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Iceland – Transfer Pricing (2025)

Iceland’s transfer pricing framework is founded on the Income Tax Act no. 90/2003, notably article 57. That provision addresses the application of the arm’s length principle and contains the statutory definition of related parties in paragraph 4. Detailed administrative rules on documentation and transfer pricing standards are set out in Regulation no. 1180/2014, which includes provisions on documentation, methods and comparability (notably articles 2, 3, 6, 7, 9 and 10). Country-by-Country reporting rules are established in Regulation no. 766/2019. The general documentation obligation is also reflected in article 57, paragraph 5, of the Income Tax Act no. 90/2003.

Arm’s length principle and role of the OECD Guidelines

Article 57 of the Income Tax Act no. 90/2003 does not contain an express mandatory citation to the OECD Transfer Pricing Guidelines, but the law does take the Guidelines into account. Regulation no. 1180/2014 explicitly refers to the OECD TPG in several provisions and adopts OECD principles for preparing transfer pricing analyses. Consequently, the OECD Guidelines serve as the practical interpretative framework applied by taxpayers and the tax administration in Iceland.

The statutory definition of related parties is set out in Income Tax Act no. 90/2003, article 57, paragraph 4. Legal entities are related where: (a) they are part of a group according to Article 2 of the Annual accounts act nr. 3/2006 or are under direct/indirect majority ownership or administrative control of two or more legal entities within the same group; (b) one legal entity has direct or indirect majority ownership over another legal entity; or (c) legal entities are directly or indirectly majority owned or under the administrative control of individuals connected through family ties, with examples including married or equivalent persons, siblings and direct relatives (children, parents, grandparents). Permanent establishments (PEs) fall within the scope of the rules when they give rise to controlled transactions.

Methods and selection criteria

Regulation no. 1180/2014, article 9, lists the transfer pricing methods that may be applied to controlled transactions. The listed methods include Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split. The regulation also explicitly leaves room for other methods, referencing external codes such as the EU code of conduct on transfer pricing documentation for associated enterprises in the European Union 2006/C 176/01 as a possible basis in Article 15, paragraph 3. Iceland applies the “most appropriate method” standard for method selection rather than a rigid hierarchy.

Comparability and use of ranges

Iceland follows the OECD guidance on comparability analysis in Chapter III of the TPG, as reflected in Article 10 of Regulation no. 1180/2014. Comparability analyses are prepared using internal and external comparables and consider the key factors identified by the OECD: characteristics of the property or service, functional analysis, contractual terms, economic circumstances and business strategies. There is no statutory preference for domestic comparables over foreign ones. The tax authority does not make use of secret comparables. The law permits the use of arm’s length ranges and statistical measures, although it does not mandate a particular approach; comparability adjustments are not explicitly required by statute but would be required in practice by the tax administration, and Article 10 requires that such adjustments be reported and explained.

Documentation and reporting

Taxpayers are required to prepare transfer pricing documentation. Article 57, paragraph 5, of the Income Tax Act no. 90/2003 sets out the documentation obligation and Regulation no. 1180/2014 details the content and procedural requirements. Iceland requires Country-by-Country reports consistent with Annex III to Chapter V of the OECD TPG; these requirements are implemented in Regulation no. 766/2019. There is no formal legal obligation to file a Master File and Local File as separate documents: the same information that would be included in a Master File and Local File must be available but need not be submitted in separate forms. Documentation must be prepared annually in Icelandic and/or English. Taxpayers must be able to submit all requested documentation to the Tax Authorities within 45 days of a request. Documentation must be retained for seven years from the end of the relevant financial year. CbC reports must be filed within 12 months from the end of the financial year, be presented in English, and be submitted on a specific form indicated by the regulation.

Simplification measures and materiality

There are no general safe harbour rules for particular industries or transaction types. Regulation no. 1180/2014, article 12, provides a simplification by exempting “minor” transactions between related parties from the full documentation requirement. A transaction is considered minor if, within an operating year, it has limited economic scope and limited importance for the operation of the entity. If an entity elects the exemption, it must report the transaction and explain its nature, scope and why it qualifies as minor. This exemption explicitly does not extend to transactions involving intangible assets.

APAs and MAP; procedures and timing

Iceland provides mechanisms for preventing and resolving transfer pricing disputes, notably the Mutual Agreement Procedure (MAP). The country’s profile indicates that detailed guidance and information on MAP is published online by Icelandic authorities. The profile does not indicate availability of Advance Pricing Agreements (APAs)—unilateral, bilateral or multilateral APAs are not listed as available mechanisms in the profile.

Penalties and other considerations

Amendments to article 57 of the Income Tax Act no. 90/2003, in force from 31 May 2021, empower Iceland Revenue and Customs to impose administrative fines for failure to meet transfer pricing documentation obligations set out in paragraph 5 of article 57. Fines can amount to up to ISK 3,000,000 for each financial year in which the taxpayer has failed to meet documentation obligations within 45 days. If a taxpayer has submitted documentation deemed unsatisfactory and has not complied with the Director’s demands for improvements within 45 days, the fine shall amount to ISK 1,500,000. Fines may be imposed for a maximum of six income years immediately preceding the year in which the fine is imposed; the profile indicates that the maximum aggregated fine may reach ISK 6,000,000 in such circumstances. There are reduction mechanisms: if deficiencies are rectified within 30 days the fine is reduced by 90%; if within two months the reduction is 60%; and if within three months the reduction is 40%.

Taxpayers are allowed to make year-end adjustments. The profile indicates there is nothing in the law or regulation regarding secondary adjustments, and therefore secondary adjustments are not currently provided for. Regarding financing transactions, while there are no specific transfer pricing rules for financial transactions in domestic law, Iceland has earnings stripping rules in the Income Tax Act no. 90/2003 that limit interest deductibility to 30% of EBITDA; these rules apply when interest expense exceeds ISK 100 million (approximately EUR 694,927) and contain certain exemptions (e.g., intra-group loans within a group authorised for joint taxation in Iceland, demonstration that the equity ratio does not deviate more than 2% from the group ratio, and exemptions for financial institutions or insurance companies or companies owned by such entities).

Attribution of profits to Permanent Establishments (PEs)

Iceland follows the Authorised OECD Approach (AOA) for the attribution of profits to PEs in four treaties and the AOA is part of Iceland’s model tax treaty. The profile notes that where bilateral treaties do not contain the updated Article 7 wording (OECD MTC 2010 and later), the implementation of the AOA has not arisen in practice and it is unclear how such situations would be handled; likely Iceland would not apply the AOA under treaties that lack the modern Article 7 wording.

Conclusion

Iceland’s transfer pricing regime rests on a statutory base (Income Tax Act no. 90/2003, article 57) complemented by detailed administrative regulation (Regulation no. 1180/2014 and Regulation no. 766/2019 for CbCR) that aligns with and draws upon the OECD Transfer Pricing Guidelines. Selection of methods is based on the most appropriate method principle, comparability and documentation requirements follow OECD principles, and specific administrative rules cover timing, language, retention and penalties for non-compliance. The system includes a materiality exemption for minor transactions but does not provide domestic safe harbours or statutory guidance in several specialized areas, which leads taxpayers and authorities to rely on the OECD Guidelines for detailed application.

References

For further information see the OECD country profiles repository: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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La información presentada en este perfil se ha generado tomando como base datos y contenidos publicados por la OCDE. Si bien se busca reflejar fielmente la información disponible, no se garantiza su exactitud ni exhaustividad y se recomienda consultar las fuentes originales de la OCDE para fines oficiales o de investigación.