Breakthrough on VAT for CCS services
December 6, 2023
The Norwegian Tax Administration has recently issued a binding ruling (BFU), upon request from Northern Lights JV, clarifying VAT treatment of CCS transport and storage services for the first time. The ruling concludes that cross-border CO2 transport and CO2 storage on the Norwegian Continental Shelf (NCS) is covered by a VAT exemption.
As part of establishing a new cross-border market for CCS services, there has been a need to clarify how to calculate value added tax (VAT) on CO2 transport and storage as a service. VAT treatment of CCS services has never been addressed according to the Norwegian VAT Act. PwC on behalf of Northern Lights JV has in May 2022 requested a binding ruling (BFU) regarding the VAT treatment of CCS services. Now, the conclusion from the Norwegian Tax Administration is here.
“I am very pleased to see the conclusion in the binding ruling from the Norwegian Tax Administration. This is great news and important for Northern Lights and the CCS industry in Norway. Northern Lights together with PwC has worked hard to provide a fact base to support the Tax Administration’s work, paving the way for CO2 transport and storage providers operating on the Norwegian Continental Shelf”, says Birthe Sundt, CFO in Northern Lights.
Cross-border CO2 transport is exempt from VAT
According to the VAT Act, transport of goods is taxable. Liquefied CO2 is considered a commodity or good under this Act. In general, transport of goods within the VAT area is taxable. In Norway, the VAT area refers to the Norwegian mainland and all areas within the territorial border. For CCS services, this means that CO2 transport from capture sites within Norway is taxable at 25% VAT.
The binding ruling states that cross-border transport of goods is exempt from VAT and the Tax Administration has concluded that VAT should not be calculated for CO2 transport to and from capture sites outside of Norway.
Assumed zero import VAT on CO2
Related to cross-border transport and import of CO2, the questions is whether import VAT applies to CO2 transport from capture sites abroad to Norway. The Tax Administration has concluded that import VAT should be calculated when importing CO2 into Norway, though is it assumed that the import VAT is zero as the CO2 holds no or negative value. Import VAT should however be calculated on costs related to the CO2 transport and insurance and the Tax Administration has concluded that on a general basis the importer will be entitled to deduct import VAT (reverse charge with deduction).
CO2 storage on the NCS is exempt from VAT
The Norwegian Tax Administration concludes that CO2 storage services on the Norwegian Continental Shelf (NCS) is exempt VAT due to the geographic location of the CO2 storage site. Though the CO2 is stored intermediately onshore, the Tax Administration considers the offloading of CO2 at the onshore receiving facilities and transport from onshore facilities to offshore injection point, as one storage service location-bound to a reservoir outside the Norwegian VAT area.
VAT deduction rights for CCS investments and operations
According to the binding ruling, there is a deduction right on input VAT for procurements, investments and operations of CO2 transportation and storage on the NCS. For Northern Lights this means that historic investments in developing the onshore facilities and offshore infrastructure is VAT deductible according to the VAT Act section 8-1.
This binding ruling (BFU) provides an important clarification to Northern Lights JV and prospective CO2 transport and storage providers of how VAT should be calculated for CCS services in Norway.
Read the ruling on the Norwegian Tax Administration’s website here (NO): https://www.skatteetaten.no/en/rettskilder/type/uttalelser/bfu/merverdiavgiftsbehandling-i-forbindelse-med-transport-og-deponering-av-co2/