Iceland

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.