Iceland: Draft Bill to Combat Tax Avoidance

On 25 May 2016, the Minister of Finance and Economic Affairs presented to the parliament a draft bill to combat tax evasion with respect to ownership in low-tax countries. The draft bill is part of the government's reaction to the "Panama Papers", which indicate possible tax avoidance on the part of Icelandic taxpayers.

The draft bill includes the following amendments:

• the transfer of legal domicile and assets to countries that are considered low-tax countries becomes limited significantly;
• the controlled foreign corporation (CFC) rules dealing with the taxation of those that have direct or indirect ownership in entities resident in low-tax countries is clarified further;
• the time period during which tax on income and assets in low-tax countries can be reassessed is extended;
• the disclosure and reporting obligations imposed on financial institutions and lawyers are reviewed;
• tougher sanctions for providing incorrect information when importing assets are introduced;
• tax authorities are given wider access to information on taxpayers' assets;
• analysis and risk management is improved; and
• limitations on cross-border mergers and divisions and loss deductions for companies in low-tax countries are introduced.

The Minister has set up a working group to draft proposals amending relevant laws, regulations and procedures as part of the government's action to combat tax evasion and the use of tax havens, in general. This includes the BEPS Action Plan, thin capitalization rules and limitation on the deductibility of dividends received from companies in low-tax countries.