SkatteFUNN, a tax deduction scheme for every player involved in R&D
R&D activities that enhance performance are crucial for the development of the oil and gas sector. However, performing these activities entails financial and technical challenges. Therefore, the Norwegian government designed a successful support scheme to promote R&D. SkatteFUNN was established in 2002 as a tax reduction scheme with the purpose of motivating small and medium sized enterprises (SMEs) from Norway to increase their research and development efforts when developing new products, processes, and services. The tax incentive scheme is made to be neutral and available to all industries involved with product, process, and service innovations.
The criteria to qualify for support for dedicated R&D projects were formally structured by the Norwegian Research Council and have not changed since the introduction of the scheme. Each enterprise is entitled to receive 18-20% of total project cost credited on their yearly tax payment or paid out in cash for companies with deficit results. “This scheme has proven to be very successful since the threshold to obtain funding is quite low compared to other R&D
incentive programs,” says Erik Furseth, the Senior Advisor at SkatteFUNN. “As a result, SkatteFUNN’s activities have been growing rapidly and today the tax system supports the industry with approximately NOK 3.5 billion a year.”However, the escalating costs of the Norwegian oil and gas industry made it necessary to establish caps in order to keep them under control; currently, it is NOK 25 million for internal costs. Today, the maximum hourly rate for in house personnel is NOK 600.
Norway has proven to be an attractive market for high-tech R&D activities; the costs are similar and the wages of R&D employees are competitive when compared to western competitors in the oil and gas sector. “The Norwegian workforce is highly competent and used to working in flat organizations,” says E. Furseth. “It can be quite appealing to larger international companies to perform R&D activities in Norway since 20% of the costs are covered by SkatteFUNN.” The prerequisites are for the project to be managed in Norway and to provide clear economic benefits to the Norwegian entity. The magnitude of SkatteFUNN’s support has surprised many international companies. As a result, in 2017, SkatteFUNN funded 781 projects in the oil and gas sector with budgeted deductions of NOK 623 million.
The portfolio of the Norwegian oil and gas industry’s projects shows a remarkable interest in areas such as technology of the future, production, processing, transport, and subsea technology, that are supported by digitization focused on cost and operational efficiency. “Innovators are also showing interest in drilling which is the area that I consider to have the largest cost saving potential. It is still considerably expensive to drill a small well, to make interventions, and to engage in plug and abandonment,” says E. Furseth. Suppliers of the oil and gas industry have also engaged in R&D activities to create high quality products such as innovative subsea technologies, subsea power systems, seismic, geophysical, and reservoir analysis tools, improved production facilities, FPSOs, support vessels, drilling systems etc.
Therefore, there have been many improvements along the value chain of the Norwegian oil and gas industry. The oil recovery rate on the NCS has increased from 28% in 1978 to around 47% today, and operators such as Statoil are aiming for 60% in the future. “Most of these improvements have been technology and knowledge driven through dedicated R&D work where The Research Council and SkatteFUNN have been crucial contributors. Through R&D, important contributions have been made to improve HSE and to establish more environmentally friendly activities directly and as a spinoff from other improvements,” says E. Furseth. “Statoil has been a key player and acted as the main pillar of technological development. However, parts of the industry, small firms in particular, have informed SkatteFUNN that Statoil and others have become more reluctant to test new technologies in their facilities,” adds E. Furseth.
Gaining access to facilities is crucial in order to test new technologies, especially in production and well management. In order to overcome this challenge, the DEMO2000 program has received additional funding and these technologies are being tested in low-cost extraction fields.
SkatteFUNN’s activities have been very successful in the past years. “Most of the industries are aware of the SkatteFUNN scheme; however, there are still companies that do not realize
that their projects could receive support,” says E. Furseth. When applying for the tax reduction scheme, he advises companies to describe their ideas and projects and write the
applications themselves. “The minds behind the idea are best fitted to describe its details clearly, which is crucial for us to perform a thorough evaluation of the project. We focus on the details of the idea, together with the main goals and needs to obtain and develop new knowledge through the project. It is the company which knows the market and describes the benefits of the idea compared to other existing solutions,” says the Senior Advisor at SkatteFUNN.
The application requirements are not harsh on the applicants and it is fairly easy to apply; statistics show that 86% of the applications were approved in 2016, while the remaining 14% were declined mainly because they seek support in ordinary business affairs rather than dedicated research and systematic development tasks. “During my five-year participation in SkatteFUNN, I have witnessed an increase from 150 to 430 new projects a year. I have been part of SkatteFUNN’s structured, pro-active information and marketing strategy. I am happy to say that the feedback we have received has been very positive. It is personally rewarding to take part in such projects and witness the creativity of the companies developing revolutionary technology around Norway,” concludes E. Furseth.