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Iceland passes bill to implement OECD BEPS Action 4 and Action 13 recommendations

On 13 October 2016, the Icelandic Parliament passed Bill No. 787 that, among other things, implements some of the recommendations contained in Action 4 (interest deduction limitation) and Action 13 (transfer pricing documentation) of the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project.

In relation to Action 4, a fixed ratio rule will cap the amount of Icelandic tax relief for gross interest expense from related parties to 30% of taxable earnings before interest, taxes, depreciation and amortization (EBITDA) calculated per entity. The rules include a de minimis allowance of ISK100 million (US$876k) of related-party interest expense per annum. Moreover, the fixed ratio rule would not apply if: (i) the lender is a tax resident in Iceland; (ii) the taxpayer demonstrates that his equity ratio is not lower than 2% of the consolidated equity ratio of the MNE Group to which he belongs; and (iii) if the taxpayer is a financial institution, insurance company or a company owned by the aforementioned companies and involved in similar operations.

Regarding Action 13, the legislation introduces Country-by-Country (CbC) reporting. According to the legislation, all multinational groups with annual consolidated group revenue equal to or exceeding ISK100 billion (approx. €800 million based on the current exchange rate) will be required to file a CbC report. The CbC report shall be submitted in the jurisdiction where the group’s ultimate parent company is tax resident and shall be exchanged by using exchange of information agreements. In certain situations, other group companies may be required to file a CbC report instead. The legislation is aligned with Action 13 as regards to the reporting obligation. However, further details on the information that will be required in the CbC report will be set forth in a regulation by the Minister of Finance and Economic Affairs. The first report should be submitted by 31 December 2017 based on figures from financial year 2016. At the moment, the master file and local file have not been introduced, but it is expected that the Minister of Finance and Economic Affairs will update regulation no. 1180/2014 by the end of 2016.

EYG no. 03486-161Gb

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