Transfer Pricing
Country Summary
Iceland
This document summarizes the transfer pricing requirements and regulations in Iceland. Iceland, while not part of the EU, follows the OECD Guidelines for transfer pricing documentation. Since 2016, Iceland has formal documentation requirements, including a master file, local file, country-by-country reporting (CbCR), and CbCR notification. They also have unique local regulations that align with OECD recommendations but have specific requirements.
Overview:
Regulatory Framework and Compliance Requirements
Iceland’s transfer pricing regulations are largely aligned with OECD Guidelines and were implemented as per BEPS Action 13. These guidelines include a three-tiered approach to transfer pricing documentation, incorporating master files, local files, and country-by-country reporting (CbCR). The Icelandic approach involves some additional requirements not found in the standard OECD template.
Defining Related Parties
Iceland defines related parties in its Income Tax Act No. 90/2003. Legal entities are considered related when part of consolidated financial statements, under majority ownership, administratively dominated, or directly or indirectly majority-owned by individuals with certain family bonds.
Transfer Pricing Documentation Requirements
Iceland follows the OECD and BEPS Action 13 for transfer pricing documentation. This includes the three-tiered documentation approach: a master file, local file, and CbCR. Additional data required for the master file includes past annual reports, profit and loss explanations, and IP-related information.
Tax Havens & Blacklists
Iceland designates jurisdictions with a CIT rate less than two-thirds of Iceland’s CIT rate as “low tax countries.” Enterprises located in such countries may be subject to tax avoidance measures if controlled by Icelandic individuals or entities.
Advance Pricing Agreement (APA)
Iceland does not currently have bilateral APAs, and obtaining a unilateral APA is uncertain.
Audit Practices
All limited companies in Iceland must appoint an auditor for annual accounts. Larger companies require a full-scale audit, while publicly listed ones need additional auditors.
Transfer Pricing Documentation Requirements
Iceland aligns with BEPS Action 13 and OECD recommendations for transfer pricing documentation. The three-tiered approach is in effect from financial years starting after January 1, 2016.
Choice of Transfer Pricing Method
Iceland’s transfer pricing methods are based on the OECD Guidelines. No specific methods are prioritized in the provisions.
Economic Analysis – Benchmark Study
Iceland does not mandate local benchmarking but may request one based on the OECD Guidelines. They recommend a new benchmarking search every three years with annual data updates.
Financial Statements
Conduct alignment with financial accounts is emphasized following OECD 2017 Guidelines.
Production Process for TP Relevant Returns, Documents, Forms, and Financials
Documentation should accompany tax returns and is submitted upon request by the Directorate of Internal Revenue, with a 45-day deadline. Only companies exceeding specific revenue or asset thresholds must prepare a master file and local file.
Mandatory Language
Icelandic or English is required for transfer pricing documentation.
Notification Requirement
CbCR notification must be submitted within 12 months of the financial year-end and includes essential company and reporting group details.
Record Keeping
Iceland’s income tax legislation lacks specific rules on transfer pricing record-keeping.
Penalties and Interest Charges
Non-compliance may lead to penalties up to ISK 3 million for non-filing, incorrect, or incomplete submissions.