Permian | Accounting and tax
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Accounting and tax

Accounting and tax

Accounting Standards

Accounting Standards refers to a set of assumptions and rules that forms the basis for- and regulate the presentation of a set of accounts.

 

Accounts following different standards may appear quite different and it is important to understand the characteristics of different accounting standards if you are trying to compare performance in two companies which present their accounts by different standards. It would probably make markets more efficient if all companies presented their accounts in accordance with the same accounting standards. However, legislators fail to agree, and US GAAP for example, differs from IFRS on a number of points.

Capital Gain / ( Loss)

The amount by which the value of an Investment exceeds, or is less than, the Acquisition Cost.

 

The Capital Gain/(loss) loss may be realised or unrealised. Realised principally means that the asset has been sold and the value of that transaction is known. An unrealized value change refers to the difference between the Acquisition Cost and the value at the time of valuation.

In Norway, subject to certain conditions, there is zero tax on capital gains realised by a company (sktl. § 2-38).

GAAP- Generally Accepted Accounting Principles

The term GAAP is typically preceded by a national code, US GAAP, Norwegian GAAP. The term then refers to the Generally Accepted Accounting Principles in that jurisdiction.

IFRS- International Financial Reporting Standards

The IFRS standards were first published in 2001 by the International Accounting Standards Board. It replaced the older IAS standard. IFRS is an attempt to set an international standard and is particularly important for companies that have dealings in several countries and need to align accounts across jurisdictions. Also of course, analysts may more easily compare the performance of different companies.

IFRS is often thought of as meaning accounts based on fair values but one may also present IFRS accounts based on historic cost.

UDLS- Norwegian term: Utenlandsk Deltakerlignet Selskap

The abbreviation refers to a company incorporated outside Norway, which is not a separate tax subject but where each shareholder or partner is individually responsible for his or her share of the annual taxable result of the company. A typical example is a limited partnership (Norw. ex.: indre selskap og kommandittselskap).

The tax reporting of investments in such companies will often be complex because different elements of income may be taxed at different rates in the country of the investor. It is necessary to analyse the accounts of the UDLS quite thoroughly to arrive at the correct taxable result for each investor.

VAT- Value Added Tax

VAT is a general consumption tax on the value that is added to the goods or services in each production stage or trade part of the domestic supply chain.

By each stage, goods and services which will form part of the final product are purchased with VAT added to the purchase price. The suppliers receive payment including VAT and submit this amount to the state. At the same time they recover VAT paid to their suppliers further down the value chain.

In the end, the consumer pays the entire VAT. In Norway, the general rate is 25 percent, some type of goods and services are subject to a lower rate

Withholding tax

In general, withholding tax refers to the obligation an employer paying salaries or a company paying dividend, have to “hold back” and pay an estimated amount of tax to the national tax office on behalf of employees or shareholders.

Withholding tax may be refunded if it is later determined that the recipient’s tax liability was lower than the tax withheld. In some cases the withholding tax is treated as discharging the recipient’s tax liability, and no tax return or additional tax is required.

Withholding tax may be levied on income from securities owned by a foreign shareholder, i.e. deducted before distributions are made and money transferred out of the country. By such regulation, countries means to ensure that domestic profits are taxed domestically.

Whether or not withholding tax must be deducted, and the level thereof, depends on the status of the recipient and also on anti-double taxation treaties between countries. Following such agreements rates of 25-30% will typically be reduced to 15% or less.

Norway – Corporate shareholders resident in the EEA may be entitled to a full refund of withholding tax under the participation exemption method of the Norwegian Tax Act.