Proposal for new law on Visitor Contributions: Norway could be the first Nordic Country with tax on accomodation

On November 19, 2024, the long-awaited and somewhat feared proposal for the tourism industry was introduced. For our affected clients, we provide a summary of what you need to know.

The proposal allows municipalities to impose an accommodation tax of up to five percent. Additionally, the tax will increase the VAT base for the state.

With this proposal, the government is challenging the hotel industry and large parts of Norwegian tourism, which have advised against such a tax. The proposal must be considered in light of legal constraints that made other alternatives difficult.

This is the proposal:

• Municipal tax: municipalities that want to do so are given the authority to impose an accommodation tax on the turnover of accommodation within the municipality. There will be no national scheme.
• Maximum five percent tax: The tax will be set as a percentage surcharge on the fee paid for accommodation, before calculating VAT. The percentage rate can be a maximum of five percent. The Ministry of Trade, Industry and Fisheries expects that the tax will be included in the VAT calculation base. In practice, this means that the accommodation tax will increase accordingly.
• All paid accommodation: The tax covers all types of paid accommodation, whether it is a hotel or camping. Unpaid outdoor accommodation is not included. Nor is accommodation on passenger ships in transit. Simultaneously, the government announces a separate proposal on cruises later.
• Including business travelers: The tax will apply to all accommodation, regardless of the purpose of the stay. The tax will apply to both Norwegians and foreign visitors.
• Digital platforms are assigned a responsibility: Third parties are responsible for collecting the tax when the third party collects the payment. Therefore, platforms like Airbnb will have to create systems to collect the tax in municipalities that introduce this.
• Applies within the municipal borders: The municipality can impose an accommodation tax on accommodations within its own municipal borders. The tax must apply throughout the municipality. Neighboring municipalities can voluntarily choose to cooperate. There is no legal basis to impose such cooperation, for example, where a neighboring municipality has many visitors during the day but few overnight stays.
• Seasonal variation is not allowed: The Ministry of Trade, Industry and Fisheries proposes that municipalities should not be able to set differentiated tax rates throughout the calendar year. Therefore, municipalities cannot use the tax rate as an incentive to increase the proportion of tourists who visit outside of peak season. This is because the purpose of the tax is to finance public goods, not to manage tourist flows, and that differentiated rates would be more challenging to administer.
• To be used for “tourism-related public goods”: The tax shall go directly to the municipality to finance “tourism-related public goods.” The proposal’s definition of these goods is broad, giving municipalities significant freedom in how they use the funds. The main criterion in the legal definition appears to be that the use or need for public goods “significantly increases with the number of visitors to the municipality.”
• Expected progress: The proposal has been sent for consultation with a deadline of January 3, 2024. At the press conference in Tromsø, the Minister of Trade stated that the goal is for the law to come into force on July 1, 2025, although it could also be July 1, 2026.

Comments:

• At the end of the government period:The proposal follows up on the government’s promises in the Hurdal Platform. The government is now in the eleventh hour to have a chance to pass a bill in this government period.
• Narrower than expected:The discussion about the legal basis for financing public goods has been ongoing for a long time. Many had probably expected a broader proposal with a wider scope of what municipalities can impose the visitor tax on. Legal obstacles have been a major factor in the abandonment of the destination committee’s proposal for a tax on transport into the country.
• Questions about accuracy:The tourism industry has warned against a tax on accommodation, partly because the tax affects the regulated part of the tourism industry, which burdens the local community to a lesser extent. For example, it is not the hotel guests in the municipality who lack access to toilets.
• Municipalities with many overnight stays are the winners:The number of guest nights with paid accommodation is unevenly distributed between municipalities. Several municipalities have high visitor pressure from tourists who travel through or are on day visits. This can create an imbalance in access to funding that can be perceived as unfair locally.
• Lack of good, legal alternatives:The government itself points out many of the weaknesses and disadvantages of the proposal. Constraints due to, among other things, EEA law and the right of public access, as well as the consideration of getting a proposal through in the government period, may have played a major role in the choice of solution.
• Many businesses affected:The bill will impose new administrative tasks on many small businesses. The consultation paper states that there were 41,310 businesses in the accommodation industry in 2023, of which 38,550 were private landlords.
• Other legal measures:In the consultation paper, the Ministry of Trade, Industry and Fisheries points out that municipalities also have other measures at their disposal besides a new tax. This includes, among other things, the Parking Act, which does not have an upper limit for the size of parking fees. The Outdoor Recreation Act also provides a basis for imposing fees in some cases, but with clear limitations that also affect parking at outdoor areas. The Harbors and Fairways Act provides a basis for covering costs, and in addition, the ports can charge fees for the use of the port on a private law basis.