Worldwide transfer pricing reference guide 2014

Iceland
Taxing authority and tax law
Tax authority: Directorate of Internal Revenue
Tax law: Article 57 of Act No. 90/2003 on Income Tax
Relevant regulations and rulings
As the transfer pricing rules were introduced on 1 January 2014, there have not been any tax rulings.
According to the law, the government shall issue a regulation with additional guidelines on the subject of documentation and pricing.
The regulation has not yet been introduced.
OECD Guidelines treatment
Tax authorities recognize the OECD Guidelines. According to the law, tax authorities may assess and adjust pricing between related
parties based on the OECD principles.
With regards to the treatment of business restructurings in the light of the recent addition of Chapter IX of the OECD Guidelines, it is
unclear what effect it will have since the domestic transfer pricing rules came into effect recently.
Priorities/pricing methods
The pricing methods are based on the OECD Guidelines. The provision does not specify any one method nor prioritize the methods in
any way.
Transfer pricing penalties
The provision states that tax authorities may assess and adjust pricing between related parties, based on the OECD Guidelines provision.
These adjustments can be performed within the domestic statute of limitation period, i.e., for the six previous years from the date of the
adjustment.
A 25% penalty can be applied to the pricing adjustment in case of underpayments.
There is no penalty for failure to provide documentation.
Penalty relief
According to Article 108 of Act 90/2003 on Income Tax, the general rule is that penalty can be avoided if the taxable party is not
responsible for the situation causing the adjustment of pricing or if the situation is caused by unforeseeable circumstances.
Failure to comply with documentation rules does not provide penalty relief.
Documentation requirements
Legal entities that have turnover or total assets exceeding ISK1billion in the previous year are required to document the nature and
extent of transactions with related parties, including reasoning for transaction prices and other terms. The duty exists as of the
beginning of the next operational year.
According to the law, the Minister of Finance will stipulate further rules on transfer pricing regulation, but has not been done yet.
It is also unclear whether Icelandic tax authorities will provide binding opinions on transfer pricing.
Documentation deadlines
Legal entities that are required to fulfil the documentation duty must start in the beginning of the next operational year in which turnover
or total assets had exceeded ISK1 billion.
Documents must be provided to the tax authorities within 45 days of a request. Documents must be kept for seven years.
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