Iceland: local rules

Iceland has no separate transfer pricing act. The arm's length rule sits in paragraphs 3 to 5 of art. 57 of the Income Tax Act No. 90/2003. Paragraph 4 says who is related: group members, owners of more than 50% directly or indirectly, entities under the same control, and entities held by close family members. Paragraph 5 sets the documentation duty, and Regulation 1180/2014 (amended by Regulation 1156/2017, in force since 1 January 2015) gives the detail. The rules cover related parties at home and abroad. If a price is not at arm's length, Skatturinn corrects it and sets the tax base again. The regulation and Skatturinn follow the OECD Transfer Pricing Guidelines as they stand from time to time.

A company must document its dealings with a related party tax resident abroad if its operating revenue in the previous fiscal year, or its total assets at the start or end of the previous year, were above ISK 1 billion. The rule is about cross-border dealings only. Documentation is prepared for each fiscal year, in Icelandic or English, and kept for 7 years. There is no separate master file and local file. A parent of a group must include group information (art. 4), and a company may choose to follow the EU Code of Conduct format (art. 15(3)). Skatturinn cannot ask for the documents before the tax return deadline has passed, and the company then has 45 days to hand them over (art. 14). With the return, a company must file form RSK 4.28 to confirm the duty. Minor transactions are exempt from the detailed documentation (not intangibles) but must still be explained on the form.

The five OECD methods are named in art. 9 of Regulation 1180/2014: CUP, cost plus, resale price, profit split and TNMM. The documentation must explain why a method was chosen and how it gives an arm's length result. Skatturinn says no method is preferred in every case, but a traditional method is recommended when it fits. The file must contain a comparability analysis (internal and external) with a functional analysis, and any advance pricing agreement with a foreign tax authority (art. 11).

Skatturinn can fine a company that fails to meet the documentation duty in art. 57(5) of the Income Tax Act. This fine power was proposed in 2020 and added to the Act around 2020 to 2021, but the fine amounts and conditions could not be confirmed from the official text. A late tax return can be dealt with under art. 95(2) of the Act. If a price is not at arm's length, the tax base is adjusted. Penalties for country-by-country reporting were not checked.

No Pillar Two law has been enacted as of 27 October 2026. The Ministry of Finance consulted on a draft bill (case S-101/2025) in the summer of 2025. It would add an income inclusion rule and a domestic top-up tax for groups with revenue of EUR 750 million or more, and no undertaxed profits rule. The government's list of bills for the 2026 to 2027 session shows the bill planned for March 2027. There are no Pillar Two filings or deadlines in force.

The corporate tax return is due on 31 May for calendar year companies and 5 months after year end for companies with an approved different fiscal year. The dates are set by a yearly notice from the Director of Internal Revenue. For calendar year companies only, smaller companies on a registered professional's filing list can file later: until 21 September in 2026 (turnover under ISK 1 billion and assets under ISK 500 million) and until 30 September in 2024 and 2025 (turnover under ISK 600 million and assets under ISK 300 million). The country-by-country report (art. 91 a of the Act and Regulation 766/2019) is due 12 months after year end for groups with revenue of at least EUR 750 million. Each Icelandic group entity must tell Skatturinn within one month of year end which entity files the report, using form RSK 4.31. No rule moves a filing deadline off a weekend or holiday: Skatturinn's calendar shows 31 May 2025 (a Saturday) and 31 May 2026 (a Sunday) as the deadline.