Iceland Reprimanded By EFTA For Exit Tax Rules

by Ulrika Lomas, Tax-News.com, Brussels

18 November 2015

Icelandic rules providing for the immediate taxation of companies and shareholders upon the movement or redomiciliation of companies from Iceland to another European Economic Area (EEA) state are not in line with the EEA Agreement, the European Free Trade Agreement Surveillance Authority has ruled.

The Icelandic tax system requires immediate recovery of tax when companies transfer their registered seat from Iceland to another EEA state, divide cross-border, or transfer assets for use outside Iceland. The Authority considers such immediate recovery of an exit tax, without the possibility of a deferral, to be in breach of the freedom of establishment and the free movement of capital.

The Authority is also of the opinion that Iceland is in breach of the freedom of establishment by requiring guarantees in cases of cross-border mergers when the amount of the deferred tax exceeds ISK50m (USD378,800), without any prior assessment of the risk of non-recovery.

Iceland has two months to amend its tax law provisions or the Authority may refer the matter to the EFTA Court.

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