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Iceland Issues Draft Transfer Pricing Documentation Rules

On 13 October 2014, Iceland's Ministry of Finance published draft transfer pricing documentation requirements. Iceland's current transfer pricing rules became effective from 1 January 2014 and apply to transactions with both resident and non-resident related parties, but did not contain specific rules for documentation.

Under the proposed documentation requirements, taxpayers must prepare the following by the deadline of the annual tax return:

  • A description of the Icelandic entity
  • A description of the Icelandic entity's group, including the legal and operational structure, the main business activities, the groups industry, and a history of the group including restructuring
  • A description of each affiliate in the group, including business activities, legal form and tax residence
  • A description of each related party transaction including:
    • The parties involved, the transaction type, and the amounts
    • An analysis of functions and risks undertaken and assets employed by the parties involved
    • Details of the contractual terms, economic conditions and business strategies
  • A comparability analysis for each intercompany transaction, including the transfer pricing policy and methods applied
  • A list of intercompany agreements entered into by the Icelandic entity and a copy of any written agreements in place with foreign tax authorities regarding transfer pricing

The transfer pricing documentation need not be submitted unless requested by the tax authorities. However, taxpayers should file an information return on transactions with related parties and provide confirmation that the documentation requirements have been complied with when filing their annual tax return.

A request for transfer pricing documentation may be made by the tax authorities for a particular tax year from the date of the return filing deadline. The documentation should be submitted within 45 days of a request. A benchmark study may also be required at the request of the tax authorities.

Final transfer pricing documentation requirements regulations are expected later this year.

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