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PR(03)32: The EFTA Surveillance Authority decided today to approve a three-year phasing out period in tax zones 3 and 4 for the geographically differentiated social security contributions in Norway

12.11.2003

The EFTA Surveillance Authority decided today to close the investigation procedure that was opened in July 2003 regarding the three-year transition period for the regionally differentiated social security contributions from employers in tax zones 3 and 4, and to approve a gradual phasing out of the geographical differentiation until 1 January 2007. The current geographically differentiated social security scheme expires by the end of 2003.

Employers in Norway are charged a payroll tax, which differs between five geographical zones. The highest rate of 14.1 % is charged in zone 1 where some 77 per cent of the population resides. In the other zones the rate decreases according to remoteness.

In September 2002, the Authority concluded that the current scheme did not comply with the State aid rules of the EEA Agreement and requested Norway to present measures to adjust the scheme.

On 25 March 2003, the Norwegian authorities notified to the Authority, a three-year transition period for the regionally differentiated social security contributions in zones 3 and 4, and the introduction of a new direct transport aid scheme. The Norwegian authorities also described the introduction of a de minimis scheme. No transition period was notified for zone 2 where the current rate is closer to the rate in zone 1. For zone 5, which covers the very northernmost part of Norway, the EFTA States decided by common accord in the continuation of the zero tax rate.

Because of doubts about the compatibility of the notified measures, the Authority opened a formal investigation procedure in July 2003.[1]During the investigation, the Authority received comments from 10 interested parties, all from Norway. All the comments supported the proposal for a three-year transition period.

The Norwegian authorities argued that no transitional period, or a very short one, would i.a. create uncertainty and crises in a large number of regional businesses, and may severely hurt economic development in the regions concerned. Without a transitional period, the Norwegian authorities stressed that undertakings would face an abrupt and very high increase in wage cost with a subsequent substantial decline in employment in the affected parts of the country. A transition period of three years would mitigate the adverse consequences and give undertakings time to adjust to a new economic environment.

The Authority considers that a transition period would be necessary for zones 3 and 4 in order to dampen the shock effects that would follow from an immediate application of the full social security tax. The Authority also considers that the Norwegian authorities have demonstrated that a three-year period would be appropriate, and that a period having this maximum duration would not adversely affect trading conditions contrary to the common interests of the Parties to the EEA Agreement.

Today's decision does not concern the notification of a new direct transport aid scheme, which will be the subject of a later decision by the Authority.

For further information, please contact Mr. Amund Utne on tel. +32 2 286 1850, or Mr Rolf Egil Tønnessen on tel. +32 2 286 1856.

[1]Decision No. 141/03/COL of 16 July 2003. OJ C 316, 11.09.2003, p. 3 and EEA Supplement No. 45 11.09.2003, p. 1

12 November 2003




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