The Hydrocarbon Tax Administration Act
Assessment, collection, audit, etc. in connection with taxation of income derived from hydrocarbon activities
Parliament Act No. 16 of 14 February 2000 on assessment, collection, audit, etc. in connection with taxation of income derived from hydrocarbon activities
(THE HYDROCARBON TAX ADMINISTRATION ACT)
Part 1
General provisions
§ 1 The provisions in this Act are applicable to any taxpayer subject to taxation pursuant to the Hydrocarbon Tax Act [Parliament Act No. 26, dated 21 April 1999, as amended].
Subsection 2 The general provisions in fiscal legislation, as amended, regarding tax returns, tax assessment, right to appeal, audit, collection, and penalties shall also be applicable.
Part 2
Tax assessment
§ 2 Taxpayers subject to the Hydrocarbon Tax Act shall be assessed by the Assessment Council [Toll- og Skattaráð Føroya]. The basis of the tax assessment shall be:
- income derived pursuant to Part 2 of the Hydrocarbon Tax Act, and
- other income taxable in the Faroe Islands.
Subsection 2 The Assessment Council may authorise the Faroese Customs and Tax Administration [Toll- og Skattstova Føroya] to exercise the authority of the Council granted in § 2, subsection 1.
§ 3 When a completed tax return has been filed, the Tax Authorities, before assessing an amount different from that stated in the tax return, shall notify the taxpayer in writing of its intent and give the taxpayer the opportunity to express an opinion in writing or orally, relevant to the intended change. In such cases and in cases where the assessment is made without the existence of a completed tax return, the taxpayer shall be notified in writing about the assessment, the reason(s) for the change in assessment, and the right of appeal.
Subsection 2 If the Tax Authorities have made a tax assessment, it may, on its own initiative or at the request of the taxpayer, reconsider the assessment and amend its assessment. The Tax Authorities may not, however, change an assessment on which the National Board of Tax Appeals [Landsskattakærunevndin] has made a ruling. Before the Tax Authorities change the tax assessment, the taxpayer shall be given the opportunity to express an opinion in writing or orally. Notification to the taxpayer about the amended assessment shall state the reason(s) for the change as well as information relating to the taxpayer’s right of appeal.
Part 3
Taxation of income derived from hydrocarbon activities
§ 4 Tax on income derived from the hydrocarbon activities enumerated in Part 2 of the Hydrocarbon Tax Act is payable in three equal instalments on 1 October, 1 November, and 1 December of the year following the fiscal year, cf. § 16.
Subsection 2 If a change in the tax assessment results in an increase in the assessed tax, this increase shall be due and payable on the first day of the month following the month in which the tax notice was sent to the taxpayer with a grace period until the 20th day of the month. If this amended tax assessment and the tax referred to in § 4, Paragraph 1 above are not paid when due, annualised interest shall be added to the amount owed from the due date, pursuant to the Act on Interest Charge on Delayed Payment [Danish Parliament Act No. 638, dated 21 December 1977, as amended].
Subsection 3 If a change in the tax assessment results in a decrease in the assessed tax, the excess amount paid shall be refunded before the 20th day of the month after notification concerning the change has been provided. Annualised interest shall be added to the excess tax paid from the date of payment, pursuant to the Act on Interest Charge on Delayed Payment. Before repayment of the excess tax, this amount shall be set off against any taxes, duties, or interest due and payable to the Treasury. The relevant amount may also be set off against any taxes, duties, or interest due and payable to the Treasury for which the taxpayer is liable, pursuant to § 12 of this Act.
Part 4
Taxation of wage income
§ 5 Tax on income, pursuant to § 11, subsection 2 of the Hydrocarbon Tax Act shall be paid in such a way, that the party which is paying (the assignor) the A-income (income taxed at source), shall assign the gross amount through a clearinghouse authorised by the Government. The rules on A-income in part 6 of the Tax Act [Parliament Act No. 86 dated, 1 September 1983, as amended] shall apply to the assignor to the extent that these are not in conflict with the provisions in this Act and the Hydrocarbon Tax Act.
Subsection 2 Before A-income can be paid, the employer, as well as the wage earner, shall be registered with the Tax Authorities. The Minister of Finance may promulgate specific regulations regarding assignment, calculation, collection, etc.
Part 5
Duty of disclosure
§ 6 A licence holder is obligated on his own initiative to collect and submit to the Tax Authorities any information required pursuant to §§ 7 and 8 of this Act and any information that pertains to taxpayers, who carry out activities under governed by the provisions of the Hydrocarbon Tax Act, either as contractors or employees according to the permissions of the licence holder.
Subsection 2 According to this Act, a licence holder is the one who has obtained permission to initiate and carry out preliminary investigations, exploration, and extraction of hydrocarbons pursuant to the Act on Hydrocarbon Activities [Parliament Act No. 31, dated 16 March 1998].
Subsection 3 The Minister of Finance may promulgate specific regulations regarding the obligation of the licence holder to collect information in accordance with § 6, subsection 1.
§ 7 Taxpayers, who carry out activities governed by the provisions in the Hydrocarbon Tax Act shall on their own initiative provide the relevant licence holder, as defined in § 6, subsection 2 above, with information about contracts of employment that they enter into with natural persons or corporations, etc.
Subsection 2 The duty of disclosure required by § 7, subsection 1 above shall include the nature of the work, the name of the person(s) or company carrying out the work, the company registration number (if any), time and place of the performance of the work, the contract amount, the expected total wages to be paid, as well as copies of written contracts of employment, if any.
§ 8 Employers who carry out activities governed by the provisions in the Hydrocarbon Tax Act shall, on their own initiative provide the relevant licence holder, as defined in § 6, subsection 2 above, with information about individuals employed by him and who carry out work within the areas enumerated in § 1 of the Hydrocarbon Tax Act.
Subsection 2 The duty of disclosure required by § 8, subsection 1 above shall include the following: the employees’ names, dates of birth, personal identification number (if any), address, and tax domicile; the employer’s name, as well as any company registration number, place of work, nature of work, and the duration of the task for which the work is directly connected.
§ 9 To the extent that the licence holder, pursuant to § 6, subsection 2 above, executes contracts of employment as referenced in § 7 above or employs the individuals referenced in § 8, he shall also be under an obligation, on his own initiative, to provide the Tax Authorities with the information referenced in §§ 7 and 8.
Subsection 2 Information required under §§ 7 and 8 shall be submitted to the Tax Authorities no later than 14 days after the work has been initiated.
Subsection 3 If the information in §§ 7 and 8 is not submitted to the Tax Authorities as required, the Tax Authorities may impose a daily fine to enforce compliance with said provisions.
§ 10 Airlines, shipping companies, and other transport companies shall be required, on their own initiative, to provide the Tax Authorities with information about the names of the passengers whom they transport to and from areas where activities governed by the provisions in the Hydrocarbon Tax Act are conducted.
Subsection 2 The Minister of Finance may promulgate specific regulations as to how and when this information shall be submitted.
Part 6
Audits
§ 11 The Tax Authorities may, without any court order or advance notification, conduct an on-site audit and collect the information deemed necessary to perform a fiscal audit to ensure compliance with the provisions in this Act, the Hydrocarbon Tax Act, and/or other relevant fiscal legislation.
Part 7
Liability for payment of taxes and duties to the Treasury
§ 12 Employers who do not transfer the correct amount of wages for their employees shall be directly liable to the Tax Authorities for the payment of any tax arrears and interest.
Subsection 2 Licence holders, as defined in § 6, subsection 2 above, shall be fully liable for any unpaid taxes, duties, or outstanding interest, pursuant to the Hydrocarbon Tax Act and other fiscal legislation, owed to the Treasury by the relevant licence holder's contractor, subcontractors, or sub-subcontractors in any subsequent links.
Subsection 3 If a tax claim against a taxpayer, who is subject to tax pursuant to the Hydrocarbon Tax Act, cannot be computed exactly because the taxpayer has not filed a satisfactory tax return or has not fulfilled other obligations in accordance with relevant fiscal legislation, the Tax Authorities may assess a tax claim of five (5) per cent of the contract amount for the relevant work.
§ 13 Overdue taxes, duties, and outstanding interest are due and payable on the 1st day of the month following notice by the Tax Authorities of a claim for payment with a grace period to the 20th day of the month.
Subsection 2 Claims paid pursuant to § 12, subsection 2 above cannot be deducted in the calculation of taxable income, when the income is put to use to calculate taxes and duties. The same shall apply to expenses incurred in connection with the calculation and determination of any liability for taxes and duties, including expenses regarding provision of guarantees against any fiscal claims, etc.
Part 8
Tax returns, etc.
§ 14 The tax return for the fiscal year shall be filed no later than 1 June the year following the income year. The Tax Authorities shall prepare forms to be used by the taxpayer in the preparation of the income tax return.
Subsection 2 The Minister of Finance may promulgate specific regulations regarding the submission of information and regulations about specification of accounting material that must be filed as appendices to the tax return.
Subsection 3 Employees who pay their gross tax, pursuant to the provisions of the Hydrocarbon Tax Act, are exempt from filing a tax return.
Part 9
Appeals and legal proceedings
§ 15 Taxpayers assessed pursuant to the provisions of the Hydrocarbon Tax Act, even though assessed as well pursuant to the provisions of the Tax Act, may file an appeal regarding the assessment with the National Board of Tax Appeals, pursuant to the provisions of §§ 24 and 25 in the Act on Customs and Tax Administration [Parliament Act No. 169, dated 30 December 1997, as amended].
Subsection 2 Taxpayers assessed pursuant to the provisions of the Hydrocarbon Tax Act or the Assessment Council may bring a ruling of the National Board of Tax Appeals before the Faroese Court [Føroya rætt]. In such cases a writ shall be issued within one year after the ruling of the National Board of Tax Appeals.
Subsection 3 The Assessment Council shall be named as the respondent in any action brought before the Faroese Court.
Part 10
Other provisions
§ 16 Taxpayers subject to tax pursuant to the Hydrocarbon Tax Act shall use the calendar year as the income tax [fiscal] year.
§ 17 Taxpayers governed by the provisions in Part 2 of the Hydrocarbon Tax Act shall keep accounts and all relevant documents for 10 years after the relevant tax year. If the taxpayer holds licences or rights that remain effective for 10 years or longer, the provisions regarding assessment, information, audit, and liability pursuant to this Act, the Hydrocarbon Tax Act, and other relevant fiscal legislation shall apply for said period.
§ 18 The Minister of Finance may promulgate specific regulations as to how taxable income shall be calculated and what information shall form the accounting basis, if not so stated in relevant legislation, as amended.
Part 11
Effective date
§ 19 This Act shall become effective on the day following its official promulgation.