Norway shipowners warn tax could cost billions, force firms to relocate UPDATE

(Updates with comment from CEOs, analysts)

OSLO (Thomson Financial) - Norway's largest ship-owners have expressed serious concern at the Norwegian government's plans to introduce a new tax regime that they claim could cost billions of kroner and lead to more lines relocating to more favourable tax systems.

'Disaster? That's a hard word. But for some companies it might be. It's real hard,' Havila Shipping CEO Njal Saevik told Thomson Financial. 'I think some of the Norwegian shipping owners have strong feelings. Everyone is disappointed.'

Saevik said other Norwegian companies would probably actively reconsider moving abroad, adding to the list of those who have already departed.

'I think it will start a discussion. In previous years, most of the companies have said they would wait and see,' Saevik said.

Late last Friday, Norway's centre-left government announced it will propose a new tax regime for Norwegian shipping companies in its forthcoming budget, due on Oct 1.

'The proposed tax regime will be similar to the tax regimes available for the industry in the European Union,' it said.

Under the plans, the government said it would introduce a system that taxes both tonnage -- as in other European countries -- and a tax on undistributed profits retained in the shipping companies.

'The proposal will ensure competitive conditions for Norwegian shipping companies,' the government said. 'At the same time, the government proposes that two thirds of the deferred taxes in the present regime, estimated to be 14 bln nkr, be paid over a period of 10 years.'

Analysts said shipping lines that had not relocated abroad could be hit, namimg two companies in particular that would be hurt at the bottom line: BW Gas and Odfjell. Both shares fell heavily in trading on Monday.

Analysts said some groups in the sector could, as a result of the tax, see share valuations marked down and agreed some companies may elect to relocate abroad.

'There could be some downgrades in valuations based on the tax they will have to pay,' said one analyst. 'Over a period of time, more companies will leave Norway. You can't really trust the government. It might change the tax system yet again some time -- and there are other tax regimes which are more stable.'

Since 1996, the Norwegian shipping industry has had what the government describes as 'a favourable tax regime', with taxation of company profits only upon withdrawal of profits or exit from the scheme.

'With the growing number of tax exemption regimes within the EU, it is apparent that the present regime no longer is able to attract new investments in Norwegian shipping companies,' the government said.

Norwegian shipping group Wilhelm Wilhemsen said the new regime would have a 'substantial negative effect'.

'If this proposal is adopted, it will have a substantial negative effect for Wilhelm Wilhemsen,' it said, but did not provide more specific details. BW Gas, meanwhile, said the plans could cost it up to 4.8 bln nkr.

'If approved, the proposal will have a serious effect on BW Gas,' it said in a statement. 'Depending on the transition rules, the payable tax will be 3.8-4.8 bln nkr, equivalent to a present value of 20-25 nkr per share.'

Elsewhere, shipping group Odfjell said should the proposal be passed as law, 'this will reduce our ability to invest in our fleet renewal in an amount of close to 1 bln usd', while its 'relative competitiveness will be severely hampered' compared to its main competitors.

'We are sorry to realise that entering the current shipping tax system in 1996 on the trust that we would enjoy a stable and competitive business climate in Norway for our industry seems to have been a wrong decision,' it said.

A number of other Norwegian shipping firm's, including John Fredriksen's Frontline, have already relocated to tax heavens such as Bermuda to avoid the Norwegian tax regime.

'Norwegian ship companies (not relocated abroad) want a similar competitive situation compared with other countries,' said Frontline CFO Inger Marie Klemp.'You have to have the same type of levels.' [e-mail] pm/ms1 COPYRIGHT Copyright AFX News Limited 2007. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.