According to recent ruling issued by the Director of Internal Revenue of Iceland, the transfer of assets by a company resident in Iceland to its subsidiary may lead to a taxable gain. The ruling was issued at the request of an Icelandic company considering establishing a subsidiary that would take over the operations of the parent and assume ownership of the related operating assets and patents.
The Director stated that when assets are transferred between a parent and subsidiary, the transfer must be done in accordance with the arm's length principle at fair market prices. Based on the difference between the fair market price and acquisition the cost of the assets by the parent, taking into account depreciation, costs of improvements, etc., the transfer of the assets could result in a taxable capital gains or a loss for the parent company.
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