# Iceland transfer pricing v0.3

## Who this applies to

For 2026 workpapers, screen transactions between related legal entities and dealings with an entity's own permanent establishments. Article 57(3) also covers an Icelandic legal entity's dealings with a legal entity in a low-tax jurisdiction: absence of common ownership does not end that screen. Transactions include goods, services, tangible and intangible assets and financial instruments. [Income Tax Act 90/2003, Article 57(3)][law]

Related-party routes include membership of the same group; direct or indirect majority ownership; group control; and majority ownership or control by individuals connected through the family relationships in Article 57(4). Assess control as well as share percentages. The authority explains majority ownership as **more than 50%**; exactly 50% is not an automatic exemption if a separate control or group test applies. [Article 57(4)][law]; [Skatturinn, related legal entities][guidance]

Pricing applies to domestic and foreign related entities even when formal documentation is not required. The special related-legal-entity regime is not the rule for individual-to-individual or individual-to-company transactions; those still require consideration of the general rules in Article 57(1)–(2). [Skatturinn, scope][guidance]

This skill produces workpapers for a qualified reviewer. It does not select a defensible market price without transaction evidence, establish a permanent establishment or complete the corporate return.

## Rates, bands and thresholds

These are compliance tests, not tax rates or permitted profit margins. Sources were checked on 30 October 2026.

| Test | 2026 rule | Official source |
|---|---|---|
| Formal documentation size test | Operating revenue in one financial year **over ISK 1 billion**, or total assets at its beginning or end **over ISK 1 billion**; duty starts in the **following** financial year | [Article 57(5)][law] |
| Domestic documentation exclusion | Related-entity transactions where all parties are resident in Iceland; pricing rules still apply | [Article 57(3), (5)][law] |
| Minor transactions | Limited economic size and significance, assessed qualitatively; no numeric safe harbour is prescribed in Article 12; intangibles excluded | [Regulation 1180/2014, Article 12][reg] |
| Documentation response | Within **45 days** of the authority's request | [Article 57(5)][law]; [Regulation, Articles 13–14][reg] |
| Retention | **Seven years** from financial-year end | [Article 57(5)][law]; [Regulation, Article 15][reg] |
| Separate CbC screen | Domestic ultimate-parent exemption if previous-year consolidated group revenue is **below EUR 750 million**; equality does not qualify for that exemption | [Article 91a(1)][law]; [Regulation 766/2019, Article 1][cbc-reg] |

Use the financial year preceding the year being documented for the size screen. Exactly ISK 1 billion does not exceed the test. Check revenue and both asset dates independently, and retain earlier-year history before concluding that an existing obligation has ended. Do not substitute the value of related-party invoices for the entity-size test. [Article 57(5)][law]

## The base

If controlled prices or terms differ from comparable independent dealings, Article 57(3) requires valuation and, where appropriate, adjustment of the tax base. Reconcile the supported transaction value to the ledger and resulting profit adjustment. An arm's-length interest rate does not by itself establish interest deductibility: Article 57b separately limits a company's deduction of interest and discounts on loans from related parties, for the amount above ISK 100 million, to 30% of its adjusted profit, subject to the group-taxation, equity-ratio and financial-undertaking exceptions. Use the [corporate income-tax skill](is-corporate-income-tax.md) for that computation. [Articles 57(3), 57b][law]

### Prepare the pricing file

Use the following checklist to implement Regulation 1180/2014. Its requirements depend on transaction nature and scale; a generic group policy does not supply the missing local evidence. [Articles 2–3][reg]

| Evidence | What to prepare | Regulation |
|---|---|---|
| Group and business | For ultimate-parent documentation, group history, ownership, legal forms, residence, activities, markets and material changes, including functions, assets and risks | [Article 4][reg] |
| Financial information | Related counterparties' last three years of accounts; specified profit information separately when unavailable in those accounts; reasons and business segments behind the documented entity's losses | [Article 5][reg] |
| Transaction reconciliation | Nature and scale, terms, payment conditions, guarantees, duration, relevant costs, pricing decision and recurring transaction processes | [Article 6][reg] |
| Shared services | Evidence that the recipient received the charged benefit, a transparent allocation basis and pricing support; explain R&D cost and future-income allocation where relevant | [Article 7][reg] |
| Intangibles | Ownership, use, development, maintenance, expected resale value and present value of expected future income | [Article 8][reg] |
| Method | Explain the selected method and why its application produces an arm's-length result | [Article 9][reg] |
| Comparability | Internal/external evidence, property/service characteristics, functions, contracts, economic conditions and business strategy; justify comparable selection and adjustments | [Article 10][reg] |
| Agreements | Relevant intercompany contracts and foreign tax-authority pricing agreements or other arrangements affecting the transactions | [Article 11][reg] |

Article 9 lists CUP, cost plus, resale price, profit split and TNMM. Select and justify the method against the actual evidence; the list is not a prescribed markup. For services, trace the benefit, cost pool, allocation key and pricing result to the books. A percentage used in an example is an assumption, not an Icelandic safe harbour. [Articles 7, 9–10][reg]

Regulation 1180/2014 sets its own content list (Articles 3–11); it does not use the OECD "master file" and "local file" labels. Article 15 lets the entity document instead under the EU Code of Conduct on transfer pricing documentation (2006/C 176/01); Articles 2 and 11–15 still apply either way, so the deadlines, language and retention rules stay. If the file has no comparability analysis, Article 14 lets the authority ask for one. [Articles 3–15][reg]

### Minor transactions

Article 12 exempts qualifying minor transactions from Articles 3–11's detailed documentation, but requires disclosure of nature, extent and the reason for exemption with the return. It excludes intangible transactions. The authority assesses comparable transactions together across the year, rather than treating each small invoice separately. Keep the annual grouping and materiality rationale; the exemption does not authorise unsupported pricing. [Article 12][reg]; [Skatturinn, minor transactions][guidance]

## Deadlines and filing

Prepare documentation for **each financial year**. With the annual return, disclose the related entities, relationships, transaction types and amounts, and confirm the documentation obligation and its fulfilment in the authority's prescribed format. The published 2026 forms list identifies **RSK 4.28** for Article 57(5) entities and electronic filing. The full file is produced on request, not automatically attached merely because the annual disclosure is due. [Article 13][reg]; [2026 forms list][forms]

Keep the file available in **Icelandic and/or English**. Supply requested documentation within **45 days**; Article 14 says a request under that procedure cannot precede the return deadline and preserves other statutory information-gathering powers. Do not treat this as permission to ignore another lawful request. Record request date, scope, response due date and delivery evidence. [Articles 14–15][reg]

The disclosure goes with the annual company return; this skill does not set the return deadline (see the [corporate income-tax skill](is-corporate-income-tax.md)).

### Separate country-by-country reporting

Run this screen separately from the ISK 1 billion documentation test:

1. Identify the multinational group, ultimate parent, reporting year and previous-year consolidated revenue. Article 91a(1) exempts a domestic ultimate parent below **EUR 750 million**. The RSK 4.31 form (dated 26 August 2020) still says ISK 100 billion; the statute (amended by Act 38/2019) prevails. Skatturinn's guidance converts foreign-currency amounts at the year's average mid-rate for income items and the year-end mid-rate for balance-sheet items, and says a local filing duty under Article 91a(2)(a) does not arise merely because exchange-rate movements take a foreign parent's group revenue to EUR 750 million or more in euro terms. [Article 91a][law]; [Article 1][cbc-reg]; [RSK 4.31][cbc-form]; [CbC guidance, section 3][cbc-guidance]
2. For a foreign-parent group, check local filing triggers: no parent filing obligation, no effective competent-authority exchange arrangement in the stated circumstances, or notified systemic failure. A foreign parent saying it will file is insufficient without the exchange checks. Check all six Article 91a(3) conditions before relying on a surrogate-parent exemption. [Article 91a(2)–(3)][law]; [Article 3][cbc-reg]
3. The report is due within **12 months** of financial-year end. Article 91a(4)–(5) requires the Icelandic constituent entity to notify, within **one month** of the group's financial-year end, whether it is the ultimate parent or surrogate parent, or otherwise which group entity files and where. The authority's CbC guidance describes RSK 4.31 notification "at year-end"; the statute's one-month deadline governs. [Article 91a][law]; [CbC guidance, section 3][cbc-guidance]
4. The report is made on the English-language form (RSK 4.30), states its currency, and is filed electronically in the XML format Skatturinn requires. Reconcile jurisdiction totals and constituent-entity activities to group data, and retain acceptance evidence. Check the competent-authority exchange relationship with the parent's state at the end of the reporting year. [Articles 4–6][cbc-reg]; [CbC guidance, sections 1, 3–4][cbc-guidance]

## Penalties and interest

Article 57(6)–(11) permits administrative fines for incomplete or absent required documentation, whether intentional or negligent. The current provisions state: [Article 57][law]; [Act 61/2021, Article 1][fine-law]

| Documentation failure or cure | Amount or treatment | Source |
|---|---|---|
| Failure to fulfil duty within 45 days | ISK 3 million per affected financial year | [Article 57(9)][law] |
| Inadequate documents, required improvements not made within 45 days | ISK 1.5 million | [Article 57(9)][law] |
| Retrospective scope and aggregate ceiling | At most six income years immediately before the decision year; ISK 6 million aggregate maximum | [Article 57(9)][law] |
| Deficiencies cured within 30 days of the fine decision | Fine reduced by 90% | [Article 57(10)][law] |
| Cure within two months / three months | Fine reduced by 60% / 40% respectively | [Article 57(10)][law] |

An appeal does not suspend collection. If the fine is unpaid within one month of the decision date, Article 57(7) requires late-payment interest from the decision date. These documentation fines are distinct from additional tax, tax-base surcharges and collection interest. Article 114 links tax late-payment interest to the Central Bank rate; this skill does not quote an undated rate or compute an assessment's interest. Review the actual assessment and applicable periods separately. [Articles 57(7)–(8), 108, 114][law]

## Cross-border points

An Icelandic permanent establishment of a foreign legal entity is also within Article 57(11)'s documentation provision for dealings with its head office and related legal entities. Reconcile the branch's allocation evidence separately from an invoice-based subsidiary analysis. [Article 57(11)][law]

For actual or prospective double taxation, Skatturinn identifies transfer-pricing and branch-profit attribution as matters for the treaty mutual agreement procedure. Obtain the applicable treaty, adjustment, affected years, pricing evidence and domestic-proceedings history; check its competent-authority route and deadline. A MAP request does not guarantee relief. Treaty-specific deadlines, corresponding adjustments and interaction with appeals remain for case review. [Skatturinn, MAP guidance][map]

## Worked examples that recompute

### 1. Supported comparable price

Assume 1,000 units sold to a foreign related company for ISK 80,000 each. A documented, reliably adjusted independent comparison supports ISK 95,000. Supported revenue is ISK 95 million versus ISK 80 million booked, a **ISK 15 million** upward revenue reconciliation. The comparable price is an assumed fact, not established by this example; tax, losses, VAT and withholding are separate calculations.

```oa-check
name: Iceland controlled goods revenue reconciliation
inputs:
  units: 1000
  booked_price: 80000
  supported_price: 95000
steps:
  booked_revenue: units * booked_price
  supported_revenue: units * supported_price
  adjustment: supported_revenue - booked_revenue
expected:
  booked_revenue: 80000000
  supported_revenue: 95000000
  adjustment: 15000000
```

### 2. Revenue below the threshold, closing assets above it

Assume a calendar-year entity with foreign related transactions. Its 2025 operating revenue is ISK 990 million, opening assets ISK 800 million and closing assets ISK 1.01 billion. Closing assets exceed the threshold by **ISK 10 million**, triggering the formal documentation duty from 2026. The ISK 10 million revenue shortfall does not cancel that separate asset test. Exactly ISK 1 billion at all relevant measures would not exceed this test; arm's-length pricing remains required.

```oa-check
name: Iceland preceding year independent size tests
inputs:
  revenue_2025: 990000000
  opening_assets_2025: 800000000
  closing_assets_2025: 1010000000
  threshold: 1000000000
steps:
  revenue_shortfall: threshold - revenue_2025
  highest_asset_measure: max(opening_assets_2025, closing_assets_2025)
  asset_excess: highest_asset_measure - threshold
expected:
  revenue_shortfall: 10000000
  highest_asset_measure: 1010000000
  asset_excess: 10000000
```

### 3. Curing a documentation fine

Assume an Article 57 documentation fine of ISK 3 million and a cure qualifying for the statutory 90% reduction within 30 days of its decision. The reduction is ISK 2.7 million and remaining fine **ISK 300,000**. This is fine arithmetic only; it does not determine whether the authority accepts the cure or calculate tax and interest.

```oa-check
name: Iceland documentation fine timely cure
inputs:
  assessed_fine: 3000000
  reduction_rate: 0.90
steps:
  reduction: assessed_fine * reduction_rate
  remaining_fine: assessed_fine - reduction
expected:
  reduction: 2700000
  remaining_fine: 300000
```

## Ask the client first

- What are the ownership, control, family and group relationships, counterparty residences and branch dealings?
- What were operating revenue and opening/closing assets in the preceding financial year and relevant earlier years?
- Which goods, services, loans and intangible transactions reconcile to the ledger, including annual groups of small transactions?
- What contracts, benefit evidence, functions, assets, risks and independent comparisons support the prices?
- Which returns, RSK 4.28 disclosures, requests, fine decisions and foreign adjustments have been received or submitted?
- What are the multinational group's revenue, ultimate parent, reporting entity, exchange route and CbC notifications?

> Contributed by Michael Cutajar.