But thanks to close, constructive cooperation between all the parties involved, we are confident that this scheme will help many of the companies that are now struggling to make ends meet,’ Ms Nybø said.
About the compensation scheme
- The scheme applies to all taxable enterprises registered in Norway, with some exceptions, including:
- the financial industry;
- production, transmission and distribution of electricity and water;
- oil and gas extraction;
- enterprises that are recipients of special support programmes, such as private kindergartens and airlines;
- enterprises without employees (excluding sole proprietorships for which the enterprise is the proprietor’s main source of income);
- enterprises without activity or which are undergoing bankruptcy proceedings.
- The enterprise must have a drop in revenue of at least 30 % compared to the same month in the year before (20 % in March). If the enterprise did not operate during the same month the year before, an average for January and February of this year may be used.
- A lower limit for payment is being set so that a compensation amount calculated at less than NOK 5 000 is not to be paid.
- We propose an upper compensation limit of NOK 30 million per month per enterprise and a higher upper limit for corporate groups, provided that such an arrangement can be approved by the EFTA Surveillance Authority (ESA). The Government will propose determining the final limits later, in specific regulations.
- Unavoidable fixed costs are to include rental of business premises, light and heat, water and sewerage, insurance, rental of equipment and transport means, and net interest costs. The Ministry will issue regulations containing more detailed provisions on what costs are to be regarded as unavoidable and fixed.
- The scheme is to be in effect for March, April and May.
The proposal is to be submitted to the Storting on Friday 3 April. It must then be considered by the Storting and approved by the ESA. Technical work will proceed in the meantime on the application portal. The scheme thus has not been implemented yet, and no application form is available at present.
Property enterprises and start-up companies
Property enterprises may receive support under the scheme
Enterprises whose business is to lease out or broker property may apply for support under the compensation scheme. Rental income and fee/commission income from the sale of the property will be considered as revenue.
The Ministry of Finance will issue regulations with provisions containing more detailed rules for determining revenue and revenue decline.
Prop. 70 LS (2019-2020) states that the revenue figure used to calculate compensation shall not include returns on capital, real property or other financial assets. Return on real property refers to realised or unrealised gains and losses on the sale or change in value of property. Revenue refers to income from the sale of goods and services.
New start-ups may receive support under the scheme
The fall in revenue that serves as the basis for calculating compensation is to be measured by comparing the revenue in the months for which the assistance scheme applies to revenue in a normal and comparable period.
For most companies, the same month of the previous year will be the natural basis for comparison. For companies that did not exist a year ago, a more recent period, such as January/February 2020, may be used as a basis for calculating the revenue fall.
The Ministry of Finance is also looking at the possibility of adjusting the basis for calculating revenue fall for enterprises that saw significant revenue growth during the February 2019–February 2020 period. How exactly to calculate the revenue fall and which basis to use will be specified in regulations.
The compensation amount will depend in any case on the level of unavoidable fixed costs in March 2020.