The questions that are requested to be answered by this binding advance statement are mainly related to when the contractor must time stamp (report and pay outgoing VAT) in relation to a road project, cf. the VAT Act § 15-9 first paragraph, cf. the bookkeeping regulations § 8-1-2a. There is also one question regarding access to changes to previously reported value added tax, cf. the Value Added Tax Act § 15-9 and the Tax Administration Act § 9-4 (question f), as well as one question about whether financing of the contract work should be considered part of the construction cost, cf. … the Value Added Tax Act § 4-2 first paragraph, or whether this constitutes an independent benefit (question g).
We refer to your letter of 25 April 2022 to the tax office with a request for a binding advance statement on behalf of the Norwegian Public Roads Administration (SVV). The request concerns implementation of the road project E 10/rv. 85 Tjeldsund-Gullesfjordbotn-Langvassbukt, which is carried out as a PPP project (public-private partnership).
The request has been sent to the tax office (User Dialogue division). In consultation with the tax office, the Norwegian Tax Directorate has decided to issue the binding advance statement, cf. the tax administration regulations § 6-1-1 third paragraph last sentence.
The Tax Directorate’s conclusion:
Question a)
Should the PPP company report output VAT on the individual milestone payment at the time the PPP company has the right, according to the PPP contract, to collect the individual milestone payment from SVV?
The PPP company must report outgoing value added tax for milestones 1, 2, 3 and 4 when the work is completed/at the opening of traffic, cf. the bookkeeping regulations § 8-1-2a first paragraph.
The PPP company must report outgoing value added tax for climate milestones 1 and 2 when payment is received, cf. the bookkeeping regulations § 8-1-2a second paragraph.
Question b)
Should the OPS company report output VAT on a proportion of the sum of the maximum future payments for availability (“availability payment”) when traffic is opened on MP1, MP2 and MP4? Is this so that the PPP company does not have to report output VAT on part of the availability payment when paying MP Klima and when paying MP3?
The PPP company must report outgoing value added tax for accessibility remuneration for milestones 1, 2 and 4 when the work is completed/at the opening of traffic, cf. the bookkeeping regulations § 8-1-2a first paragraph.
Regarding the reporting of outgoing value added tax on remuneration for milestone 3, where 100% of the construction costs are paid after opening to traffic, see answer to question a .
The relevant reporting of outgoing value added tax for climate milestones 1 and 2 is shown in response to question a .
Question c)
Assuming an affirmative answer to question b; In that case, can the total VAT on the accessibility payment be apportioned proportionately to the three milestone payments that have an associated accessibility payment (ie X% on MP1, Y% on MP2 and Z% on MP4)?
The PPP company can allocate outgoing value added tax for accessibility remuneration to the completion/opening of traffic of milestones 1, 2 and 4, cf the bookkeeping regulations § 8-1-2a first paragraph.
The Directorate of Taxation does not take a position on the specific distribution (referred to as X, Y and Z %).
Question d)
At the traffic opening times, must the OPS company report output VAT on remuneration that SVV withholds as a result of deviations, or can the tax calculation of this part of the remuneration wait until it is clarified that SVV will actually pay this part of the remuneration to the OPS company?
The PPP company must report outgoing value added tax at the latest when the assignment is completed/at the opening of traffic, also for parts of the consideration that the client withholds as a result of deviations, cf. the bookkeeping regulations § 8-1-2a first paragraph.
Question e)
Can the Swedish Tax Agency confirm that the PPP company will not collect output VAT when the availability payment is collected continuously during the operating period, since output VAT on these payments is then already collected and reported at the traffic opening times?
The PPP company must report outgoing value added tax also for availability remuneration at the latest on completion/opening to traffic, cf. the bookkeeping regulations § 8-1-2a first paragraph.
No outgoing value added tax shall therefore be charged on availability remuneration during the operating period.
Question f)
If the PPP company does not receive the maximum availability payment during the operational phase as a result of a reduced availability payment in accordance with the contract’s provisions on this, can the PPP company correct too much previously reported output VAT? In that case, can correction be made by the PPP company reporting a reduction in outgoing VAT on VAT returns in the terms for which deduction points are imposed during the X-year operating period?
If the PPP company does not receive the maximum availability payment during the operating period, the PPP company can correct the previously reported output VAT. The PPP company must issue a credit note as the basis for the bookkeeping correction, cf. the bookkeeping regulations § 5-2-7.
Outgoing VAT that is corrected must be timed in the VAT tax return for the term the credit note is issued, cf. VAT
Act § 15-9 first paragraph.
Question g)
Will the PPP company’s financing of the project be considered part of the construction cost, which is included in the calculation basis for value added tax according to mval. Section 4-2?
The PPP company’s financing of the project is included in the calculation basis for the PPP company’s taxable benefits, cf. the Value Added Tax Act § 4-2 first paragraph.
1. Formal requirements
About the arrangement with binding advance statements .
The Directorate of Taxation finds that the formal conditions for issuing a binding advance statement have been met in this case.
2. Submitter’s presentation of facts and law
2.1 Introduction
In the request point 1, the following information is provided about the project.
“Statens Vegvesen (hereafter “SVV”) is planning the implementation of the road project E10/rv.85 Tjeldsund – Gullesfjordbotn – Langvassbukt, which will be the largest road construction project in Northern Norway.
The project is implemented as a PPP project (public-private partnership). SVV announced the OPS competition on 17 May 2021, and three suppliers are participating in the tender competition. The contract with the contractor is planned to be signed in July 2023. The expected construction time is 6-7 years after the contract is signed, with the planned opening of the road facility in 2029/2030.”
The submitter requests a binding prior statement in connection with the questions that appear in point 2.3 below. The questions relate to the rules on time fixing in the Value Added Tax Act § 15-9 first paragraph and regulations on bookkeeping (regulation-2004-12-01-155/bff) § 8-1-2a, as well as the rule in the Value Added Tax
Act § 4-2 on what included in the calculation basis for value added tax.
2.2 Background and facts
In point 3 of the request, the background and facts are explained in more detail. The most relevant information relating to the project is entered here.
Regarding the project, it is stated that a PPP project is a collaboration between a public and private supplier regarding the implementation and financing of a project. This means that a public client orders a service which is then carried out by a private supplier (the “OPS company”). The PPP company assumes total responsibility for the project within specified guidelines determined by the public contracting authority.
In the PPP project in question, SVV enters into a contract with a private supplier. The OPS company assumes total responsibility for planning, construction, operation and maintenance of the road project for 15-20 years from opening to traffic. By opening to traffic is meant the time the road is opened to general traffic and traffic without restrictions, this includes that procedures for opening to traffic must have been carried out.
The project includes the sections:
- 85 Langvassbukt (from the Sigerfjordtunnel) – Gullesfjordbotn
- E 10 Gullesfjordbotn – Tjeldsund bridge west
- E 10 Tjeldsund bridge east – Steinsland
- 83 Tjeldsund bridge west – Fauskevåg
- E 10 Kåringen – Fiskefjord (new Rv.85)
The project will be carried out in two main phases, a construction phase and an operational phase.
The construction phase includes the time from contract signing to traffic opening, i.e. when the road is opened to the public and road users. The construction phase includes both design and construction.
The operation phase includes the time from opening to traffic and lasts for 15 years from the time when the entire road system is completed and opened to traffic. The tasks in the operation phase include operation and maintenance of essentially everything that was built in the construction phase. There are some exceptions to this which are discussed below.
The road project is described in more detail in the tender documents; “Appendix 2”: Competition basis E 10/rv.85 Tjeldsund – Gullesfjordbotn – Langvassbukt – documents AE – version 2021-05-11
Originally, it was not planned that parts of the road system could be opened to traffic during the construction phase. SVV has subsequently decided on changes to the competition basis. This means that milestone payments must be made to the PPP company during the construction phase. The milestone payments are linked to concrete deliveries in the construction phase, i.e. when parts of the road system are opened to traffic at different times. This appears from “Annex 3” to the request.
- Milepæl Klima 1 must be paid after 3 months from the signing of the contract and amounts to 0.5% of the contract sum
- Milepæl Klima 2 must be paid after 15 months from the signing of the contract and amounts to 0.5% of the contract sum
- Milestone 1 – Traffic opening E10/rv.85 Sigerfjordtunnel – Gullesfjordbotn – Kanstadbotn, constitutes 15% of the contract sum
- Milestone 2 – Traffic opening rv.85 Kåringskrysset – Fiskefjord, constitutes 10% of the contract sum
- Milestone 3 – Traffic opening E10 Steinsland – Tjeldsund bridge, and penetration of all tunnels in Milestones 1 and 4, amount to 15% of the contract sum
- Milestone 4 – Traffic opening rv.83/E10 Kanstadbotn – Tjeldsund bridge – Fauskevåg, constitutes 19% of the contract sum
The entire road system is opened when the milestones are reached. The proportion of the contract sum linked to this amounts to 60%.
Regarding the milestones described above, it is further stated that climate milestones 1 and 2 are one of the Ministry of Transport’s four pilot projects for fossil-free construction sites. The milestone payments are paid early in the construction phase, and must cover some of the PPP company’s costs related to the contract’s climate requirements, including costs associated with establishing a fossil-free construction site.
The stretch of road, milestone 3, will be taken over by SVV after opening to traffic. This means that 100% of the construction costs for this stretch of road are planned to be paid after opening to traffic. The construction cost for this part is mainly linked to the penetration of the tunnels, where traffic opening will take place at milestones 1 and 4. Traffic opening of the E10 Steinsland – Tjeldsund bridge makes up a small part of the 15% allocated to milestone 3.
The supplier’s total remuneration for the contract work is divided into three parts, and consists of a remuneration for traffic opening, remuneration for availability (“availability remuneration”) and remuneration for operational standards. Remuneration for operating standard is payment for ongoing delivery of operating and maintenance services, which are invoiced as the services are delivered. The VAT processing linked to this part of the remuneration is not covered by the request for BFU.
Collectively, this means that remuneration linked to the opening to traffic of the milestones indicated above constitutes 60% of the remuneration for the construction phase.
The remaining 40% of the remuneration for the construction phase, with the addition of financing costs, must be paid monthly during the operational phase (availability remuneration). This is a common payment mechanism in relation to PPP projects, and is intended as an incentive to ensure that the supplier builds a high-quality road that requires little maintenance.
More details about this can be found in the competition basis C3:
“Remuneration for availability consists of the remaining 40% of remuneration for the construction phase with the addition of financing costs, and is paid monthly during the operational phase. This remuneration is adjusted for degree of accessibility if the road is not accessible in line with the contract’s requirements, and is not adjusted for inflation. Any deduction points imposed during the construction phase will be deducted from the availability payment.”
Payment of accessibility compensation is linked to traffic opening of milestones 1, 2 and 4. The reason why no accessibility compensation is linked to milestone 3 is that SVV and the providers have agreed that SVV takes over full responsibility for the functionality of the road section after traffic opening.
Regarding changes/additional work that SVV can demand to be carried out on an ongoing basis, and which the contractor invoices and receives remuneration for on an ongoing basis, it is assumed that this is unproblematic with regard to timing of value added tax.
2.3 More about the questions that are to be answered – overview
Against this background, it is requested that the binding preliminary statement answers the following questions:
- Should the PPP company report output VAT on the individual milestone payment at the time the PPP company has the right, according to the PPP contract, to collect the individual milestone payment from SVV?
- Should the OPS company report output VAT on a proportion of the sum of the maximum future payments for availability (“availability payment”) when traffic is opened on MP1, MP2 and MP4? Is this so that the PPP company does not have to report output VAT on part of the availability payment when paying MP Klima and when paying MP3?
- Assuming an affirmative answer to question b; In that case, can the total VAT on the accessibility payment be apportioned proportionately to the three milestone payments that have an associated accessibility payment (ie X% on MP1, Y% on MP2 and Z% on MP4)?
- At the traffic opening times, must the OPS company report output VAT on remuneration that SVV withholds as a result of deviations, or can the tax calculation of this part of the remuneration wait until it is clarified that SVV will actually pay this part of the remuneration to the OPS company?
- Can the Swedish Tax Agency confirm that the PPP company will not collect output VAT when the availability payment is collected continuously during the operating period, since output VAT on these payments is then already collected and reported at the traffic opening times?
- If the PPP company does not receive the maximum availability payment during the operational phase as a result of a reduced availability payment in accordance with the contract’s provisions on this, can the PPP company correct too much previously reported output VAT? In that case, can correction be made by the PPP company reporting a reduction in outgoing VAT on VAT returns in the terms for which deduction points are imposed during the 15-year operating period?
- Will the PPP company’s financing of the project be considered part of the construction cost, which is included in the calculation basis for value added tax according to mval. Section 4-2?
2.4 Legal points of departure
The main rule for the timing of VAT follows from the VAT
Act § 15-9 first paragraph and entails that VAT must be stated in the tax return for VAT in the period in which the documentation (invoice) is issued.
The bookkeeping regulations have rules in sub-chapter 5-2 on when a sales document must be issued, cf. § 5-2-2 which stipulates that sales documentation must be issued no later than one month after delivery.
For the building and construction industry, special rules have been laid down regarding the issuing of sales documentation in chapter 8 of the bookkeeping regulations.
After a change with effect from 1 January 2021, the bookkeeping
regulations § 8-1-2a stipulate that the contractor can issue a sales document in accordance with the progress of the building and construction work, or when the work has been completed. If the contractor chooses to issue sales documentation when the work has been completed, the sales documentation must be issued no later than one month after the end of the general task term, cf. tax administration regulations § 8-3-1. This follows from the bookkeeping regulations § 8-1-2a first paragraph.
If the parties choose a solution which means that the contractor receives partial payment in accordance with the progress of the work, sales documentation must be issued in accordance with partial payment for work performed and materials supplied. This follows from the bookkeeping regulations § 8-1-2a second paragraph.
The purpose of the new rules is to reduce the contractors’ liquidity burden in the event of disputed claims.
2.5 Submitter’s assessment of the questions that are sought to be clarified
Question a)
Should the PPP company report outgoing value added tax on the individual milestone payment at the time the PPP company has the right, according to the PPP contract, to collect the individual milestone payment from SVV?
The PPP company can choose between invoicing in accordance with the progress of the construction work, or at the time of completion. The Ministry of Finance has specified that the outer limit for invoicing is the time of completion, cf. Prop. 1 LS (2020-2021) on page 193. This means that the PPP company must report outgoing value added tax even if the client has not paid.
The question then becomes whether the road project is considered completed step by step in accordance with the opening to traffic of milestones 1, 2, 3 and 4, respectively, or whether the road project must be considered completed when the entire road system is opened to traffic, i.e. after the opening to traffic of milestone 4.
The Ministry of Finance has assumed that a construction project must be considered completed at the time the client takes the object of the contract into use, but that the work can be considered completed at an earlier time, e.g. if the client takes over the object of the contract without putting it into use. Cf. Prop 1 LS (2020-2021) on page 195.
In case of partial takeover, e.g. when the client takes over one of several buildings in a contract, the taken over part is considered completed. Cf. Prop. 1 LS (2020-2021) on page 195.
The submitter understands this to mean that the VAT must be timed to the time of takeover. It is pointed out that the contract between SVV and the OPS company assumes that SVV takes over responsibility for milestones 1, 2 and 4, 15 years after opening to traffic. (The request’s appendix 2 chapter C1, point 18.5 must be seen in conjunction with appendix 3 on changes). At the same time, the road system will be available for intended use long before this time.
Furthermore, the submitter points out that the ministry has not stated anything concrete about the exact time when a vegan egg, and parts of a vegan egg, must be considered complete. Reference is also made to the fact that the Directorate of Taxation expressed in the consultation round that a vegan plan should be considered complete when the measure has been processed according to the relevant regulations, e.g. the Road Act. Cf. Prop. 1 LS (2020-2021) on page 195. This indicates that a stretch of road should be considered completed when the procedure for opening to traffic has been completed. This harmonizes with the point of view of proximity in time between when the road becomes available for use and when VAT must be reported and paid.
Overall, the submitter assumes that the PPP company must report outgoing VAT for milestones 1, 2, 3 and 4 at the latest when the procedure for opening to traffic has been carried out for each of the road sections.
Milepæl Klima 1 and 2 are not linked to the opening of two road sections to traffic, but are payments early in the construction phase and will cover some of the PPP company’s costs related to the contract’s climate requirements, such as the PPP company’s costs of establishing a fossil-free construction site.
It follows from the bookkeeping regulations § 8-1-2a second paragraph that sales documentation must be used if the contractor receives a partial payment linked to work performed and materials supplied. The work to establish a fossil-free building site means that work has been carried out and materials supplied.
This means that the PPP company must issue sales documentation and report value added tax in accordance with receipt of partial payment for milestone Climate 1 and 2 respectively.
Question b)
Should the OPS company report output VAT on a proportion of the sum of the maximum future payments for availability (“availability payment”) when traffic is opened on MP1, MP2 and MP4? This so that the PPP company does not have to report output VAT on part of the accessibility payment when paying the climate milestones and when paying MP3?
The availability fee makes up 40% of the fee for the road construction, and it is assumed in the contract that this is fee for construction costs in the construction phase. This means that the availability fee must be considered as part of the payment for the construction services to be delivered, and not for ongoing maintenance after the opening time for traffic.
The submitter cites as a possibility that the availability fee can be considered as payment for ongoing services following the opening of traffic. This means payment to satisfy agreed functional and standard requirements during the operating period. The reason for this is that the amount of the remuneration depends on circumstances that occur in a 15-year period after the entire road system has been opened. This may mean that part of the remuneration is payment for ongoing services that are only provided after the opening of traffic. In connection with this, reference is made to the Tax Directorate’s binding advance statement of 6 April 2021, where it was concluded that the accessibility payment had to be timed to the time of opening to traffic because it was part of the remuneration for the construction costs for the road project in question.
This means that a share of the accessibility fee must be timed to the time of opening to traffic for the individual road section for which this forms part of the fee.
Provided that accessibility remuneration, as part of the construction costs, is to be timed to the time of opening to traffic, this means that a decision must be made as to whether the sum of maximum future payments for accessibility must be reported at the opening of milestones 1, 2 and 4 to traffic, but not milestone 3 and the climate milestones.
The submitter assumes that VAT on the availability fee is timed to the milestones (road sections) to which the fee according to the contract (the basis of the competition) is linked. This is because the remuneration for accessibility is a payment for construction costs associated with these three road sections, but not milestone 3 or the climate milestones.
Question c)
Assuming an affirmative answer to question b; In that case, can the total VAT on the accessibility payment be apportioned proportionately to the three milestone payments that have an associated accessibility payment (ie X% on MP1, Y% on MP2 and Z% on MP4)?
It is pointed out that the accessibility fee is part of the agreed total fee for the construction costs of the road project, and must be timed to the milestones (road sections) to which the fee is actually linked. The question then becomes whether total value added tax on the maximum availability remuneration can be distributed proportionally between the three milestone payments MP1, MP2 and MP4.
Construction costs that are included as part of the accessibility fee can be allocated to the road sections:
- It is calculated that a proportion of the maximum accessibility payment is remuneration for the construction of the first road section (MP1 – E10/rv. 85 Sigerfjordtunnel – Gullesfjordbotn – Kanstadbotn.)
- A proportion of the maximum accessibility payment is remuneration for the construction of the second road section (MP2 – rv.85 Kåringskrysset – Fiskefjord).
- A proportion of the maximum accessibility payment is remuneration for the completion of the entire road system (MP4 – rv. 83/E10 Kanstadbotn – Tjeldsund bridge – Fauskevåg).
The submitter assumes that the basis for calculating value added tax can correspond to the construction costs associated with each individual milestone (road section), so that the basis for calculating value added tax is distributed proportionately to these.
Question d)
At the traffic opening times, must the OPS company report output VAT on remuneration that SVV withholds as a result of deviations, or can the tax calculation of this part of the remuneration wait until it is clarified that SVV will actually pay this part of the remuneration to the OPS company?
The amendment to the bookkeeping regulations § 8-1-2a was intended to reduce contractors’ liquidity burden in the event of disputed claims. The ministry assumed that a contractor has no obligation to invoice a claim that the client refuses to pay for, until the assignment has been completed. The submitter states that the rule allows for VAT amounts associated with such a claim to be paid to the state when the private law relationship has been clarified between the parties. This must be seen in the context that the size of the consideration, and thus also the amount of VAT, depends on the private law relationship between the parties. The rule change is said to be based on a presumption that the private law relationship, including the size of the remuneration, has not been finally clarified during the course of a project. It is only when the project has been completed that the parties have sufficient information about the actual conditions to be able to judge the subject of the contract. The contractor must therefore be able to wait to be able to invoice, and thus also wait for the payment of value added tax until the amount of the remuneration has been clarified.
It is further stated, taking the purpose of the rule into account, that it is not a given that the same time can be used as a basis for setting the time of VAT that SVV withholds as when setting the time of value added tax on other claims (remuneration for traffic opening and remuneration for accessibility).
In this contractual relationship, it is planned that the entire road project will not be finally completed until 15 years after the completion of milestone 4. It is at this point that SVV takes over the road construction from the OPS company. The private law relationship, including the size of the remuneration, has therefore not been finally clarified before this time. In order to reduce the VAT-related liquidity burden of the PPP company in the case of claims that SVV withholds as a result of deviations during the project, it will therefore be natural for this project that the PPP company has the option of waiting to invoice such remuneration until it is clarified that SVV actually pays – until the road system is taken over by SVV.
Question e)
Can the Swedish Tax Agency confirm that the PPP company will not collect output VAT when the availability payment is collected continuously during the operating period, since output VAT on these payments is then already collected and reported at the traffic opening times?
The availability payment shall be paid monthly to the PPP company from the completion of milestones 1, 2 and 4, and for 15 years from the completion of milestone 4. This means that, for a long period (approximately 20 years), SVV will pay for taxable supplies without the PPP company charging VAT on the individual monthly payment because VAT on the availability fee has already been paid to the state at the opening times.
The main rule regarding the timing of value added tax is that the amount must be stated in the tax return for value added tax in the period in which sales documentation is issued, cf. the VAT Act § 15-9 first paragraph.
Once the amount of value added tax has been reported and paid, there is no authority to claim the OPS company for additional value added tax for the same turnover.
The submitter assumes that there is no authority to require the PPP company to report and pay value added tax for the same turnover for which the company has already reported and paid value added tax.
Question f)
If the PPP company does not receive the maximum availability payment during the operational phase as a result of a reduced availability payment in accordance with the contract’s provisions on this, can the PPP company correct too much previously reported output VAT? In that case, can correction be made by the PPP company reporting a reduction in outgoing VAT on VAT returns in the terms for which deduction points are imposed during the 15-year operating period?
In connection with the question of fixing the timing of the availability payment to the time of opening of traffic, questions also arise about any subsequent correction of the fee settlement.
The calculation basis for value added tax is the remuneration, cf. the Value Added Tax Act § 4-1 first paragraph.
The remuneration for availability basically corresponds to 40% of the contract sum. This amount may be reduced if the contract’s provisions on deductions from the maximum availability fee are met, and the result may be that VAT on the maximum availability amount may be significantly higher than the availability fee that is actually paid.
If the PPP company reports 100% of the value added tax at the time of opening to traffic, the question becomes whether the PPP company can later correct this if the availability fee is reduced.
In Prop. 1 LS (2020-2021) on page 189, it is assumed that a credit note can be issued if it turns out that a previous invoice, in whole or in part, was unjustified. This will form the basis for a correction of previous tax settlements with the state.
The submitter assumes that a possible reduction in the availability payment means that the agreed remuneration is adjusted down, which means that the PPP company has the opportunity to correct the fee settlement with the state according to the general rules in the Tax Administration Act.
This means that it must be accepted that the PPP company is given access to correct the fee settlement with the state until the entire road project is completed, i.e. 15 years after milestone 4.
Question g)
Will the PPP company’s financing of the project be considered part of the construction cost, which is included in the calculation basis for value added tax according to mval. Section 4-2?
Part of the payment from SVV will cover the PPP company’s financing of construction costs. In chapter C3, the basis for the competition has, among other things, a determined the following:
“The remuneration paid when traffic is opened consists of a milestone payment for the construction phase. This milestone payment shall amount to a total of 60% of remuneration for the construction phase, excluding VAT. The financing of the contract work is not covered by the milestone payment. All VAT for the construction phase is paid together with remuneration for opening to traffic, as described in point 2.1.”
“Remuneration for availability consists of the remaining 40% of remuneration for the construction phase with the addition of financing costs, and is paid monthly during the operational phase.”
The submitter questions whether these financing costs should be kept outside the calculation basis for value added tax, and instead considered as an independent performance from the PPP company which is exempt from value added tax, cf. the Value Added Tax Act § 3-6.
It is pointed out that in a binding preliminary statement dated 18 December 2017, in a similar PPP project which also concerned the construction of a road, the Swedish Tax Agency concluded that the financing services could not be considered an independent service, but that they should be included in the calculation basis for value added tax according to the Value Added Tax Act Section 4-2.
The submitter assumes that the PPP company’s financing of the project must be considered as part of the construction cost included in the calculation basis for value added tax, cf. the Value Added Tax Act § 4-2, and that value added tax must also be timed for these elements when the milestones are paid.
3. The Tax Directorate’s assessment
3.1 General – legal basis
The questions that are requested to be answered by this binding advance statement are mainly related to when the contractor must time stamp (report and pay outgoing VAT) in relation to a road project, cf. the VAT Act § 15-9 first paragraph, cf. the bookkeeping regulations § 8-1-2a. There is also one question regarding access to changes to previously reported value added tax, cf. the Value Added Tax Act § 15-9 and the Tax Administration
Act § 9-4 (question f), as well as one question about whether financing of the contract work should be considered part of the construction cost, cf. … the Value Added Tax Act § 4-2 first paragraph, or whether this constitutes an independent benefit (question g).
The Value Added Tax Act § 15-9 first paragraph stipulates that outgoing value added tax related to taxable turnover must be stated in the tax return for the term the documentation (invoice) is issued.
General rules on issuing a sales document are given in the bookkeeping regulations (regulation 2004-12-01-1558) subsection 5-2.
For the building and construction industry, there is a special rule on issuing a sales document in § 8-1-2a.
After amendment with effect from 1 January 2021, this provision has the following wording:
“A sales document can be issued in accordance with the progress of the building and construction work. When the work has been completed, a sales document must be issued no later than one month after the end of the general task term, cf. tax administration regulations § 8-3-1.
When a partial payment has been received that corresponds to the progress of the work, a sales document for the partial payment must be issued no later than one month after the end of the general assignment deadline.
Prop. 1 LS (2020-2021) chapter 9.4 Changed timing of value added tax for construction and construction activities and shipbuilding industry – request decision no. 787 (2019-2020) discusses the changes.
The most important change follows from the bookkeeping regulations § 8-1-2a first paragraph which stipulates that a contractor can choose to invoice building and construction work in accordance with the progress of the work, or that this can wait until the assignment is completed. The first option is consistent with the rule as it was before the change. The new thing is that the contractor can now postpone invoicing until the work has been completed. This means that a sales document on completion must be issued no later than one month after the end of the general assignment deadline, cf. tax administration regulations § 8-3-1. There is value added tax for work carried out and materials supplied in the building assignment until completion, which is covered by the main rule in section 8-1-2a first paragraph.
Prop. 1 LS (2020-2021) elaborates and specifies in chapter 9.4.5 what is meant by the work being “completed”.
Under the subheading “Introduction” , the starting point is that value added tax is a tax on the consumption of goods and services. This means that the tax liability begins at the time the goods or services become available for use. The time for completion stands out, both because it is documentable and controllable. The time of completion will normally coincide with the time of delivery. The timing of the tax obligation and payment obligation is therefore linked to the delivery.
The rules on timing in the Bookkeeping Regulations § 8-1-2a were before the change related to the progress of the work, which in some cases could mean that VAT had to be reported and paid before delivery had taken place and before it was possible to take the delivery into use, and before it was received payment from the client.
In order to remedy unreasonable consequences of this, particularly in dispute situations, section 8-1-2a first paragraph now allows the invoicing to be postponed until the work has been completed. This also implies a temporal extreme for invoicing construction costs.
What is meant in more detail by this is discussed in more detail in chapter 9.4.5 of the proposal under the sub-headings “Deferred obligation to invoice until the work is completed” , “Relation to the book-keeping regulations section 5-2” and “More about the time for completion of the work etc.” on pages 193 to 196.
Under the sub-heading “Deferred obligation to invoice until the work is completed” , it is first clarified that the contractor can choose to invoice in accordance with progress or upon completion. This means that the contractor can choose to invoice certain requirements in accordance with progress, while other requirements are invoiced on completion. At the same time, it is specified here that completion is an outer limit in time for invoicing. Furthermore, it is specified that the amendment to the first paragraph makes the rules on withheld amounts (on deposit) and for contracts where partial payments are not received (complete contract) in the second and third paragraphs redundant. These were therefore repealed.
Furthermore, under the heading “Relation to the book-keeping regulations, part chapter 5-2”, issues related to equal treatment in relation to industries that are covered by general rules for time fixing in the bookkeeping regulations, sub-chapter 5-2, as well as the relationship with the state aid regulations, which means that the provisions in sub-chapter 5-2 are considered to constitute an outer framework for time fixing. When it comes to doubts that may exist relating to the determination of the time for delivery of building and construction works, it is assumed here that contractual delivery will normally coincide with the takeover of the building or facility. Takeover must therefore be considered completion of the work.
In normal cases, this means that the times for contractual delivery in building and construction projects and completion will coincide. Furthermore, it is emphasized that if certain parts of the contract object are completed earlier than others, completed parts must be invoiced. This indicates that the proposed change is within the scope of subsection 5-2.
In the comparison with international law, it is indicated that there is a certain right to determine the time of delivery in the sense of VAT law which does not necessarily coincide fully with the time of delivery under contract law, cf. the VAT directive article 63 (directive 2006/112/EC) and Swedish and Danish straight. As the rules in EU law, including Danish and Swedish law, are not perceived to be in conflict with the state aid regulations, the same will apply to the proposed rule in Norwegian law.
Under the heading “Details about the time for completion of the work etc.” the ministry assumes that the work must always be considered completed at the time the client takes the contract object into use. But completion can also occur at an earlier time, e.g. if the client takes over the object of the contract without putting it into use. The Directorate of Taxation therefore disagrees with the submitter when it is stated in the request on page 7, penultimate paragraph, that the ministry has not stated anything concrete about when a vegan egg, or parts of a vegan egg, is considered complete.
Under the heading “The industry’s alternative proposal” in the proposal on pages 196 and 197, the ministry deals with the question of whether the obligation to invoice can be postponed until a disputed claim has been settled.
When the bookkeeping regulations § 8-1-2a were amended, this proposal was not implemented. It is related to the fact that there should be a certain proximity in time between when a product or service becomes available for use (delivery) and reporting and payment of value added tax. In addition, it was pointed out the need for a simple and practicable rule, that the time of delivery stands out for this purpose, as well as the relationship with the state aid regulations.
The accounting regulations § 8-1-2a second paragraph regulates the issue of timing related to partial payments. This is dealt with in the proposal on pages 197 and 198.
The rule in the second paragraph implies that an invoice must be issued for work carried out and materials supplied which have been added to the object of the contract, and for which payment has been received. At the same time, it is specified that receipt of “pure advances” (financial advances) gives neither the right nor the obligation to issue a sales document. The rule in the second paragraph has significance for the timing of value added tax linked to climate milestones 1 and 2, cf. further below under question a.
The questions that have been asked must be answered with a basis in these sources of law. Regarding question f about correction of previous tax settlements, the assessment is linked to whether the Value Added Tax Act § 15-9 first paragraph or the Tax Administration Act § 9-4 second paragraph applies. For question g , a decision must be made as to whether the financing costs are included in the consideration for the construction costs, cf. the Value Added Tax Act § 4-2 first paragraph, or whether this is consideration for an independent performance.
3.2 The questions
Question a)
Should the PPP company report outgoing value added tax on the individual milestone payment at the time the PPP company has the right, according to the PPP contract, to collect the individual milestone payment from SVV?
The Directorate of Taxation refers to the request on page 3, penultimate paragraph and page 4. The information here is relevant to several of the questions in the request and is therefore initially commented on in connection with question a .
It appears on page 3, penultimate paragraph, that SVV has decided on changes to the original competition basis. These entail that milestone payments must be made to the PPP company during the construction phase. The milestone payments are linked to concrete deliveries in the construction phase, i.e. when parts of the road system are opened to traffic at different times. This follows from Appendix 3 to the request, dated 4 February 2022.
Furthermore, it appears on page 4 that the remuneration for the contract work is divided into three parts;
- Remuneration for milestone/traffic opening
- Availability fee (“availability fee”)
- Remuneration for operational standards
With regard to remuneration for operational standards, it is stated that this is remuneration for the ongoing delivery of operational and maintenance services which are billed on an ongoing basis as the services are delivered. This question is not considered doubtful, and is not covered by the request for a binding prior opinion.
This means that remuneration paid when traffic is opened consists of four milestone payments in the construction phase. This, together with remuneration for the climate milestones, constitutes 60% of the remuneration for the construction phase. Separately for milestone 3, it is stated that 100% of the construction costs for this stretch of road must be paid after opening to traffic. Regarding the climate milestones, it is stated that the remuneration for these is linked to the PPP company’s costs associated with establishing a fossil-free construction site, and that the payment must be made respectively 3 and 15 months after the signing of the contract.
The remaining 40% of the remuneration for the construction phase, with the addition of financing costs, must be paid monthly during the operational phase.
Remuneration for construction costs in relation to this project therefore includes both remuneration paid in relation to the individual milestone, including climate milestones 1 and 2, as well as accessibility payment.
Question a concerns the timing of the part of the contract sum which is linked to milestones 1, 2, 3 and 4 which are paid out at the opening of traffic, as well as climate milestones 1 and 2 which are paid out early in the construction phase.
The Tax Directorate points out that the bookkeeping regulations § 8-1-2a stipulate that the sales document as a basis for reporting and payment of value added tax can be issued at the latest on completion, i.e. within one month after the end of the normal deadline.
As stated in Prop. 1 LS (2020-2021) chapter 9.4.5, “completed” in this context means that the contract object is put into use, or that it is handed over to the client even if it is not put into use.
In the event that the object of the contract is put into use in stages, e.g. according to a milestone plan, completion will take place in stages for each milestone. It is not decisive what the contract says about when the client has the right to collect the individual milestone payment from the client.
In Prop. 1 LS (2020-2021) chapter 9.4.5 under the subheading “Details on time for completion of the work etc.” on page 195, the ministry assumes that a partial takeover of the object of the contract means that it has been completed.
This means that remuneration for milestone payments in accordance with the rule in the bookkeeping regulations § 8-1-2a first paragraph can be timed at the latest to the time of completion for the individual milestone, which is the time the individual milestone (road section) is put into use. The sales document must then be issued no later than one month after the end of the general deadline, cf. the tax administration regulations § 8-3-1. This includes milestones 1, 2, 3 and 4.
Separately for climate milestones 1 and 2, it is stipulated that the payment shall take place 3 and 15 months respectively after signing the contract. The remuneration is linked to “…some of the PPP company’s costs related to the contract’s climate requirements, including costs associated with establishing a fossil-free building site.” , cf. the request page 4. The Tax Directorate assumes that these partial payments are linked to work carried out on the establishment of a fossil-free building site, and that the issuing of sales documentation and the timing of value added tax must take place on the basis of the bookkeeping regulations § 8-1-2a second paragraph.
Question b)
Should the OPS company report output VAT on a proportion of the sum of the maximum future payments for availability (“availability payment”) when traffic is opened on MP1, MP2 and MP4? Is this so that the PPP company does not have to report output VAT on part of the availability payment when paying MP Klima and when paying MP3?
Question b concerns the timing of the part of the total contract sum referred to as “availability payment”, which is paid out monthly in the operational phase and is linked to the opening of traffic of milestones 1, 2 and 4. There is no availability remuneration linked to milestone 3 because SVV and the providers has agreed that SVV will take over full responsibility for the road section’s functionality after opening to traffic.
As can be seen from the request, page 5 first paragraph, the accessibility fee (40%) is part of the construction costs. The special feature of OPS contacts is that this part of the overall remuneration for the road construction is paid out in the operational phase as an incentive for the contractor to build a road of good quality.
The rules on issuing sales documentation in the bookkeeping regulations § 8-1-2a first paragraph cover all work and materials added to a vegan lay-up until completion. The decisive factor is therefore whether the remuneration is linked to construction costs. Based on the submitter’s information, the Norwegian Tax Administration considers it clear that the “availability payment” is consideration for construction costs. Issuance of sales documentation as a basis for time fixing can therefore take place at the latest on completion as stated in the bookkeeping regulations § 8-1-2a first paragraph. This is also laid down in the Tax Directorate’s binding preliminary opinion dated 6 April 2021.
Furthermore, the Norwegian Tax Administration assumes that remuneration for milestone 3 is paid in its entirety after the opening of traffic, and that remuneration for the climate milestones is paid early in the construction phase, cf. the request, page 4, first and second paragraphs according to the table. The contract’s provisions on availability remuneration therefore do not include these.
Payment for availability can be reported at the latest on completion of milestones 1, 2 and 4 respectively, cf. the bookkeeping regulations § 8-1-2a first paragraph.
Question c)
Assuming an affirmative answer to question b; In that case, can the total VAT on the accessibility payment be apportioned proportionately to the three milestone payments that have an associated accessibility payment (ie X% on MP1, Y% on MP2 and Z% on MP4)?
In connection with questions a and b , the Norwegian Tax Administration has assumed that the bookkeeping regulations § 8-1-2a first paragraph means that the issuance of sales documentation as a basis for timing VAT means that construction costs for the road (milestone payments and accessibility fees) can be made at the latest on completion. Exceptions apply to climate milestones 1 and 2 where the bookkeeping regulations § 8-1-2a second paragraph apply.
As indicated in connection with question a , the ministry assumes that a partial takeover of the object of the contract implies that it has been completed. This means that remuneration for the individual milestone can be timed to when the stretch of road linked to the milestone is put into use.
The Directorate of Taxation points out that the principle starting point is that accessibility fees are part of the construction costs and must be timed in accordance with the bookkeeping regulations § 8-1-2a first paragraph. As stated in Prop. 1 LS (2020-2021) chapter 9.4.5 on page 195 on partial takeover, there may be more than one completion date. The Directorate of Taxation therefore assumes that the total accessibility remuneration can be distributed among the various milestones (road sections), and that VAT can be timed for the share of accessibility remuneration for the individual milestone upon completion of this. The Directorate of Taxation clarifies that no information has been provided in the request that provides a basis for a more detailed indication of the proportion related to the availability fee that can be allocated to the individual milestone.
Question d)
At the traffic opening times, must the OPS company report output VAT on remuneration that SVV withholds as a result of deviations, or can the tax calculation of this part of the remuneration wait until it is clarified that SVV will actually pay this part of the remuneration to the OPS company?
The amendment to the bookkeeping regulations § 8-1-2a means that sales documentation for value added tax that applies to construction costs can be issued at the latest when the construction work has been completed, i.e. within one month after the end of the general task deadline, cf. tax administration regulations § 8-3-1.
At the same time, the provisions on withheld amounts (deposits) and where partial payments are not received (complete contract) were repealed. Reference is made to Prop. 1 LS (2020-2021) chapter 9.4.5 under the heading “Deferred obligation to invoice until the work is completed” .
Furthermore, in the same chapter, under the heading “The industry’s alternative proposal” , the question of whether the obligation to invoice in the case of disputed claims only comes into effect at the time the claim’s justification is finally clarified. The Ministry assumes that an arrangement which involves the obligation to invoicing being suspended until the justification of the claim has been finally clarified will be a selective measure that is affected by Article 61 (1) of the EEA Agreement.
In the request, it is indicated that the Ministry of Finance assumes that there is no obligation to invoice a claim that the client refuses to pay for, until the project is completed. It is further stated that the rule allows for the value added tax amount associated with such a claim to be paid to the state when the private law relationship has been clarified between the parties.
Furthermore, it is stated that this must be seen in the context that the size of the consideration, and thus also the amount of VAT, depends on the private law relationship between the parties. The rule change is based on a presumption that the private law relationship, including the size of the remuneration, has not been finally clarified during a project. It is only when the project has been completed that the parties have sufficient information about the actual conditions to be able to judge the subject of the contract. The contractor must therefore be able to wait with invoicing, and thus also wait for the payment of value added tax, until the amount of the consideration has been clarified.
Finally, it is pointed out that the road project has finally been completed 15 years after the completion of milestone 4, and that the private law relationship, including the size of the remuneration, has not been clarified before this time.
The Directorate of Taxation points out that the amendment to the bookkeeping regulations § 8-1-2a is prompted by a desire to mitigate the liquidity effects for contractors in the building and construction industry, cf. Prop. 1 LS (2020-2021) chapter 9.4.5 under the heading ” Introduction” . It is stated in the same place that the completion of the work must be an outer limit for when sales documentation can be issued.
It also appears from chapter 9.4.5, under the heading “The industry’s alternative proposal” , that the proposal that the invoicing obligation for disputed claims should only come into effect when the justification of the claim has been finally clarified has been rejected, among other things with reference to the state aid rules.
This means that the bookkeeping regulations § 8-1-2a give contractors the opportunity to wait to issue a sales document as a basis for timing VAT for construction costs until the latest when the building or facility has been completed. This means that even if there is disagreement between the parties about the size of the consideration, the issuance of a sales document as a basis for timing VAT for construction costs cannot be timed later than completion.
Question e)
Can the Swedish Tax Agency confirm that the PPP company will not collect output VAT when the availability payment is collected continuously during the operating period, since output VAT on these payments is then already collected and reported at the traffic opening times?
As can be seen from our explanation of the bookkeeping regulations § 8-1-2a above, the rule after the change means that value added tax linked to remuneration for construction costs can be timed at the latest when the building or facility is completed. Availability remuneration, which is paid monthly during the operating period, is remuneration for construction costs.
This means that VAT for the total construction costs, remuneration linked to the milestones, with the exception of the climate milestones, as well as for accessibility, can be timed until completion/when the road is put into use at the latest. No VAT shall therefore be charged on consideration for availability during the operating period.
Question f)
If the PPP company does not receive the maximum availability payment during the operational phase as a result of a reduced availability payment in accordance with the contract’s provisions on this, can the PPP company correct too much previously reported output VAT? In that case, can correction be made by the PPP company reporting a reduction in outgoing VAT on VAT returns in the terms for which deduction points are imposed during the 15-year operating period?
The submitter points out that the question of fixing the time of payment for availability also includes the question of later correction. The calculation basis for value added tax is the remuneration, cf. the Value Added Tax Act § 4-1 first paragraph.
The remuneration for availability is 40% of the contact sum. This amount is paid out monthly during the operating period with fixed amounts and is part of the remuneration for the building and construction costs for the road, but can be reduced if the agreed availability/quality is not delivered during the operating period.
The question that needs to be decided relates to the timing of the correction of turnover and outgoing VAT in such cases.
The Value Added Tax Act § 15-9 first paragraph stipulates that amounts as mentioned in the Tax Administration Act § 8-3 first paragraph letters a to d must be stated in the tax return for the term the documentation is issued.
Section 9-4 of the Tax Administration Act lays down rules on changes to tax and withholding tax liability’s change of assessment, etc.
“The provision regulates the access of those liable to tax and withholding tax to change the basis for tax assessment that they have determined themselves.”
cf. Prop. 38 L (2015-2016) comments to the Tax Administration Act § 9-4. Furthermore, it appears from section 9-4, second paragraph, that a notice of change must have reached the tax authorities within three years of the tax notice to be changed.
In case 01 NS 10/2019, the Board of Tax Appeals, Large Division, has dealt with a case which the Directorate of Taxation believes is relevant to the issue of fixing the timing of the correction of outgoing VAT if the availability fee is reduced during the operating period. In the relevant case, the question was whether the timing had to be decided on the basis of the Value Added Tax Act 15-9 first paragraph, or
§ 18-3 (now the Tax Administration Act 9-4). We include below some extracts from the case which are considered relevant for the assessment of the question in the case here.
Under “Secretariat’s assessments” , reference is made to Ot.prp. no.76 (2008-2009), the notes to the VAT Act § 15-9 where it is stated,
“The first paragraph on time fixing clarifies what is considered to follow from the Value Added Tax Act § 32 first paragraph, with the exception of the regulatory authority. The accounting regulations have no provisions on time fixing, but refer to the requirements for specifications of mandatory accounting reporting. In addition, the regulations have, among other things, provisions on when a sales document must be issued as well as requirements to specify the documentation date etc. in sales document. This combined with statements in NOU 2002:20 New Bookkeeping Act and Ot.prp.nr.46 (2003–2004) About the Bookkeeping Act (the Bookkeeping Act), leads to the fact that the VAT must be periodized based on the date of documentation. The ministry sees it as expedient for this to be made clear by law.”
Furthermore, it is stated that
“A credit note corrects information in a previous sales document. According to Section 15-9 of the Value Added Tax Act, value added tax must be stated in the VAT return for the period in which the documentation is issued. Documentation date is the date of issue of the document, cf. the bookkeeping regulations § 5-1-1.”
In the proposal, the secretariat also states that
“The secretariat agrees with the tax office that the original invoicing was based on the fact that the taxable person carried out contract work for B.”
Reference is also made to a statement from the Tax Directorate to the tax office as part of the preparation of the appeal case.
The secretariat states in connection with this, among other things;
“It is clear from the feedback from the Directorate of Taxes included in the e-mail of 7 July 2017 that, in the event of revocation and price rejection, it is practice for the tax processing to be corrected for the term in which the return or price rejection takes place. This is therefore not considered a situation of change. It is stated that the issuing of a credit note in the event of cancellation and price rejection differs from cases where the original assignment was incorrect, for example if you have mistakenly entered a tax code, which is tax-free (not tax in the sales document). This is also in accordance with the Tax Directorate’s joint letter of 9 November 2011, where it is stated that a distinction must be made between cases where the tax reporting was incorrect and must be changed, and where an agreed remuneration is subsequently adjusted.”
In conclusion, for the assessment of the question of whether the legal basis is taken;
“When it comes to the question of accruals, taxpayers state that the question is not what is the correct accrual of value added tax in a sales document, but which tax notice should be changed when a credit note is issued for an invoice with value added tax that has previously been stated in a tax notice to the tax authorities. Taxpayers state that this question is regulated by the Tax Administration Act § 9-4 (formerly the Value Added Tax Act § 18-3), not the Value Added Tax Act § 15-9. The taxpayer has also stated in the complaint that Section 18-3 of the Value Added Tax Act provides guidance for the issue of accruals. The secretariat believes that the taxpayer’s statements cannot be forwarded.
The Directorate of Taxation points out that it is stated in the request that the accessibility fee constitutes a proportion of the total fee for the construction of the road. It constitutes 40% of the total remuneration and must be paid monthly during the operating period (after opening of the road). It is also agreed that the client can reduce the agreed remuneration if agreed availability (quality is not available).
A situation where the client implements a reduction in the agreed availability remuneration based on the contract’s provisions on this can, in the Tax Directorate’s assessment, be compared to a situation where the reduction is implemented based on a subsequent complaint. The contractor must report the turnover and value added tax of the availability fee at the latest on completion at full value. If it turns out during the operating period that the accessibility/quality of the road is not as agreed, the contract regulates how the shortening is to take place.
As can be seen from the complaint referred to above, it is assumed that credit notes that must be issued in such situations must be time-stamped on the basis of the Value Added Tax Act § 15-9 first paragraph, which is the date of issue of the credit note.
Question g)
Will the PPP company’s financing of the project be considered part of the construction cost, which is included in the calculation basis for value added tax according to mval. Section 4-2?
The Directorate of Taxation points out that in a binding preliminary statement of 18 December 2017, which the submitter also refers to, it has been concluded that the financing services shall not be considered to be an independent service according to the Value Added Tax Act § 4-1, and shall be included in the calculation basis according to the Value Added Tax Act § 4-2 first paragraph.
The question raised is whether two separate benefits are provided, where the building and construction services are liable to tax according to the Value Added Tax Act § 3-1 first paragraph and the benefit related to financing is exempt from tax according to the Value Added Tax Act § 3-6. Or if it concerns one overall benefit where the financing element is included as part of the taxable building and construction benefit, and is included in the calculation basis for this according to the Value Added Tax Act § 4-2 first paragraph.
The VAT handbook 2022 chapter 4-1.3 deals with the question of composite benefits. The core of the issue relates to whether there are two or more separate benefits, or whether one benefit is subordinate and forms part of another. In this assessment, it is natural to emphasize what is primary for the customer, and in this connection whether a performance is necessary for the client to fulfill its purpose with the assignment. Or whether a benefit must be considered to be independent and separate from one or more other benefits.
The Norwegian Tax Administration assumes that the client’s primary objective is to build a road, and that funding is necessary for this purpose, and that there is no need for the funding element if the road is not to be built.
The Directorate of Taxation therefore assumes that the financing element must be included in the calculation basis for the taxable benefits, cf. the Value Added Tax Act § 4-2 first paragraph.
Source: skatteetaten.no
