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12.5. Other Anti-Avoidance Rules

Tax Information Exchange Agreements (TIEAs)

Tax Information Exchange Agreements (TIEAs) provide for the exchange of information on tax matters and Iceland has concluded TIEAs with 44 countries, including Antigua and Barbuda, Anguilla, Aruba, Andorra, Bahrain, British Virgin Islands, Bermuda, Belize, Botswana, Brunei, Cayman Islands, Costa Rica, Cook Islands, Dominica, Guatemala, Grenada, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Liechtenstein, Liberia,  Mauritius, Macau, Montserrat, Marshall Islands, Monaco, the Netherlands, the Netherlands Antilles, Niue, Panama, Saint Lucia, St. Vincent and Grenadines, St. Kitts and Nevis, Bahamas, San Marino, Samoa, Turks and Caicos, Seychelles, Uruguay, and Vanuatu.

Exchange of Cross-Border Tax Rulings

Iceland has agreed to exchange tax rulings with eligible jurisdictions from 1 April 2016 in line with the implementation of BEPS Action 5. Iceland can legally exchange two types of rulings, permanent establishment rulings, and related party conduit rulings. A specific ruling can be exchanged with a relevant jurisdiction if it is international in nature and affects the relevant jurisdiction. The exchange is possible if there is an agreement between Iceland and the relevant jurisdiction providing for the spontaneous exchange of tax information. The agreement can be a tax information exchange agreement (TIEA), a tax treaty or the  OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Exchange is also required for “historical” rulings granted:

  • On or after 1 January 2014 but before 1 April 2016; and
  • On or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

Financial Account Information Reporting and Exchange

Iceland acceded to the OECD Mutual Assistance Convention as amended and the convention entered into force for Iceland on 1 February 2012. Effective September 2017, Iceland has signed the Common Reporting Standard (CRS) Multilateral Competent Authority Agreement and adopted measures to implement the automatic exchange of financial account information in accordance with the global standard for exchange of information developed by the OECD under the CRS.

Further, Iceland has concluded an Intergovernmental Agreement (IGA) with the United States on 22 September 2015 to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).

Exit Tax Rules

Iceland exit tax rules provide for immediate taxation if a company transfers its registered seat from Iceland or transfers assets for use outside Iceland.

Effective 1 January 2014, Iceland introduced detailed rules on the applicability of exit tax to cross-border mergers, including the provision of deferral of exit tax, subject to conditions. If a resident company ceases to exist in case of a cross-border merger, it must pay the exit tax on the amount calculated by subtracting the book value of all its assets from their fair market value.

The rules stipulate that a merger by exchange of shares with a company resident in another EEA state, European Free Trade Association (EFTA) state or the Faroe Islands will not constitute a taxable event. The acquiring company should assume all the tax-related rights and obligations of the transferring company from the date of settlement of the balance sheet stipulated in the draft terms of merger. This exception, however, does not apply to companies that are resident in low-tax jurisdictions, unless they demonstrate that they perform real economic activities there.

In case of merger with a company resident in another EEA state, EFTA state or on the Faroe Islands through means other than share exchange, the assets, rights, claims and obligations transferred to the acquiring company are treated as sold or realized. For exit tax purposes, such assets may, however, be exempt from taxation, if they:

  • Remain in Iceland; or
  • Can be considered as effectively connected with a PE of the merged company in Iceland.

Payment of the exit tax due may be deferred for up to 5 years if the acquired company has filed its tax returns in the previous years. The acquiring company must submit, on an annual basis, its annual accounts and a follow-up report containing information about the transferred assets (e.g. sale or other arrangements that have been made). The deferred payment attracts interest at the rate applicable for monetary claims and is published on the website of the Central Bank of Iceland on the settlement date.

In a case where there is adequate information exchange or mutual assistance in the collection of taxes between Iceland and the other country, no bank guarantee is required for the deferral of exit tax. In the absence of such assistance or tax treaty, a guarantee will be required to secure the payment of the deferred tax amount, potential penalties, and collection costs.

Low or No Tax Jurisdictions and Tax Regimes

A low-tax jurisdiction is defined as one with a tax rate less than two-thirds of the applicable Icelandic rate if the company was resident in Iceland (see Sec. 12.3.1.).

Ultimate Beneficial Ownership Disclosure

Effective 1 August 2019, all legal entities, including branches of foreign companies that are required to register with the company registry must provide their beneficial ownership information at the time of their initial registration.

A “beneficial owner” of a legal entity is considered to be any individual who effectively owns or controls the legal entity through direct or indirect ownership of more than 25% of the shareholding or who can be considered to be in control of the entity in any other way.

If no individual directly or indirectly holds a sufficient percentage of the shareholding or voting rights or otherwise is considered to be in control of the legal entity, the individual or individuals who control the entity by managing its activities must be registered as the beneficial owners.

The information required to be submitted about the beneficial owner(s) includes the following:

  • Name;
  • Address;
  • Personal identification number;
  • Nationality (citizenship);
  • Shareholding (direct or indirect) of each individual that is a beneficial owner of the legal entity, along with all necessary supporting documents confirming ownership; and
  • Copy of the passport, if the beneficial owner is a foreign national.

Legal entities are required to notify the company registry of any changes to their beneficial ownership or other registered information within 2 weeks of the change.

Penalties

The following penalties may be imposed on legal entities that do not accurately or timely register:

  • Daily fines may range from ISK 10,000 to ISK 500,000 for each day for failure to register when under an obligation to do so;
  • Administrative fines for non-compliance with the registration rules may range from:
    • ISK 100,000 to ISK 5 million if imposed on individuals; and
    • ISK 500,000 to ISK 80 million for companies.

The tax authorities also may levy a fine of up to 10% of the company’s revenue according to the latest financial statements.