Exit, Exit Tax | Slagsvold Vedum talks its way out of a hair-raising tax on paper gains

In NRK’s ​​Politiske kvarter, a verbose Center Party leader delivered a defense of the new exit tax, which is perceived as a punitive tax for entrepreneurs who move out of the country.

Trygve Slagsvold Vedum thinks it is unreasonable that someone can move from the tax bill, and leave the running of hospitals and schools to those who remain in the country.

Both Dagens Næringsliv and Aftenposten support the new tax on leadership positions, and Høyre’s Tina Bru became a lone swallow with both the finance minister and SV’s economic spokesperson Kari Elisabeth Kaski as counterparties.

But the supporters of the exit tax make it easy for themselves by overlooking the unreasonable discrimination:

• The exemption model makes it tax-free to have “paper gains” as long as you live in Norway, and you only have to pay tax when you withdraw the money.
• It makes sense, because the alternative would be double and triple taxation if subsidiaries make a profit and send dividends upwards to the owner companies.
• When entrepreneurs who move abroad receive a capital gains tax on unrealized paper gains, it is unfair discrimination that punishes the entrepreneurs.

Perpetual tax rebate

SV’s Kari Elisabeth Kaski understands the point, but she wants to increase taxes overall, and believes that either we accept the differential treatment or we have to start taxing “paper gains” – or unrealized gains – as they arise.

It is an extreme position that is probably only shared by far-left politicians and some theoretical desk economists. Most others see the difference between an unrealized appreciation that has not yet given you the money to pay taxes, and real withdrawals and dividends.

The question Trygve Slagsvold Vedum does not answer is why it is fair to introduce a tax on unrealized paper gains because you move from the country, when everyone who does not move gets an almost eternal tax discount until they sell, take a profit and allocate dividends.

Too favorable rules

Today, most people agree that the so-called “five-year rule” was far too favorable because you could take unrealized gains abroad with you and have the latent tax written off after five years, and return to Norway without tax debt.

The rule survived both Prime Minister Jens Stoltenberg and Prime Minister Erna Solberg, so there has been a cross-party agreement for several decades to retain the very favorable rule, which has now finally been removed. Neither the SV nor the Center Party can absolve themselves of responsibility for a rule that was preserved under both Kristin Halvorsen (SV) and Siv Jensen (Frp).

But there is a difference between shaving and chopping off your head!

Does it matter?

The proposal for a new exit tax affects few, but those who are affected are punished completely unfairly.

To take two examples.

Property investor A has an office building that has increased in value by NOK 2 billion. If the person in question moves out, he gets a calculated paper gain of NOK two billion and 12 years to settle the tax debt of NOK 800 million or to move back to Norway.

Founder B has developed a new online concept that investors are keen on, and which is also priced at NOK two billion on the stock exchange. If the person in question moves abroad, he has 12 years to settle the tax debt after moving back to Norway.

The difference is that real estate investor A has a relatively stable profit, entrepreneur B can have a “profit” that disappears with the stroke of a pen if the investors lose faith. The risk is that you can get a tax debt for a profit you never get.

Advokatfirmaet Wiersholm sums up the choice as follows:

According to the bill, taxpayers are given the choice between three alternative ways of paying the relocation tax:

• pay the tax immediately
• pay the tax in interest-free installments over 12 years, or
• pay the tax at the end of the 12-year period with the addition of interest.

Deadly death tax

The tax is also unreasonable because death and inheritance are considered realisation. If father or mother dies, then Finance Minister Trygve Slagsvold Vedum believes that the heirs have taken a profit. But that only applies if you have moved abroad. In that sense, it is a stealthy introduction of inheritance tax.

– It is specified that realization and the death of the taxpayer lead to the removal tax having to be settled, the proposal states.

It is also new that the new paper gains tax affects taxpayers without particular assets. The lower limit is NOK 100,000, and both share savings accounts and fund accounts must be taken into account. It is therefore an exit tax for everyone with even relatively small assets.

But the most unreasonable thing is how the tax hits entrepreneurs in start-up companies with violent changes in value based on the battle between fear and greed, or optimism/pessimism. The capital gains tax is calculated when you leave Norway, and a sudden drop in value when you live abroad is not deducted.

What is a reasonable adaptation?

Let’s say you’re working on the next Kahoot or AutoStore, and you have capital and developers from all over the world and can live wherever you want. What then is a reasonable and careful adaptation to the new tax regime?

It is of course to move out of Norway before the paper values ​​come into view and take the unfinished concept to a more business-friendly country. The stupidest thing you do as an entrepreneur is to stay long enough for the Norwegian tax authorities to smell blood. Then the exit tax trap snaps again, and you risk going bankrupt if the paper values ​​evaporate.

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The consultation deadline for the proposal is set for 21 May, and so far 34 responses have been received – among them from one of the country’s leading tax experts, Professor Emeritus Ole Gjems-Onstad at BI School of Business and Economics.

You can read it here: Less attractive to be a Norwegian investor

– A serious objection to the proposed tightening, which the Ministry of Finance does not problematise or highlight at all, is that they can represent an almost unmanageable lock-in trap for many start-up companies in the new IT and knowledge industry. The point of the rules is then also to establish such a trap, roughly formulated a tax prison, writes the tax professor.

– The signal to those who try to succeed is: Get away from Norway before you succeed. It is a sad message from the government and the Ministry of Finance, says Ole Gjems-Onstad.

The big question is whether Finance Minister Trygve Slagsvold Vedum does not understand this when he talks his way out of the consequences of the horrible penalty tax he wants to introduce on unrealized paper gains.