Sept. 10 (Bloomberg) -- BW Gas ASA led Norwegian shippers lower in Oslo trading after the government demanded they pay a decade of back taxes.

The government said after the market closed on Sept. 7 it would seek 20 billion kroner ($3.5 billion) of payments in exchange for scrapping corporate tax on shipping companies. Shippers have been allowed to defer tax since 1996 provided they don't use the money for dividends. BW Gas, the world's biggest gas-tanker operator, said it owes as much as 4.8 billion kroner, compared with profit of 1.5 billion kroner last year.

``The government is reneging on its previous agreement,'' said Rikard Vabo, an analyst at Fearnley Fonds in Oslo who has a ``sell'' recommendation on BW Gas. ``We will probably see shippers move abroad. It will also affect related companies, such as suppliers.''

BW Gas fell as much as 10.1 percent today, Odfjell ASA 4.4 percent and Wilh. Wilhemsen ASA 2.4 percent.

The tax payments will ``severely undermine'' BW Gas, the Oslo-based company said in a statement to the city's stock exchange today. Odfjell, the largest deep-sea chemical tanker operator, said in a statement its ``competitiveness will be severely hampered.''

Tax Competition

The government wants to abolish corporate tax on shippers because lower rates outside Norway have encouraged companies to register new vessels in countries such as Liberia and Bermuda. The nation of 4.7 million people is the world's fifth-largest shipping country and the industry employs about 100,000, according to the Norwegian Shipowners' Association.

BW Gas declined 5.75 kroner, or 7 percent, to close at 76 kroner in Oslo, the biggest drop since the stock started trading in October 2005. The company has a market value of 9.75 billion kroner. The shares earlier fell as much as 8.25 kroner to 73.5 kroner.

Odfjell, based in Bergen, Norway, slid 2.5 kroner to 111 kroner, having earlier fallen to 108.5 kroner. It has a market value of 9.28 billion kroner. The company said yesterday it may have to pay 1.3 billion kroner in back taxes. It posted net income of $116 million (664 million kroner) last year.

The Oslo-based Norwegian Shipowners' Association will ``consider everything'' to reverse the tax ruling, spokeswoman Marit Ytreeide said by phone today. She declined to say whether a legal challenge was possible.

Money Has Gone

The government's proposal needs to be ratified by parliament, where the ruling Labor-led coalition commands a majority.

``It is guaranteed to pass,'' said Arne Strand, political editor and chief political analyst at the Dagsavisen newspaper, and a former Labor Party deputy minister. ``They have a majority government.''

Wilh. Wilhemsen ASA, which owns half of the world's largest car-shipping line, said the ruling will have a ``substantial negative impact,'' in a statement today. It's shares fell 5 kroner, or 2 percent, to 245 kroner. The Lysaker, Norway-based company has a market value of 11.8 billion kroner.

Wilh. Wilhemsen said on Sept. 8 it may have to pay 1.5 billion kroner in back taxes. It posted net income of $230 million last year (1.32 billion kroner).

Companies have already used most of the back taxes owed to invest in ships, and the government's demands for the money are effectively ``a controlled unwinding of the Norwegian shipping industry,'' the association said in a statement on its Web site on Sept. 7. ``It is a breach of trust of huge proportions.''

Two-thirds of the back taxes will be paid over a decade to the government and the rest to a fund for environmental projects.

To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net; Robin Wigglesworth in Oslo at wigglesworth@bloomberg.net.

Last Updated: September 10, 2007 11:59 EDT