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Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Iceland 2013
COMBINED: PHASE 1 + PHASE 2
March 2013 (reflecting the legal and regulatory framework as at December 2012)
This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Please cite this publication as: OECD (2013), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Iceland 2013: Combined: Phase 1 + Phase 2, OECD Publishing. http://dx.doi.org/10.1787/9789264192003-en
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
OECD 2013
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TABLE OF CONTENTS 3
Table of Contents
About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Information and methodology used for the peer review of Iceland . . . . . . . . . . . . 9 Overview of Iceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 A. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 19 41 48
B. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 54 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 61 C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 65 66 74 76 81 82
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4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . . 89 Annex 1: Jurisdictions Response To The Review Report . . . . . . . . . . . . . . . . . 93 Annex 2: List of Exchange of Information Mechanisms . . . . . . . . . . . . . . . . . . 94 Annex 3: List of all Laws, Regulations and Other Relevant Material . . . . . . 101 Annex 4: People Interviewed During the On-Site Visit . . . . . . . . . . . . . . . . . . 103
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EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in Iceland as well as the practical implementation of that framework. The international standard, which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain timely access to that information, and whether that information can be effectively exchanged with the jurisdictions exchange of information partners. 2. Iceland is a Nordic European island country situated at the confluence of the North Atlantic and Arctic Oceans. Icelands economy is predominantly based on fishing, tourism and aluminium smelting. Although Iceland previously had an expansive financial sector, the size of this significantly contracted following its banking and financial crisis in 2008. 3. Iceland has an extensive exchange of information (EOI) network covering 94 EOI partners. Iceland has been concluding double taxation conventions (DTCs) since the 1970s. It has also been concluding tax information exchange agreements (TIEAs) since 2007, mostly through Nordic co-operation in tax matters. Iceland exchanges information with its six neighbouring Nordic countries under the regional Nordic Convention on Mutual Assistance in Tax Matters 1989. It is a founding signatory to the 2010 Protocol of the Convention on Mutual Administrative Assistance in Tax Matters, which came into force in Iceland on 1 February 2012. Icelands EOI agreements in the main follow the form and substance of the OECD Model Tax Convention or the OECD Model TIEA, and therefore allow for EOI to the international standard. Through this EOI network, Iceland effectively exchanges information upon request from its EOI partners as well as automatically provides extensive information for tax purposes to its DTC partners on a yearly basis. During the three year period under review (2009-11), Iceland received and responded to 79 EOI requests from 16 partners. 4. The legal and regulatory framework for the availability of ownership, identity and accounting information is in place. Icelands legal and regulatory framework for the maintenance of ownership information results in such
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8 EXECUTIVE SUMMARY
information being available in respect of companies and partnerships. There are also legal and regulatory requirements to ensure that accounting records and underlying documentation are adequately maintained for relevant entities for a minimum period of seven years, which exceeds the five year standard. Icelands peers confirmed that Iceland has satisfactorily delivered accounting and ownership information in a timely manner whenever so requested. 5. The legal and regulatory framework for the availability of banking information in Iceland is in place. In practice, banking information is either already available to the Icelandic tax authorities through periodic reporting by banks or otherwise easily accessible through the Icelandic central clearing system for banks. Information may also be directly requested from the banks. Icelands peers confirmed that Iceland has been able to satisfactorily provide all banking information requested. 6. In terms of access to information for EOI purposes, the Directorate of Internal Revenue (DIR) has responsibility for the day-to-day administration of all information exchange requests. The DIR has important sources of information directly available to answer incoming requests: the DIRs own databases contain general information on taxpayers and their income, based on the tax returns filed and information collected through annual third party reporting to the tax authorities. The DIR also has direct access to various external databases (such as the register on individuals maintained by the National Register, the Register of Annual Accounts and a number of registers on entities maintained by the Register of Enterprises). Access to these systems allows the Icelandic competent authority to directly answer most of the requests received from their exchange of information partners, in particular those related to individuals. Where information must be obtained from a taxpayer, the DIR itself directly makes such request for information to the taxpayer. 7. With regard to information gathering powers, the Icelandic tax authorities have broad powers to obtain information from both taxpayers and third parties for exchange of information purposes. These powers have been utilised efficiently by the Icelandic authorities for EOI purposes. 8. Iceland has been able to respond to information exchange requests in a timely manner. Iceland provided the requested information within 90 days in relation to all but three requests received. Of the rest, information was provided in one case within 180 days and two cases within a year. Input received from Icelands exchange of information partners suggests that the Icelandic authorities respond to requests very quickly with responses of high quality. Altogether, Iceland is considered by its peers to be a reliable, efficient and cooperative partner. A follow up report on the steps undertaken by Iceland to answer the recommendations made in this report should be provided to the PRG within twelve months after the adoption of this report.
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INTRODUCTION 9
Introduction
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10 INTRODUCTION
to each of the essential elements to reflect the overall position of a jurisdiction. However, this rating will only be published at such time as a representative subset of Phase 2 reviews is completed. This report therefore includes recommendations in respect of Icelands legal and regulatory framework and the actual implementation of the essential elements, as well as a determination on the legal and regulatory framework, but it does not include a rating of the elements. 11. The assessment was conducted by a team which consisted of two assessors and two representatives of the Global Forum Secretariat: Ms. Maria Soledad Salman, Senior Legal Adviser, International Taxation Department, Servicio de Impuestos Internos, Chile and Mr. Jon Swerdlow, Senior Policy Adviser, Tax Treaty Team, HM Revenue and Customs, the United Kingdom; Ms. Doris King and Ms. Gwenalle Le Coustumer from the Global Forum Secretariat.
Overview of Iceland
12. Iceland is a Nordic European island country situated at the confluence of the North Atlantic and Arctic Oceans, on the mid-Atlantic Ridge. Iceland covers a total area of 103 000 square kilometres and has a population of around 320 000, making it the most sparsely populated country in Europe. Around half of the countrys population is located in and around the capital Reykjavik. The currency is the Icelandic Krona (ISK; on 19 November 2012 ISK 100 equal USD 0.8 and EUR 0.62). 13. Iceland underwent a financial crisis in the autumn of 2008, precipitated by short-term debt refinancing difficulties faced by Icelandic commercial banks. This had a significant impact on Icelands economy and resulted in an overhaul of its financial system (see Overview of the financial sector and relevant professions below). Icelands GDP in 2011 was ISK 1 626 billion (EUR 10.08 billion), with a GDP per capita of ISK 5.1 million (EUR 31 600). Historically, Icelands economy depended heavily on fishing and fish processing which still account for 28% of Icelands total exports, amounting to more than 12% of GDP. Other main exports include aluminium and ferrosilicon (also 28%). During the last decade, Icelands economy has been diversifying into manufacturing and service industries, particularly in the fields of software production, biotechnology and tourism. As a result of its geographical and geological make-up, Iceland possesses abundant geothermal and hydropower sources, which have attracted substantial foreign investment in the aluminium sector from the United States and Canada, in the ferrosilicon smelting sector from Norway and China, as well as significant Swedish and Canadian investment in the energy sector. In total, Icelands exports amounted to ISK 962.9 billion (EUR 5.97 billion) in 2011.
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INTRODUCTION 11
Icelands main imports comprise machinery and equipment, petroleum products, foodstuffs and textiles, which in 2011 amounted to ISK 825.8 billion (EUR 5.12 billion). The European Union is Icelands largest trading partner, accounting for 66% of its total trade in 2010. Other main trading partners include Norway (6.5%), the United States (6.2%), Brazil (4%), China (3%), Japan (2.4%) and Brazil (2.1% of exports). 1 14. Iceland is active in the international arena: it is a founding member of the United Nations, the Council of Europe, the Nordic Council, NATO and the OECD. Iceland is also a member of the International Monetary Fund, the Financial Action Task Force and the World Bank. Iceland is not a member of the European Union (EU), although it is currently engaged in EU accession negotiations. It participates in the European Economic Area and in the Schengen Area, a European zone of free movement of people. As an OECD country, Iceland has been a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) since its creation.
General information on legal system and the taxation system Legal system
15. Iceland is a parliamentary, representative, democratic republic. Executive power is vested in the President and the Government (Alingi). However the President, as the Head of State, serves a predominantly symbolic role with limited exercise of executive power in practice. Executive power is mainly exercised by the Government, which is headed by the Prime Minister and his/her Cabinet. The Prime Minister usually serves a four year term, with general parliamentary support and by formal appointment by the President of Iceland. Legislative power is exercised by both the Government and the Parliament. The judiciary, headed by the Supreme Court of Iceland (Hstirttur slands), is independent of both the executive and legislature. 16. The Parliament, arguably the oldest parliament in the world, is composed of 63 members representing eight constituencies. Parliamentary members are elected through proportional representation for four year terms, unless Parliament is dissolved sooner. The Parliamentary assembly sits as a unicameral legislature. 17. The Icelandic judicial system is comprised of a network of district courts presided over by the Supreme Court of Iceland. The Supreme Court is the highest judiciary power in Iceland, with nine Supreme Court justices. The
1. Figures from the Central Bank of Iceland, the European Union, Statistics Iceland and the World Bank.
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12 INTRODUCTION
lower branch of the judiciary is comprised of eight district courts, with 38 permanent district court judges, located across Iceland. The Minister of the Interior appoints judges to the Supreme Court based upon a recommendation from the Supreme Court and judges to the district courts based upon a recommendation from a special board of appointment. The only specialised courts are the Labour Court, which deals with employment related disputes, and Landsdmur, a special high court with jurisdiction to handle cases where Icelandic Cabinet members are suspected of criminal behaviour. All other courts have the power to consider all other cases, including cases relating to tax matters. 18. The Icelandic legal system is formed of a combination of civil law, common law, conventions and customary law. The Constitution of Iceland of 1944, as amended, is the supreme law of the land; it determines the leadership arrangement of Iceland and preserves the human rights of its citizens. The Constitution also states that no tax can be levied, abolished or lowered unless authorised by law. The hierarchy of legal norms in the Icelandic legal system ranks as follows: (i) the Constitution; (ii) statutory legislation (i.e. primary legislation); (iii) regulatory statutes (i.e. secondary legislation); (iv) precedents; (v) customary law; and (vi) legal practice/tradition of culture. According to Icelandic principles of legal interpretation as established through case law, there is an undisputable duty on courts and other professional interpreters of statutory law to take into consideration the legislative explanatory notes to the extent that they do not contradict the wording in the legislation. Iceland adheres to the principle of dualism in matters of international law: ratified international treaties are binding on Iceland according to international law but do not assume the force of domestic law in Iceland. Should a question between domestic law and international treaty arise in court, the court would interpret the law in light of the treaty. Where a conflict exists between the law and the treaty, the case would be decided pursuant to the law and amendments to the law would then be proposed to Parliament to comply with the treaty obligations of Iceland. In practice, the Icelandic Ministry of Foreign Affairs does not provide treaties to the government or parliament (as appropriate) for ratification until all changes that are required to be made to domestic law to resolve any inconsistency between Icelands treaty obligations and domestic law have been made. In the context of tax, section 119 of the Income Tax Act provides the legal basis for the modification of Icelandic domestic tax provisions through international tax agreements. Icelandic courts have taken into account the provisions of international tax treaties in the context of determining tax disputes in Iceland.
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INTRODUCTION 13
Tax system
19. Taxes are imposed at both the state and municipal levels in Iceland. For state income tax, individuals are progressively taxed at rates between 22.9% and 31.8%. The corporate income tax rate is 20% for companies and 36% for partnerships registered as taxable entities. In addition, as of the tax year 2012, Icelandic resident individuals whose net wealth exceeds ISK 150 million (EUR 930 000) are subject to net wealth tax of 1.5% on the value of their net assets (i.e. all assets minus debt). Individuals with net assets exceeding ISK 150 million (EUR 930 000) are taxed at 1.5% for the first ISK 150 million and at 2% on the remaining value of their net assets. 20. For income tax purposes, Icelandic residents (whether individuals or legal persons) are subject to unlimited tax liability on all their worldwide income. Individuals are considered resident for Icelandic tax purposes if they stay in Iceland for an aggregate 183 days or longer in any 12-month period. Former residents remain subject to unlimited tax liability for three years after leaving Iceland, unless they demonstrate that they have become subject to taxation in another country. Companies are considered resident in Iceland for income tax purposes if they are incorporated in Iceland or have their place of effective management in Iceland. 21. Non-resident individuals and companies are subject to income tax on their Icelandic source income. Non-resident individuals are generally taxed at a rate of 20%; non-resident companies are taxed at the same rate as resident companies. Withholding tax applies at the following rates, for the 2011 tax year, with respect to payments by Icelandic residents to non-residents: dividends (20% for non-resident individuals; 18% for non-resident companies), interest (10%) and royalties (20%). 22. The Directorate of Internal Revenue (DIR) is responsible for tax assessments whilst the Directorate of Customs (DoC) is responsible for the collection of state and municipal taxes. The DIR processes tax returns filed by individuals and companies in March and May, respectively, each year. In practice, the DIR pre-fills tax returns with information received in February of that year through obligatory annual reporting by third parties (such as employers, pension funds, banks and other financial institutions and Icelandic companies which pay out dividends). Such information includes dividend, interest and capital payments, deposits, loans and debts, information on immoveable assets, wages, commissions and pension payments. 23. The DIR maintains a comprehensive database of information on taxpayers, which contains information collected through the annual reporting mentioned above, filed tax returns as well as through the population register maintained by the National Register (described further below). In addition, the Register of Enterprises, which maintains registration information on all
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14 INTRODUCTION
legal entities engaged in business as well as the Register of Annual Accounts, is located within the DIR. The Register of Enterprises facilitates the availability of information in two ways: firstly, as the DIR (through the Register of Enterprises) administers the registers, this improves its access to such information; and secondly, the issuance of identity numbers by the Register of Enterprises to business entities facilitates the tracing of transactions and financial activities carried on by such entities in Iceland. 24. An identity number (kennitala) system is also operated for individuals by the National Register. This number is integral to the conduct of everyday activities in Iceland: it is required for opening bank accounts, conducting transactions, receipt of any payments (including wages) and identifying individuals for social security and tax filing purposes. Foreign non-resident individuals may also obtain an Icelandic identity number, for example, if they wish to open an Icelandic bank account. In all cases, a third party will apply on an individuals behalf for an Icelandic identity number (in this example, the bank). The National Register maintains up-to-date registration information to which the Icelandic tax authorities have access. In the case of Icelandic resident individuals, such information includes an individuals name, date of birth, current and previous marital status, current and previous addresses. In the case of non-resident individuals, directly available information includes name, date of birth, nationality and gender of the applicant, and the identity of the third party applicant. The wide usage of the Icelandic identity number in everyday activities and transactions aids the tracing of transactions carried out by individuals.
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INTRODUCTION 15
on an automatic basis annually under the 1989 Nordic Mutual Assistance Convention on Mutual Administrative Assistance in Tax Matters (the Nordic Convention) and with all of its DTC partners, without requirement of reciprocity. It also receives information automatically from some treaty partners. Information provided by Iceland on this basis includes employment income, banking information, dividend income and capital payments. This automatic provision of information has generated EOI requests to Iceland, largely for addresses and contact details of individuals for the purpose of tax collection. Some EOI partners have indicated that this is the only basis upon which they receive information for tax purposes from Iceland. This practice may have impacted upon the number of EOI requests received by Iceland and, to some extent, explain the nature of the EOI requests that have been made to Iceland.
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16 INTRODUCTION
by NASDAQ OMX Group since 2009. There are currently only eight companies listed on it with a total listed share value of around ISK 242 billion (EUR 1.5 billion), amounting to approximately 15% of GDP. All securities listed and traded on the Icelandic Stock Exchange must be held through the Icelandic Security Depository (an electronic clearing system) which is also operated by NASDAQ OMX Group. 32. Insurance companies are licensed and supervised by the FSA. Certain requirements must be fulfilled by licence applicants, e.g. on solvency. There are currently eight non-life insurance companies and five life insurance companies in Iceland. The combined assets of non-life insurance companies in 2011 were approximately EUR 825 million with a combined profit of EUR 42.8 million. The combined assets of life insurance companies were approximately EUR 90.7 million in 2011 and the combined profit totalled EUR 8.2 million.
Recent developments
33. Legislation was passed on 20 April 2009 to amend section 92 of the Income Tax Act which sets out periodic reporting obligations to the Icelandic tax authorities. The amendments introduced the obligation of automatic periodic reporting by banks and financial intermediaries (further discussed in Parts A and B). 34. In addition, this legislation and subsequent legislative amendments made on 28 December 2010 broadened the scope of the Icelandic tax authorities information gathering power under section 94 of the Income Tax Act. These included the introduction of an express override of confidentiality and secrecy provisions; the provision of search and seizure powers in relation to private homes and other premises; the obligation for tax planning advisers (whether banks, lawyers, etc.) to keep a special registry of their clients who obtained such advice in connection with foreign ownership of companies; and the requirement for entities in Iceland that are direct or indirect owners of foreign companies and branches to provide information to the Icelandic tax authorities on such overseas operations where requested. 35. Legislative amendments are anticipated in connection with Icelands application to the EU; for instance, Iceland is preparing for the legal and procedural implementation of the EU Savings Directive (2003/48/EC).
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A. Availability of Information
Overview
36. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If such information is not kept or the information is not maintained for a reasonable period, a jurisdictions competent authority 2 may not be able to obtain and provide it when requested. This section of the report describes and assesses Icelands legal and regulatory framework for availability of information. It also assesses the implementation and effectiveness of this framework. 37. The legal and regulatory framework for ensuring the availability of ownership, accounting and banking information is found to be in place. In the three-year period under review (2009-11), Iceland responded in full and expeditiously to all its EOI requests and all EOI partners expressed satisfaction with the responses they received from Iceland. It should however be noted that Iceland predominantly receives EOI requests that relate to individuals, and the rest to Icelandic companies. The legal and regulatory framework of
2. The term competent authority means the person or government authority designated by a jurisdiction as being competent to exchange information pursuant to a double tax convention or tax information exchange agreement.
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43. In practice, the most common form of entities in Iceland are private limited companies (einkahlutaflag), followed by general partnerships (sameignarflag) and limited partnerships (samlagsflag). Between 2009 and 2011, Icelands EOI partners have predominantly requested information in relation to individuals (66 EOI requests), including two requests for banking information, rather than legal entities (13 EOI requests). All of these 13 EOI requests related to companies. These were mainly requests for accounting records and underlying documentation (11 requests), although ownership (in four cases) and banking information (in one case) was also requested. No request was made during this period in relation to other forms of entities. Icelands partners are satisfied with both the substance and the speed of Icelandic responses to their EOI requests and no partner noted that any particular type of ownership, accounting or banking information was unavailable in Iceland.
Types of companies
45. Public limited companies (hlutaflag, hf.): The structural and organisational requirements of a public limited company are outlined in the Act on Public Limited Companies. Such companies must have a minimum share capital of ISK 4 million (EUR 24 800). Shareholders have limited liability for the debts of a public limited company. Shares of such companies may be admitted to trading on securities markets and nominee shareholding is permitted. Public limited companies may be founded by two or more legal or natural persons and must have a board of at least three directors. The majority of founders, all of the managers and at least half of the directors of the company must be resident in Iceland, the EEA, EFTA or the Faroe Islands unless the Minister of Economic Affairs grants an exemption. As at the end of 2011, there were 660 public limited companies registered in Iceland.
3. Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information.
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Tax law
52. Pursuant to section 92 of the Income Tax Act, the DIR can issue administrative regulations specifying the type of information which must be submitted to the DIR. The DIR issues every year regulations specifying the information that should be provided and the form in which this should be provided. In accordance with such regulations, companies are required to provide information regarding their shareholders, including their name and Icelandic identification number (where available) or foreign identification number and country of residence, as applicable, as well as all dividends paid and taxes withheld during the reporting period. Financial institutions which carry out transactions in shares are also required to annually report details of these transactions and the parties involved (i.e. the shareholders and companies) to the DIR (Income Tax Act, s. 92). 53. Shareholders that are deemed resident for Icelandic tax purposes are obliged to submit in their tax return to the DIR details relating to dividends
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Limited Companies, s. 31). Evidence in the context of the phrase or he/she has given notice and evidence of his/her ownership of the share in the above provisions means the presentation of an agreement or contract of sale of the shares, in a situation where there has been insufficient time for the registration process to occur prior to the exercise of shareholder rights, such as the exercise of voting rights during an annual general meeting. No express time limits are set out within which a person is required to register his/her new share ownership and the legitimacy of the persons claim to share ownership appears a matter for determination by the company. However, as noted above, the dates of change of ownership and registration are required to be recorded by the directors of the company in the share register (Act on Private Limited Companies, s. 19 and Act on Public Limited Companies, s. 30). In addition, the Icelandic authorities indicated that as individuals are required to file annual tax returns and companies are required to annually report their shareholding to the DIR (see section on Tax Law above), it is unlikely that any change in share ownership may pass unrecorded for longer than one year.
Foreign companies
58. Where a company has sufficient nexus to a jurisdiction, including being resident there for tax purposes (for example, by reason of having its place of effective management or administration there), that jurisdiction has the responsibility of ensuring that ownership information is available. Under the Income Tax Act, a company is treated as resident in Iceland if it is effectively managed in Iceland (s. 2(2)). It is subject to the same tax obligations (including filing and reporting requirements) as Icelandic incorporated companies. Foreign incorporated companies conducting business in Iceland through a branch are required to register with the Register of Enterprises at the Directorate of Internal Revenue (DIR) and obtain an identification number prior to the commencement of operations in the same way as for Icelandic companies (Act on Private Limited Companies, s. 115 and Act on Public Limited Companies, s. 141). 59. As discussed under Information held by government authorities tax law above, companies (including foreign incorporated companies that have a presence in Iceland) are required to periodically report identification information on their shareholders, as well as dividends paid and taxes withheld each year, to the DIR under the administrative regulations issued each year pursuant to section 92 of the Income Tax Act. Accordingly, through this reporting obligation, ownership information on foreign incorporated companies having sufficient nexus with Iceland (by virtue of being tax resident in Iceland) would be available to the DIR. However, the Icelandic authorities indicated that there are currently no foreign incorporated companies that are tax resident in Iceland.
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name and identification numbers of all legal shareholders, except those with very minimal shareholding, would generally be requested, as part of the CDD check on corporate clients. 63. All CDD documents must be retained for five years from the end of the business relationship (s. 5).
Nominees
64. Nominee shareholdings are possible in relation to public limited companies only in Iceland. The Act on Public Limited Companies provides for the name, identity number and address of the person authorised to act as nominee shareholder, in accordance with the Act on Securities Transaction, to be entered in the share register of the company (s. 30). The Icelandic authorities confirmed that nominee shareholdings in public limited companies are only permissible under the conditions stipulated in the Act on Securities Transaction. 65. The Act on Securities Transactions provides that only licensed entities are permitted to act as nominee holders of shares that are negotiable on the capital market. The provisions governing such licensing are set out under the Act on Securities Transaction and the Regulation on Nominee Registration and the Custody of Financial Instruments in Nominee Accounts. The Regulation provides that financial undertakings (such as banks, securities undertaking, securities brokerage, etc.) which are authorised to hold financial instruments for their Icelandic or foreign clients may apply to the FSA for a licence to hold the instruments in a nominee account (s. 3). Section 12 of the Act states that nominees must keep a record of their clients, and this requirement is expanded upon by the Regulations which provide that: Licensed nominees must have information available on clients who have requested nominee registration. Such information must be retained for five years from the end of the business relationship (s. 7). Licensed nominees must maintain a record of the share of each individual client which shall include the names and number of clients associated with the financial instrument registered in the nominee account, as well as the number of financial instruments covered by each nominee registration agreement (s. 8).
66. The above obligations are further supplemented by CDD requirements under the AML legislation. All persons who provide nominee shareholding services in the course of their business (i.e. professional nominees) are subject to the CDD requirements under the AML legislation, as a result of their status as company service provider and/or financial undertaking (AML legislation, ss. 2(a), 2(k) and 3(6)(e)). All nominees fall within
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Enterprises. A foreign partnership is required to provide notice containing the information mentioned above as well as a copy of its certificate of registration from its home jurisdiction in order to register. Changes to the information provided in its notice of registration (including identity information of its partners) must also be notified to the Register of Enterprises. In practice, there are currently no foreign partnerships registered to operate in Iceland.
Tax law
79. For tax purposes, partnerships are either treated as fiscally transparent or as an independent tax entity. Partnerships are treated as an independent tax entity in Iceland if: (i) they are registered with the District Commissioner; (ii) their registration states that they are an independent tax entity; and (iii) they provide, at the time of registration, an agreement stipulating the proportions of ownership, equity and how the partnership would be dissolved (Income Tax Act, s. 2(3)). Such partnerships must also obtain an identification number from the Register of Enterprises by providing their certificate of registration (issued by the District Commissioner) and a certified copy of their partnership agreement with their first tax return. Such partnerships are then required to file tax returns accompanied by their annual accounts each year (Income Tax Act, s. 90). Although the tax return itself does not contain identification information of the partners, the Icelandic authorities indicate that ownership and identity information, such as name and identity number of each partner, will be contained in the accompanying annual accounts. 80. Where a partnership is not registered as an independent tax entity, its income is divided between, and attributed to, its partners equally, unless the partners have expressly agreed to different proportions of attribution. The attributed partnership income is taxed in the hands of each partner (Income Tax Act, s. 2(3)). Each partner would be required to file his/her own tax return regarding the partnership income, through which identity information of the partner would be provided to the Icelandic tax authority (s. 90(1)). Furthermore, such partnerships are still required to register with the District Commissioner and the Register of Enterprises if they engage in business, through which identity information on the partners is also made available.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
84. As noted above, there are currently two systems of partnership registration in place: one operated by the District Commissioners, which is decentralised over the 24 districts of Iceland; and another operated by the Register of Enterprises, which is a centralised electronic system. Limited partnerships may, in some cases, only register with the District Commissioner and not with the Register of Enterprises i.e. where they do not carry on business operations and are not registered as independent tax entities and, therefore, do not require the issuance of an identification number by the Register of Enterprises. 85. The decentralised registration system has made the location of registration information through this system time-consuming in practice. This is in part due to decentralisation and also due to maintenance of the majority of the registration records only in paper format after the collapse of the electronic registration system a few years ago. Conversely, information can be easily accessed via the centralised registration database operated by the Register of Enterprises, to which the DIR has direct access. The Icelandic authorities indicated that there are proposals for relocation of the whole partnership registration system to the Register of Enterprises. Despite the fact that EOI requests on partnerships would most probably cover information maintained by the Register of Enterprises or on the tax database, rather than that held by the District Commissioners, the plans for the relocation and centralisation of the information are welcomed. 86. In the three year period under review (2009-11), Iceland received no EOI request related to a partnership.
Tax Law
88. Based on the application of general tax provisions and obligations, Icelandic resident trustees will be taxed on their income derived from their trustee functions for which they must be able to provide justification (Income Tax Act, s. 1, 2 and 90). In addition, according to the Icelandic tax authorities, an Icelandic resident trustee would also be subject to tax on a worldwide basis as the apparent owner of any assets of the foreign trust, wherever such assets
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
AML Legislation
90. Trust service providers (i.e. professional trustees) are subject to CDD and reporting obligations under the Icelandic AML legislation (ss. 2(k) and 4). Section 3(6)(d) defines a trust service provider as a natural or legal person who by way of business provides the services of, amongst other things, acting or arranging for another person to act as, a trustee of a trust or a similar legal arrangement. Under the AML legislation, customers, e.g. settlors in the case of a trust, are required to provide proof of their identity to the trust service provider prior to the establishment of a permanent business relationship (s. 5). The identification documentation to be provided for CDD is as described in A.1.1 above. 91. Trust service providers are also under a duty to obtain information about any beneficial owner of their client (s. 5). As relevant to trusts, the beneficial owner is defined as including the natural person(s) who is/ are the future owners of 25% or more of the assets of a trust or a similar legal arrangement or who control more than 25% of its assets (s. 3(4)(b)). Additionally, trust service providers must obtain further information in cases where it is not clear from the submitted documents who will be the final recipient of any funds (s. 5). However, this obligation to identify beneficial owners, as defined in the AML legislation, does not necessarily oblige the trust service provider to identify all beneficiaries of a trust.
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information regarding the settlors, trustees and beneficiaries of foreign trusts is available to the Icelandic tax authorities. Accordingly, it is considered that Iceland has taken reasonable measures to ensure that ownership information is available to its competent authorities in respect of foreign trusts with a trustee or trust administrator resident in Iceland. 93. In practice, Icelandic professional bodies indicated that they were not aware of the existence or operation of foreign trusts with a trustee or administrator in Iceland. Similarly, no EOI partner has indicated that it has requested Iceland to provide information relating to a foreign trust with an Icelandic trustee or that is administered in Iceland. The Icelandic authorities indicated that the only cases of trusts which they have encountered in practice were foreign trusts with Icelandic resident settlors or beneficiaries with trustees located abroad. In this regard the Icelandic court had ruled, in the context of an embezzlement case, that the effective management of a foreign trust with Icelandic settlors and foreign trustees nevertheless remained in Iceland because real decision-making power was exercised by the settlors in Iceland. 7
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Tax law
99. Foundations in Iceland are liable to tax unless they are exempt (Income Tax Act, s. 2(5)), because their net income is only spent for the public good and such work is their sole goal according to their statutes (s. 4(4)). All Icelandic foundations currently in operation in Iceland are exempt from tax but are nonetheless required to file annual tax returns with the DIR (s. 90). The Icelandic authorities advised that such annual tax returns would not contain identity information in relation to beneficiaries. However, to the extent that a foundation makes payments to its beneficiaries, it will be required to report such payments to the DIR on a yearly basis pursuant to regulations issued under section 92 of the Income Tax Act. Through this, identity information on payee beneficiaries (such as name, address and identity number) would be made available to the DIR.
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PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
109. However, none of the legislation listed in the bullet points of the paragraph above specifies the amount of fines that can be imposed nor, where relevant, the instances in which a fine (as opposed to imprisonment) would be considered an adequate sanction. The Icelandic authorities indicated that, as a result of this, the above-mentioned enforcement powers (save for the striking off of companies) cannot be exercised without the adoption of regulations to provide guidance. Iceland is encouraged to take the necessary steps to enable the exercise of these enforcement powers in practice. 110. Nevertheless, the current inability of the Register of Enterprises to exercise the above enforcement powers is considered to have a limited impact in practice, since other legal obligations which ensure the availability of relevant ownership information are adequately supported by effective enforcement provisions. Ownership information on companies, for which EOI requests have been made, is available to the DIR pursuant to section 92 periodic reporting rather than through records kept by the Register of Enterprises. Identity information in relation to partnerships is available to the Icelandic tax authorities by virtue of tax filing requirements that apply either to the partnership or to the partners themselves. As discussed below, the Icelandic tax authorities impose fines in practice for non-compliance with tax obligations. In addition, enforcement provisions in relation to AML obligations (which ensure the availability of identity information in relation to nominee holdings and relevant foreign trusts) are exercised by the FSA in practice.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Practice
115. In practice, the Icelandic tax administration receives periodic reporting information (pursuant to s. 92 of the Income Tax Act) by February of each year which it uses to pre-fill much of the information on tax returns, which are required to be filed by March (for individuals) and May (for companies) of each year. This minimises the extent to which taxpayers could provide inaccurate information to the Icelandic tax administration. Additionally, the Icelandic tax authoritys database allows for cross-checking of information between different sources, including information from tax returns (which are filed electronically by 98% of individuals and 85% of legal entities); information collected through section 92 periodic reporting; and registration information collected by the Register of Enterprises. Such cross-checking is conducted electronically on a yearly basis. Therefore, in practice, the DIR can verify much of the information internally through its own systems without need for external verification with third parties. This, to some extent, accounts for the relatively scarce use of enforcement powers by the Icelandic authorities to date. 116. Fines are imposed by the Icelandic tax authorities, as determined by the State Internal Revenue Board, in relation to non-compliance with tax filing and periodic reporting requirements (Income Tax Act, ss. 90, 92 and 109). The State Internal Revenue Board ruled on 114 cases between 2010 and 2011 and fines were imposed in 28 of these cases. In 2012 up till October, the State Internal Revenue Board, had ruled on 22 cases in which fines have been imposed in 14 cases; both figures were expected by the Icelandic authorities to rise through the rest of 2012. The Icelandic tax authorities indicated also that in recent years, companies that have neither complied with their obligations nor paid the fines are being deregistered by the Register of Enterprises, as this situation usually corresponds to dormant entities with no activity for years. To date, around 1 000 companies have been deregistered. It is noted that an entity that is de-registered by the Register of Enterprises cannot acquire rights (and therefore would not be able to legally hold assets) or assume debts. Iceland is encouraged to continue its efforts in the exercise of appropriate monitoring and enforcement powers in these regards to ensure that obligations to retain identity and ownership information are sufficiently enforced.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
117. Representatives of the FSA indicated that FSA on-site visit teams have recently been established, in January 2012, to monitor compliance by financial undertakings with legal and regulatory requirements, including those under the AML legislation and those applying to licensed nominees (Act on Official Supervision of Financial Activities, s. 9). Four visits have been carried out to date to one commercial bank, one pension fund and two investment management companies. Two further on-site visits to commercial banks are planned for 2012.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.
118. The Terms of Reference sets out the standards for the maintenance of reliable accounting records and the necessary accounting record retention period. It provides that reliable accounting records should be kept for all relevant entities and arrangements. To be reliable, accounting records should: (i) correctly explain all transactions; (ii) enable the financial position of the entity or arrangement to be determined with reasonable accuracy at any time; and (iii) allow financial statements to be prepared. Accounting records should further include underlying documentation, such as invoices, contracts, etc. Accounting records need to be kept for a minimum of five years.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
122. All entries made in books and accounts must be clear and in permanent writing. No entry should be deleted or made illegible even where a mistake has been made (s. 21). Neglect of obligations to keep clear, secure and accessible accounting records is punishable through fines as determined by the State Internal Revenue Board (ss. 36, 38 and 40). Destruction or concealment of, or obstruction of access to, accounting records (including underlying
8. Exception is made from the above requirements for businesses which only contract personnel of up to one person in certain sectors such as provision of services (but excluding the custody of funds); operation of small boats; processing of marine catches. Also excepted are funds or organisations which do not engage in business operations, whose only income derives from members contributions to meet joint expenses and which contract personnel of up to one person only (s. 3).
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documentation) is punishable by up to six years imprisonment or, where there are mitigating circumstances, a fine (ss. 36 and 37). 123. The Accounting Act provides for the preparation of financial statements (i.e. annual accounts). As a minimum, annual accounts must contain an income statement, a balance sheet and notes (s. 22). The accounts should be sufficiently detailed to give a fair view of assets, liabilities and equity at the end of the year (s. 23) and the income statement should systematically display total income and expenditure, sufficiently itemised to give a fair view of the operating results during the financial year (s. 24). 124. Further statutory accounting rules are provided in the Act on Annual Accounts for specific entities such as: (a) Icelandic companies and partnerships which exceed the following size limits for two consecutive years: (i) assets amounting to ISK 230 million (EUR 1.43 million); (ii) operating revenue amounting to ISK 460 million (EUR 2.86 million); and (iii) employment of personnel equal to 50 full time staff in a financial year; (b) other Icelandic public limited companies, private limited companies and foundations engaging in business operations not covered by (a) above; (c) registered branches of foreign companies; (d) Icelandic companies with securities listed on a regulated market in the European Economic Area; (e) Icelandic partnerships where they have as members only the entities referred to in the points above. 125. The Act on Annual Accounts essentially sets out, in law, the generally accepted accounting principles in Iceland. Under this Act, the board of directors and managing director are responsible for preparing the annual accounts (i.e. financial statements) of their entity, which must give a true and fair view of performance, financial position and cash flows (s. 5). Failure to prepare such annual accounts, whether by act or omission, is a punishable violation (s. 122). Responsibility for the enforcement of these requirements rests with the Register of Enterprises as described below.
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PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
130. First, the accounting and bookkeeping obligations under the Accounting Act, as previously described, require individuals who engage in business operations, and any societies, funds or institutions which engage in business activity, or the fundraising or management of funds, to keep full accounting records and underlying documentation concerning their activities. The Icelandic authorities explain that although the words trust or trustee do not appear in the Accounting Act, trusts would be viewed as funds, and trustees as persons who manage funds. Those within the scope of the Accounting Act, including trustees managing trusts from Iceland and the trusts they manage, are required to prepare accounts in a manner that allows transactions and the use of funds to be traced in an accessible manner, and to set out information on their operations and financial positions as necessary for owners, creditors and public authorities to assess revenue and expenditure, assets and liabilities (s. 6).The Icelandic authorities state that these requirements mean that accounts must be maintained for the trust assets, distinct from the accounts kept by the trustee for his/her own business operations. 131. Second, as noted earlier under section A.1.4, based on the application of general tax provisions and obligations, trustees resident in Iceland will be taxed on a worldwide basis as the apparent owners of any assets of the foreign trust, wherever such assets are held, unless they can prove that the income derived by the trust is not their income, in which case they would be taxed only on their income derived from their trustee functions. In both cases, the trustee will be required to submit a tax return, and section 90 of the Income Tax Act provides that the tax return of legal entities and individuals running a business or independent operations shall be accompanied by a signed annual account in accordance with the provisions of the Accounting Act or, where applicable, the Annual Accounts Act, along with a specific report regarding tax bases. In addition, the Icelandic tax authorities can, as part of a tax investigation, request those required to file a tax return to provide them with their accounts and books for inspection, as well as any other documentation relevant to the business, including letters and contracts (s. 94(3)). Accordingly, Icelandic resident trustees would have to keep full accounts and books, in accordance with the Accounting Act, to comply with such a request. 132. Finally, the AML legislation sets out requirements for trust service providers (which include persons acting as professional trustees) to keep individual transaction records for their clients. Pursuant to section 23(3) of the AML legislation: Persons listed in Paragraph 1 of Article 2 shall have systems in place which enable them to respond promptly to queries from the police or other competent authorities. The preservation of such information, including information on individual customer transactions, is subject to the provisions of Paragraph 4 of Article 5. Persons listed in Article 2(1), as referred to in this provision, include trust service providers, and under the
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
139. The legal and regulatory requirement for document retention is in place for entities subject to full accounting and bookkeeping requirements.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
145. Access to banking information is of interest to the tax administration only if the bank has useful and reliable information about its customers identity and the nature and amount of financial transactions. Banking information is available in Iceland as a result of the AML obligations to identify the clients and of the accounting laws on the keeping of transaction records. Banks must also annually provide a range of transactional information to the tax administration.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Accounting Act
149. Icelandic incorporated banks are further required to maintain all records pertaining to the accounts as well as to related financial and transactional information pursuant to the requirements of the Accounting Act (as described above under section A.2). Underlying records must be kept in Iceland in a secure and safe manner for seven years after the closure of the accounting year in question (ss. 8 and 20). Failure to comply with the Accounting Act is an offence and subject to a fine or imprisonment, with major violations potentially giving rise to terms of imprisonment of up to six years (Accounting Act, Part IV).
Tax law
150. The Income Tax Act also requires that banks operating in Iceland (whether domestic or foreign) and other financial institutions report annually to the DIR information regarding: deposits held in all accounts, interest paid or due that year, and taxes withheld from such payments, any type of securities or investment funds, loans (including mortgages and credit card debts), and interest payments from the loans, shares and securities transactions carried out by them (Income Tax Act, s. 92).
151. The tax administration therefore keeps in its databases a range of banking information. In order to meet this periodic reporting obligation, banks would need to maintain records of accounts and financial and transactional information. The enforcement provisions in relation to section 92 are as discussed in A.1.6 above.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
154. Emphasis has been given to the enforcement of accounting obligations after the bank crisis in 2008 and the establishment of the office of the Special Prosecutor. Therefore, although the FSA has possessed investigatory and enforcement powers under the Icelandic legal framework for a number of years, it has only recently started to exercise those powers to ensure that banking information is available to the standard. For instance, the FSA has established on-site inspection teams to monitor compliance by financial undertakings with legal and regulatory requirements (Act on Official Supervision of Financial Activities, s. 9). A few visits have been carried out since 2012. Iceland is encouraged to continue its efforts to appropriately exercise these investigatory and enforcement powers. 155. In practice, of the 79 EOI requests received by Iceland between 2009 and 2011, four requests related to banking information, including: bank statements for money flows regarding an Icelandic company; all transactions related to the bank account of an individual; credit card transactions of an individual.
156. In all these cases, the Icelandic competent authority requested information from the banks in order to respond to the EOI requests. Three of these requests were responded to fully within 90 days, with the shortest time taken being 32 days. Iceland fully responded to the remaining request within seven months. Icelands EOI partners indicated that they were satisfied with the information provided by Iceland in response to their EOI request. 157. Iceland also exchanges information automatically with all its EOI partners with which it has a DTC in force. Pursuant to this, information relating to bank deposits, interests and loans (including mortgages and overdrafts) is provided by Iceland to these EOI partners. This may, in part, explain the low levels of EOI requests received by Iceland in relation to bank information.
Determination and factors underlying recommendations
Phase 1 determination The element is in place
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Iceland should continue its efforts to Although the FSA has possessed investigatory and enforcement powers appropriately exercise its investigatory under the Icelandic legal framework for and enforcement powers. a number of years, it has only recently established an on-site unit and started to exercise its investigatory and enforcement powers.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
B. Access to Information
Overview
158. A variety of information may be needed in a tax enquiry and jurisdictions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines whether Icelands legal and regulatory framework gives the authorities access powers that cover all relevant persons and information and whether rights and safeguards are compatible with effective exchange of information. It also assesses the effectiveness of this framework in practice. 159. The Icelandic tax authorities have much information for identifying the owners of legal entities, as well as banking information on its database, through the annual tax returns filed by taxpayers and periodic reporting by third parties. In practice, the competent authority answered over 80% of the EOI requests it received between 2009 and 2011 without resorting to its information gathering powers. 160. For the rest, the Icelandic authorities make use of their powers available for domestic taxation purposes in order to gather information for EOI purposes. The Icelandic tax administration has broad powers of access to accounting and banking information and to data on the ownership of legal entities, pursuant to section 94 of the Income Tax Act. In particular, these powers allow the authorities to request information from any taxpayer and from third parties who may have the information sought. Both banking and legal secrecy are lifted in tax matters. Finally, enforcement measures are available to compel the disclosure of information, in case a person refuses to provide the requested information. 161. This legal framework has allowed the Icelandic tax authorities to collect the information requested by their partners in all instances where the information was not already kept in the database of the tax administration.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
163. The competent authority of Iceland is the Minister of Finance who has delegated his/her authority primarily to the Directorate of Internal Revenue (DIR) which handles incoming and outgoing EOI requests in civil cases; and to the Directorate of Tax Investigations (DTI) which is involved in EOI requests concerning criminal tax investigations. 164. In practice, Iceland received 79 EOI requests between 2009 and 2011 (13 in 2009, 14 in 2010 and 52 in 2011). As mentioned, Icelands EOI partners have predominantly requested information in relation to individuals (66 EOI requests) rather than legal entities (13 EOI requests). Of those 79 requests, most were answered with information available through the tax database; 13 cases were answered after the DIR requested information from third persons. In four of these cases, information was requested from banks and in nine cases information was requested from an Icelandic taxpayer with a connection to the foreign taxpayer as a business associate or an employer. The same information gathering powers are used by all Icelandic tax authorities both for domestic and EOI purposes. 165. Section 94 of the Income Tax Act provides that It is the obligation of all parties, whether or not they are required to file a tax return, to submit to the tax authorities, freely and in the form requested, all necessary information and documents called for and that can be submitted. This obligation arises regardless of whether the requested information directly relates to the affairs of the requested party or to the business of other parties so long as,
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
in either case, the requested information is pertinent to the taxation of such parties or to an inspection or investigation thereof. 166. The Icelandic tax administration can ask any person to provide any type of information in connection with the tax obligations of a person or in relation to a third person. Section 94 of the Income Tax Act provides that all parties, whether they are subject to tax filing requirements or otherwise, must provide to the Icelandic tax authority (meaning the DIR or the DTI, as applicable) all necessary information and documents called for, whether this information directly applies to itself or to third parties, where it is pertinent to the taxation of such parties or to an inspection or investigation thereof.
Ownership and identity information (ToR B.1.1) and Accounting records (ToR B.1.2) Legal and regulatory framework
167. Certain information is often already in the possession of the DIR as a result of the mandatory declaration of information (pursuant to the requirements of Income Tax Act, s. 92), filing of annual tax returns, the annual accounts submitted by entities when filing their tax return (Income Tax Act, s. 90) and through the registers kept by the Register of Enterprises see discussion in Part A above. 168. If more detailed information is requested from the competent authority, it may use the reporting duty of section 94 of the Income Tax Act that covers all information and documents, thus including ownership, accounting and bank information. 169. No specific timing requirements are set out in section 94 in relation to responding to a request from the Icelandic tax authorities. 170. Additional information gathering powers were granted to the Icelandic tax authorities in 2012 in relation to foreign entities with a link to Icelandic entities. Pursuant to section 94(2), an entity is required to provide to the Icelandic tax authorities, when requested, information relating to: (i) any subsidiary or branch in another country in which they either hold, directly or indirectly, over half of the shareholding or has managerial control; and (ii) any companies, funds and institutions in a low tax country in which they have any direct or indirect ownership. A low tax country is defined as a jurisdiction where income tax on profits of the entity in question is lower than two-thirds of the income tax otherwise payable if the entity was domiciled in Iceland. However, a jurisdiction which meets this condition would nevertheless not be considered a low tax country if it has in place a TIEA or DTC which allows for adequate exchange of information for tax purposes with Iceland (s. 57a). This provision appears to grant the Icelandic tax
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Practice
171. The Icelandic competent authority has exchanged ownership and identity information, accounting information, as well as banking information over the last three years. The majority of EOI requests received by Iceland related to individuals (66 requests) rather than legal entities and most of these requests arose as a follow-up to automatic information sent by Iceland in relation to persons employed in Iceland. Over 80% of the information required for answering the EOI requests was already contained on the tax database. The remaining information was requested from banks and Icelandic taxpayers who were connected to the foreign taxpayer to whom the EOI request related (for example, as a business associate or employer). The DIR collects the remaining information directly, without the intermediation of any local office or national auditing office. The DTI has not been asked to answer any EOI requests related to criminal matters over the last three years but has sent some requests to partner jurisdictions. 172. As a matter of practice, a deadline of 15 days is generally provided for answering a request issued under section 94 of the Income Tax Act, in line with the time limit provided for re-assessment of tax returns, regardless of the identity of the person to whom the request is made (i.e. whether the requested person is the taxpayer, a third party or other public authorities). Extension of time may be granted by the DIR where the request for information is complex. The length of extension granted is determined on a case-by-case basis and depends upon various factors such as whether the period to which the requested information relates is recent (e.g. within the past three years) and whether the person requested is considered to have a close relationship with the taxpayer to whom the requested information relates (e.g. through being a business associate). The Icelandic authorities indicated that the persons requested generally respect the deadline allocated to provide the information. 173. The Icelandic competent authority indicated that, in practice, they have obtained all necessary information for EOI purposes through written procedure and have not needed to interview any persons. There has been no instance when the information requested was not provided. 174. No EOI partner of Iceland indicated that it had not received the information requested because this type of information was not available or not accessible in Iceland.
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
175. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. 176. Section 94 of the Income Tax Act refers to the submission of information to the tax authorities which is pertinent to the taxation of such parties. The wording of section 94 itself does not specify any limitation of its use to domestic or exchange of information purposes. The term taxation is not defined in the Income Tax Act; however, the Act provides for the involvement by the Icelandic authorities in exchange of information arrangements (s. 119). Accordingly, the Icelandic authorities hold the view that all the powers at the disposal of the Icelandic tax authorities are available for both domestic and EOI purposes and they have so used the powers in practice. 177. In practice, no issue linked to domestic tax interest has arisen.
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Bank secrecy
184. Section 58 of the Act on Financial Undertakings provides that all management and personnel of banks and other financial undertakings are bound by an obligation of confidentiality concerning any information of which they may become aware in the course of their duties concerning business dealings or private concerns of their customers, unless obliged by law to provide information. 185. As mentioned above, section 94 of the Income Tax Act on powers to obtain information, including for EOI purposes, specifically states that provisions of other Acts concerning confidentiality and secrecy are overridden. This means that the DIR or the DTI requesting information from a bank under this provision is duly authorised, and bank secrecy would not provide a valid reason for not providing the information. 186. There is no express provision in Icelandic law governing the information that must be provided in an EOI request to access information held by banks. 10 The Icelandic tax authority indicated that the provision of some identifying information, for example, a bank account number, Icelandic identification number, or name and date of birth in an EOI request is sufficient for the DIR to trace the bank information requested. In practice, the tax administration receives annually some information on bank accounts and their holders through periodic reporting under section 92 of the Income Tax Act; furthermore, all Icelandic banking information is held in a central clearing system. Where the Icelandic competent authority is only provided with an account number, it will be able to request the other necessary identification information (such as the bank with which the account is held, the name of the account holder, etc.) from the tax database or alternatively from the central clearing system. It may then approach the relevant bank, as necessary, to obtain further information held by the bank. Icelandic case law confirms that it is not necessary to specify exactly the taxpayers involved when the tax administration requests information pursuant to section 94 of the Income Tax Act (V Credit Card Company v. the Directorate of Internal Revenue, case no. 514/2008, in relation to a credit card company). 187. When it has received requests for banking information, the Icelandic competent authority has answered these after having requested the information from the bank directly. It would rarely request the information from the account holder. The banking sector and supervisory authority confirmed
10. V Credit Card Company v. the Directorate of Internal Revenue (Case no. 514/2008) confirms that it is not necessary to specify exactly the taxpayers involved e.g. through provision of name and identity number) when the tax administration requests information pursuant to section 94 of the Income Tax Act (here, from a credit card company).
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12. 13.
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financial information) from lawyers or other professionals subject to a confidentiality duty (e.g. doctors). In addition, the Icelandic competent authority indicated that it would not request information covered by the attorney-client privilege as defined in the Model TIEA or the Model Convention and the related commentaries (as applicable), considering that all the EOI instruments of Iceland contain provisions for the respect of professional secrecy. In all circumstances, when exercising its information gathering power, the Icelandic tax authorities must be objective and follow the procedural steps specified in the law (The Directorate of Tax Investigation v. A, Case no. 347/2012) see B.2 below. 191. The Icelandic competent authority and its EOI partners indicate that legal privilege has not caused any problem in practice.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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C. Exchanging Information
Overview
198. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. A jurisdictions practical capacity to effectively exchange information relies both on having adequate mechanisms in place as well as an adequate institutional framework. This section of the report assesses Icelands network of exchange of information agreements against the standards and the adequacy of its institutional framework to achieve effective exchange of information in practice. 199. Iceland has a network of agreements that provide for exchange of information in tax matters to 94 jurisdictions (see Annex 2) pursuant to double tax conventions (DTC), tax information exchange agreements (TIEA), the 1989 Nordic Mutual Assistance Convention on Mutual Administrative Assistance in Tax Matters (the Nordic Convention) and/or the multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Multilateral Convention). Of these, only the EOI instrument with Switzerland does not meet the standard. Four instruments are awaiting ratification in Iceland (and in some cases, also in the partner jurisdiction): two signed in 2011 and two signed in 2012. 200. Iceland continues to expand its EOI network and discussions or negotiations are underway with additional jurisdictions, both independently and as part of the Nordic TIEA co-operation. Comments were sought from Global Forum members in the course of the preparation of this report, and no jurisdiction advised that Iceland had refused to negotiate or conclude an EOI instrument. 201. All the EOI articles in Icelands instruments have confidentiality provisions that meet the international standard, and its domestic legislation also contains relevant confidentiality provisions. Practical arrangements and procedures for the handling of information received both pursuant to EOI requests made and received by Iceland ensure that such information would not be inadvertently disclosed.
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205. Iceland can exchange information on several bases: double tax conventions (DTCs), Tax Information Exchange Agreements (TIEAs), multilateral instruments (i.e. the Nordic Convention and the Multilateral Convention), and sometimes a combination of these instruments. 206. The Nordic countries have a strong history of promoting mutual assistance for the prevention of international tax evasion and in the assessment and collection of taxes. Since the early 1940s, the Nordic countries have signed bilateral agreements amongst themselves to facilitate the enforcement of taxes in the context of the inter-state movement of their taxpayers. The scope of these agreements covered both reciprocal assistance for the
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enforcement of tax claims and the exchange of information. The first regional Convention between Denmark, Finland, Iceland, Norway and Sweden regarding Mutual Assistance in Tax Matters was signed in 1972, and subsequently amended. It now forms the basis for the Nordic Convention on Mutual Assistance in Tax Matters (Nordic Convention), which has been in force since 1991. 207. Iceland has been entering into DTCs since 1971. Currently, all but one allow Iceland to exchange information to the international standard. The DTC with Switzerland does not meet the standard due to the restriction of the EOI provision to information that is necessary for carrying out the provisions of the Convention only. This EOI agreement is not included further in the following analysis. It is recommended that Iceland renegotiate an exchange of information mechanism with Switzerland that would allow for the exchange of information to the international standard. 208. Iceland has been entering into TIEAs since 2007 as part of the Joint Nordic TIEA co-operation that began in 2006 (see C.2 below). All of Icelands TIEAs allow it to exchange information to the international standard. 209. Iceland signed the Convention on Mutual Administrative Assistance in Tax Matters (the Multilateral Convention) on 22 July 1996 and the 2010 Protocol to the Convention on 28 October 2011. The Multilateral Convention (as updated by the Protocol) entered into force in Iceland on 1 February 2012. The updated Convention provides for administrative co-operation between parties in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion in accordance with the standard. Icelands exchange of information with 14 jurisdictions will occur exclusively under this Convention once this is also in force in the partner jurisdictions, as Iceland has no bilateral agreements with them. The Multilateral Convention will also be a complementary basis for exchanging information with 29 jurisdictions with which Iceland is already linked by a bilateral EOI instrument. 210. In the three-year period under review, Iceland has received 79 EOI requests (relating to 79 persons), from 16 of its treaty partners, with the most requests received from Norway and Poland. The rest of the requests received during this period were from European treaty partners (including Nordic treaty partners). The instruments used in practice are the Nordic Convention, DTCs and recently the Multilateral Convention. No EOI request has yet been received based on a TIEA (but Iceland has used TIEAs to make requests). All EOI partners indicated that they were satisfied with both the speed and content of Icelands responses to their EOI requests. None of Icelands EOI partners indicated that it restricted its requests because they considered that they would receive a negative response to the request.
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enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the contracting states or their political subdivisions or local authorities in so far as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. 215. Icelands DTCs are patterned on the Model Tax Convention regarding the scope of information that can be exchanged. The most recent DTCs and the Multilateral Convention use the foreseeably relevant standard. Most of Icelands DTCs use the term necessary or relevant in lieu of foreseeably relevant. The terms necessary and relevant are recognised in the commentary to Article 26 of the Model Tax Convention to allow for the same scope of exchange as does the term foreseeably relevant. The Icelandic authorities confirmed that they adhere to the commentary to the Model Tax Convention in their interpretation of Icelands DTCs. 216. All of Icelands TIEAs meet the foreseeably relevant standard. Almost all of Icelands TIEAs uses the Model TIEA wording of foreseeably relevant; the TIEA with Bermuda uses the term relevant in lieu. However, in all cases, the OECD Model TIEA commentary regarding the scope of information that can be exchanged is followed. The TIEA with Bermuda further provides that Where the applicant party requests information in accordance with this agreement, a senior official of the competent authority of the applicant party shall certify that the request is relevant to, and necessary for, the determination of the tax liability under the laws of the applicant Party. The TIEA is complemented by a Competent Authority Agreement which clarifies the term senior official refers to every person with Competent Authority status and that the term tax liability includes information relevant to the collection of taxation, investigation or prosecution of tax matter. 217. The Nordic Convention allows the Nordic countries to exchange bank and other information for all kinds of taxes except import duties. It has been in force since 1991 and meets the foreseeably relevant standard. 218. In practice, in cases where a request is unclear or incomplete, Iceland indicates that its competent authority routinely seeks clarification or additional information from the requesting jurisdiction before considering whether to decline a request. During the three-year period under review, such clarification was sought from the requesting partner in two to three cases. Icelands EOI partners confirmed that Iceland has not declined any request for information received over the last three years on the basis that the requested information was not foreseeably relevant.
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224. Six of Icelands DTCs include provisions akin to Article 26(5) of the Model Tax Convention. Icelands policy is to include Article 26(5) in all of its new agreements. The majority of Icelands DTCs which do not include such similar provision were signed prior to the 2005 revision of the Model Tax Convention in which Article 26(5) was introduced. In any event, it is noted that the absence of this paragraph does not automatically create restrictions on exchange of bank information in Iceland. The commentary on Article 26(5) indicates that whilst paragraph 5 represents a change in the structure of the Article, it should not be interpreted as suggesting that the previous version of the Article did not authorise the exchange of such information. Iceland has access to bank information for tax purposes in its domestic law (see Part B), and pursuant to its treaties is able to exchange this type of information when requested. 225. In practice, when Iceland has received an EOI request for bank information pursuant to a DTC which does not contain Article 26(5), the Icelandic competent authority has exchanged the information requested, regardless of the ability of the requesting country to provide Iceland with bank information in the absence of paragraph 5.
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Exchange of information in both civil and criminal tax matters (ToR C.1.6)
231. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to information requested for tax administration purposes (also referred to as civil tax matters). 232. All of Icelands exchange of information agreements provide for exchange of information in both civil and criminal tax matters. In practice, EOI requests have been made to Iceland in relation to civil matters only, although Iceland has requested information for both civil and criminal tax matters.
14.
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241. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into
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agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce its tax laws, it may indicate a lack of commitment to implement the standards. 242. Iceland has an extensive network of EOI instruments. Under its bilateral and multilateral EOI agreements, Iceland has EOI arrangements signed with 94 jurisdictions, including arrangements in force with 72 of them. These EOI arrangements are with counterparties that represent almost all of Icelands significant trading partners that include the European Union, Norway, the United States, China, Russia and Japan. The only trading partner with which Iceland does not have an exchange of information arrangement is Brazil, which accounted for 4.1% of Icelands total trade in 2011. 243. The signature of the Multilateral Convention and of its protocol contributes to the high number of instruments in Icelands network of EOI relationships. The other important contributor is Icelands participation in the Joint Nordic TIEA Co-operation, which began in 2006 with the objective of co-ordinating the Nordic approach to negotiating TIEAs with relevant jurisdictions. This is conducted under the auspices of the Nordic Council of Ministers in order to strengthen the Nordic negotiating position and to keep costs for this work down. 244. A steering group of representatives from all Nordic countries coordinates the negotiation efforts. Participants in the steering group are experts with experience from their finance ministries, as well as experience in national and international work in the field of tax evasion. Negotiations are carried out by a team comprising a project leader and one or more representatives from the other countries. The actual information exchange agreements are, however, entered into on a bilateral basis. Nordic co-operation in TIEA negotiations has reaped great success. As a result of this co-operation, Iceland has signed40 TIEAs and one DTC to the standard since 2007 (see Annex 2 to this report for details). Recent progress by the Nordic steering group includes the signing of TIEAs with Guatemala and Panama. 245. Iceland also continues negotiating DTCs and has signed 11 DTCs since 2006. The Icelandic authorities indicated that Iceland prioritises DTC negotiations with its major trading partners, OECD member jurisdictions and European Union members as well as the updating of old DTCs. In relation to prioritising trading partners, Iceland has finalised DTC negotiations with five European and Middle-East jurisdictions, the texts of which all contain the new Model Article 26 wording on information exchange. With regard to the latter, Iceland has signed protocols with Belgium, Luxembourg and Poland to update the respective DTCs to include the new Model Article 26 wording. The protocol with Belgium has been ratified by Iceland and is awaiting ratification by Belgium. The protocol with Poland is awaiting ratification by both
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C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
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Domestic legislation
251. The confidentiality provisions of Icelands DTCs are backed by general confidentiality provisions in Icelands domestic legislation, both under the Income Tax Act and the Penal Code. Section 117 of the Income Tax Act sets the confidentiality duty of all tax officials: The Director of Internal Revenue, the Directorate of Tax Investigations and the State Internal Revenue Board are prohibited, subject to accountability as per the provisions of the Penal Code on offences in public office, to divulge to unauthorised persons information which they have acquired in performing their duties on the income and the financial position of a taxable entity. The same applies for those that assist these offices in their work or in other ways deal with tax returns. The professional secrecy obligation remains after these individuals retire from their office. 252. Exceptions to this secrecy obligation of tax officials exist with respect to Statistics Iceland and the Central Bank in limited cases. The Icelandic authorities explained that authorised persons, in the context of this provision, are those to whom disclosure of such information would be permitted or necessary in the normal course of performing the duties of a tax authority. This includes disclosure of such information to the Special Prosecutor for the purposes of his investigations if so requested. The Icelandic authorities indicated that if the Special Prosecutor requested the disclosure of information received by the Icelandic tax authorities through an EOI request, they would seek the prior consent of the EOI partner; and where such consent is not given, the Special Prosecutor would seek to obtain the information through another source. 253. Section 117 of the Income Tax Act does not expressly state that tax information can be exchanged with foreign competent authorities, but the Icelandic authorities explain that this provision must be interpreted in conjunction with, and in light of, section 119 of the Income Tax Act on the negotiation of exchange of information instruments. To give effect to such agreed mutual exchange of information arrangements, it must be intended that Icelandic tax officials are permitted to provide relevant information to foreign competent authorities in the course of their function as a competent authority. Icelandic case law demonstrates that provisions within international treaties, such as DTCs and TIEAs, must be taken into account in the interpretation of domestic legislation once such treaties take effect. 254. A government official who breaches his/her confidentiality obligations will be reprimanded and may be dismissed. Given the provision in Icelands EOI instruments for the maintenance of confidentiality of information received, this obligation will also be taken into account in the interpretation of the secrecy obligation under section 136 of the Penal Code:
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A civil servant revealing anything which is to be treated as a secret and of which he/she has learned in the course of his/her work or which pertains to his/her office or function shall be subject to imprisonment for up to one year. In case he/she has done this for the purpose of obtaining unlawful gain for himself/ herself or others or if he/she uses such knowledge with that end in view, imprisonment for up to 3 years may be applied. 255. Therefore, Icelands legal and regulatory framework ensures that the information provided pursuant to an EOI instrument would only be used for the purposes permitted under the exchange mechanism and that its confidentiality would be preserved.
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15.
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2011). Norway was Icelands main EOI partner during this period followed by Poland; both cases reflect the movement of workers, from Iceland to Norway and from Poland to Iceland. According to statistics maintained by the Icelandic competent authority in relation to the 79 EOI requests received by Iceland in the three year period of 2009 to 2011, requested information was provided on average within 27 days upon receipt of the request, ranging from within a couple of days to 212 days. Most requests were answered within 90 days of receipt of the request with only one request answered within 180 days and two requests answered within one year. 270. It is common practice in Iceland to send an acknowledgement of receipt to the requesting jurisdiction within two to five days of receipt of the request. However, the practice does not apply in the case of requests from Nordic countries that are generally answered within, or shortly after, this timeframe. As indicated by EOI partners, the Icelandic competent authority generally responds to requests with all of the information requested within 90 days of receipt of the request. In only three cases have EOI partners indicated that the Icelandic competent authority was not able to provide the information requested within the 90 day timeframe. 271. Response time has varied as a result of the complexity of the request (such as the number of persons involved, the timeframe to which the requested information relates, whether the entities are still in existence) and whether the information requested is already in the Icelandic tax administrations database. EOI requests that typically took longer than others related to information not at the direct disposal of the Icelandic competent authority and therefore required the gathering of information by the Icelandic tax authority from third parties, such as underlying documentation in relation to accounting records. The bankruptcy or restructuring of the information holder and the age of the requested information have also been factors which contributed to longer response times in some cases.
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Resources
273. In practice, almost all inbound requests for information are handled by only one person, the DIR Competent Authority. Assistance on administrative tasks is provided from time to time by other members within the DIR, however in all such cases, the DIR Competent Authority supervises the delegated tasks and retains control of the processing of the request. Besides international exchange of information on request, these persons also deal with spontaneous and automatic exchange of information. The Icelandic tax authorities indicated that this number of personnel is sufficient to service the current volume of EOI requests to Iceland and it is noted that the record of Icelands response times to EOI requests supports this position. 274. The present DIR Competent Authority has been involved in the preparation and handling of responses to EOI requests since 2002 and been authorised to sign as Competent Authority since 2007. Training was provided on the job by the previous holder of this position. A similar transition period is envisaged should it be necessary to familiarise new DIR officers with international exchange of information. The DIR Competent Authority makes use of the OECDs EOI manual for guidance to handling EOI requests in practice. In relation to DTI involvement in EOI, which is predominantly in relation to the making of EOI requests, the DTI Competent Authority as well as relevant investigators in DTI seek guidance from, and work closely with, the DIR Competent Authority in the drafting of such requests. Meetings and seminars are held within the DIR (including with Tax Control which provides technical assistance on access to tax investigation and tax audit databases where necessary). 275. The majority of Icelands exchange of information agreements do not specify the language to be used in EOI requests and the majority of the EOI requests received by Iceland to date have been in English. All Icelandic Competent Authorities speak English, and translators are available within the Icelandic tax administration for French, German, Swedish, Danish and Norwegian. The Ministry of Foreign Affairs can also provide translation services through its official translation centre, and if necessary, the Competent Authority can request assistance from external certified translators (in which case, its protocol requires that sensitive and confidential information would
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be redacted). There have been no instances yet of requests arriving in other languages than those for which translation is internally available. 276. In an international context, the Competent Authorities in the MoF, DIR and DTI attend Nordic competent authority meetings through which EOI experiences and project ideas are shared. The Competent Authorities in the MoF, DIR and DTI also attend the meetings of OECDs Working Party 10 on Exchange of Information and Tax Compliance. As part of the Nordic working group, the Competent Authority has met with the competent authorities of a number of their TIEA partners to promote cooperation and understanding in the area of exchange of information. The Competent Authority is also part of the treaty negotiation team of Iceland. These continuous opportunities for idea-sharing and facilitation of cooperation result in the Competent Authority maintaining high professional standards and having adequate expertise specific to exchange of information.
Organisational process
277. When an information request is received, usually by the DIR Competent Authority, the request is recorded in an electronic case handling system and assigned a unique case reference number. Documents are scanned when not received in an electronic format. The DIR Competent Authority would also open a file in hard copy format containing the EOI request which is kept in a locked office accessible only by the DIR Competent Authority. The same procedure is followed whether the request is received through electronic or regular mail. Where an information request is sent to the MoF, the MoF Competent Authority redirects the request to the DIR Competent Authority via internal mail. No copy of the request is kept at the MoF. 278. After the request is registered, the DIR Competent Authority checks the validity of the request by verifying whether an information exchange instrument is in place with the requesting jurisdiction. The DIR Competent Authority then checks the signatory of the EOI request against the OECDs competent authority contact list; where the signatory is not listed, the DIR Competent Authority would contact the listed competent authority for the requesting jurisdiction to verify whether the signatory is duly authorised. 279. Once it is established that the request relates to a valid information exchange instrument and is signed by an authorised signatory, the DIR Competent Authority considers whether the requested minimum information to successfully process the request, and to determine the appropriateness of the request, has been provided. If not, the requesting jurisdiction is informed and asked to provide more details. The DIR Competent Authority indicated that this has only been necessary in relation to a couple of cases during the period under review, in which the scope of the requests has been very broad.
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283. Throughout the process of information gathering, the DIR Competent Authority registers progress on the case handling system. It is noted that all but three of the EOI requests received by Iceland have been answered within 90 days. The relevant requesting jurisdiction was provided with an interim response in one case, whereas another requesting jurisdiction was not provided with an update of the status of the request. The answer was sent after 94 days in the third case. 284. The majority of EOI requests are fully responded to within 90 days of the request. Where updates and interim responses have been sent, this has been as a result of monitoring of all ongoing requests by the DIR Competent Authority, rather than reliance upon any automatic electronic system ensuring that regular updates are sent. As noted above, Iceland has failed to provide an update of the status of the request in only one case. The competent authority noted the peer input and pledged to send an update on the status of the request whenever she would need more than 90 days to answer a request.
Conclusion
285. The DIR Competent Authority handles all incoming EOI requests in practice and collects much of the information from the tax database herself. In more complex cases, technical assistance is requested of Tax Control (in relation to accessing information on its case system database). Where necessary, the DIR Competent Authority directly requests information from third parties. In 94% of the cases the information was provided within 90 days. There is also sufficient staff with relevant experience working on exchange of information. The information received from Icelands exchange of information partners confirms that Iceland has been able to respond to information exchange requests in a timely manner. 286. Iceland has appropriate organisational processes and resources in place to ensure timely responses.
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Determination
Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities (ToR A.1) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements (ToR A.2) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Banking information should be available for all account-holders (ToR A.3) Phase 1 determination: The element is in place.
17.
The ratings will be finalised as soon as a representative subset of Phase 2 reviews is completed.
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Determination Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
Recommendations Iceland should continue its efforts in to appropriately exercise its investigatory and enforcement powers.
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information) (ToR B.1) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information (ToR B.2) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Exchange of information mechanisms should allow for effective exchange of information (ToR C.1) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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Determination
Recommendations
The jurisdictions network of information exchange mechanisms should cover all relevant partners (ToR C.2) Phase 1 determination: The element is in place. Iceland should continue to develop its exchange of information network with all relevant partners.
Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received(ToR C.3) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties (ToR C.4) Phase 1 determination: The element is in place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The jurisdiction should provide information under its network of agreements in a timely manner (ToR C.5) The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
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Determination Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
Recommendations
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ANNEXES 93
Iceland would like to express a deep appreciation for the hard work done by the assessment team in evaluating Iceland for this combined report. It has been a pleasure working with the team. Iceland would also like to thank the Peer Review Group for its valuable contribution to the review. Iceland has strived to fulfill its obligations in this field and welcomes the work of the Global Forum towards assisting jurisdictions in implementing the international standard on exchange of information. Iceland is committed to carry on fulfilling its obligations in this field and takes the Recommendations put forward in the Peer Review report seriously. The Peer Review work has created a new focus on the importance of exchange of information in both the Ministry of Finance and the Tax Administration.
18.
This Annex presents the jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
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94 ANNEXES
Multilateral agreement
Iceland signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, as well as its protocol, which entered into force on 1 June 2011 and which is currently in force with respect to 18 parties: Argentina (January 2013), Australia, Denmark, Finland, France, Georgia, Iceland, India, Italy, Korea, Mexico, Moldova, Norway, Poland and Slovenia, Spain, Sweden and the United Kingdom. The Protocol amending this Convention or the amended convention has been signed by 42 jurisdictions, including Iceland. The initial Multilateral Convention is also in force with respect to one jurisdiction (which is not party to the protocol): Azerbaijan. The chart of signatures and ratification of the multilateral convention is available at www.oecd.org/ctp/eoi/mutual.
Nordic Convention
Iceland is a signatory to the Nordic Mutual Assistance Convention on Mutual Administrative Assistance in Tax Matters of 7 December 1989, which is currently in force with respect to Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway, and Sweden.
Bilateral agreements
Iceland has signed a number of information exchange agreements (TIEA) and tax treaties (DTC).
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ANNEXES 95
The text of the DTCs and TIEAs is available on the website of the Icelandic Tax Administration as well as on the EOI portal at www.eoi-portal.org/.
No. 1 2 3 4 5 6 7 8 9 Jurisdiction Andorra Anguilla Antigua and Barbuda Argentina Aruba Australia Azerbaijan Bahrain Barbados Type of EOI agreement TIEA TIEA TIEA Multilateral Convention TIEA Multilateral Convention Non-amended Multilateral Convention TIEA DTC DTC EOI protocol 10 Belgium Multilateral Convention 11 12 13 14 15 16 17 18 Belize Bermuda Brazil British Virgin Islands Brunei Canada Cayman Islands China TIEA TIEA Multilateral Convention TIEA TIEA DTC Multilateral Convention TIEA DTC Date signed 24 February 2010 14 December 2009 19 May 2010 Signed 10 September 2009 Signed Signed 14 October 2011 3 November 2011 23 May 2000 15 September 2009 signed 15 September 2010 16 April 2009 Signed 18 May 2009 27 June 2012 19 June 1997 Signed 17 June 2009 3 June 1996 Date in force 14 February 2012 22 April 2012 17 November 2012 1 January 2013 1 January 2012 1 December 2012 1 October 2004 15 August 2012 24 February 2012 1 January 2004 Not yet in force 1 December 2000 (Protocol not yet in force in Belgium) 3 November 2012 2 April 2012 Not yet in force in Brazil 20 July 2011 Ratified by Iceland 30 January 1998 Not yet in force in Canada 30 May 2010 5 February 1997
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96 ANNEXES
Type of EOI agreement Multilateral Convention TIEA TIEA 21 Costa Rica Multilateral Convention DTC TIEA DTC 24 Czech Republic Multilateral Convention Nordic Convention 25 Denmark 26 Dominica 27 Estonia 28 Faroe Islands Multilateral Convention TIEA DTC Nordic convention Nordic convention 29 Finland Multilateral Convention DTC 30 France Multilateral Convention Multilateral Convention DTC 32 Germany Multilateral Convention Multilateral Convention TIEA
No. 19
Jurisdiction Colombia
Date signed Signed 16 December 2009 29 June 2011 Signed 6 July 2010 10 September 2009 18 January 2000 Signed 7 December 1989 Signed 19 May 2010 16 June 1994 7 December 1989 7 December 1989 Signed 29 August 1990 Signed signed 18 March 1971 Signed Signed 16 December 2009
Date in force Not yet in force in Colombia 25 June 2012 Ratified by Iceland Not yet in force in Costa Rica 15 December 2011 1 January 2012 28 December 2000 Not yet in force in the Czech Rep. 9 May 1991 1 February 2012 Ratified 10 November 1995 9 May 1991 9 May 1991 1 February 2012 (non amended in force since 1 Nov 1996) 1 June 1992 1 April 2012 (non amended in force since 1 Sept 2005) 1 February 2012 2 November 1973 Not yet in force in Germany Not yet in force in Ghana 18 April 2012
20 Cook Islands
22 Croatia 23 Curaao*
31
Georgia
33 Ghana 34 Gibraltar
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ANNEXES 97
No.
Jurisdiction
Type of EOI agreement DTC Multilateral Convention DTC Nordic Convention TIEA TIEA Multilateral Convention TIEA DTC DTC Multilateral Convention Multilateral Convention DTC Multilateral Convention TIEA DTC
Date signed 7 July 2006 Signed 4 July 2002 7 December 1989 19 May 2010 15 May 2012 signed 28 October 2008 23 November 2005 23 November 2007 Signed signed 17 December 2003 Signed 30 October 2007 10 September 2002 signed 4 December 2012 signed 28 October 2008 15 May 2008 signed 19 October 1994 10 November 2010 17 December 2010 13 June 1998
Date in force 7 August 2008 Not yet in force in Greece 1 January 2003 9 May 1991 Ratified Ratified by Iceland Not yet in force in Guatemala 26 November 2009 7 February 2006 21 December 2007 1 June 2012 Not yet in force in Indonesia 17 December 2004 Not yet in force in Ireland 28 December 2008 14 October 2008 1 May 2012 Not yet in force Not yet in force in Japan 3 December 2009 23 October 2008 1 July 2012 27 December 1995 Ratified by Iceland 31 March 2012 1 January 2000
35 Greece
36 Greenland 37 Grenada
42
Indonesia
45 Italy
Multilateral Convention TIEA Multilateral Convention TIEA DTC Multilateral Convention DTC TIEA TIEA DTC
46 Jamaica 47 Japan
53 Lithuania
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98 ANNEXES
Type of EOI agreement DTC EOI protocol TIEA DTC 56 Malta Multilateral Convention TIEA TIEA DTC 59 Mexico Multilateral Convention Multilateral Convention TIEA TIEA DTC
No.
Jurisdiction
Date signed 4 October 1999 28 August 2009 29 April 2011 23 September 2004 Signed 29 September 2010 1 December 2011 11 March 2008 Signed signed 23 June 2010 22 November 2010 25 September 1997
Date in force 19 September 2001 1 January 2011 20 January 2012 19 April 2006 Not yet in force in Malta Ratified by Iceland Not yet in force 10 December 2008 1 September 2012 1 March 2012 23 February 2011 26 November 2012 27 December 1998 Non amended convention in force since 1 February 1997 amended convention not yet in force in the Netherlands
60 Moldova 61 Monaco
62 Montserrat
63 Netherlands
Multilateral Convention
Signed
the Caribbean part of the Netherlands: 64 Bonaire, Sint Eustatius and Saba* 65 New Zealand
TIEA
10 September 2009
1 January 2012
66 Norway
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ANNEXES 99
No. 67
Jurisdiction Panama
Type of EOI agreement TIEA DTC EOI protocol Multilateral Convention DTC Multilateral Convention DTC
Date signed 12 November 2012 19 June 1998 16 May 2012 Signed 2 August 1999 Signed 19 September 2007 Signed 26 November 1999 Signed 16 December 2009 12 December 2010 10 September 2009 30 March 2011 15 April 2002 4 May 2011 signed signed 22 November 2002 Signed 24 March 2010 19 May 2010 24 March 2010
Date in force Not yet in force 1 January 2000 Not yet in force 1 February 2012 4 November 2002 Not yet in force in Portugal 21 September 2008 Not yet in force in Romania 1 January 2004 Not yet in force in Russia 23 May 2012 3 November 2011 1 January 2012 Not yet in force 19 June 2003 11 September 2012 1 February 2012 Not yet in force in South Africa 2 August 2002 1 January 2013 Ratified by Iceland 2 November 2012 Ratified by Iceland
68 Poland
69 Portugal
70
Romania
Multilateral Convention DTC Multilateral Convention TIEA TIEA TIEA TIEA DTC DTC Multilateral Convention Multilateral Convention DTC Multilateral Convention TIEA TIEA TIEA
71
Russia
77 Slovenia
78
South Africa
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100 ANNEXES
Type of EOI agreement Nordic Convention 83 Sweden 84 Switzerland 85 The Bahamas 86 Tunisia 87 Turkey Multilateral Convention DTC TIEA Multilateral Convention Multilateral Convention TIEA DTC
No.
Jurisdiction
Date signed 7 December 1989 Signed 3 June 1988 10 March 2010 Signed signed 16 December 2009 8 November 2006
Date in force 9 May 1991 1 February 2012 20 June 1989 15 October 2012 Not yet in force in Tunisia Not yet in force in Turkey 22 April 2012 9 October 2008 Non amended convention in force since 1 July 2009 (amended convention not yet in force in Ukraine) 1 January 1992 1 February 2012 15 December 2008 Non amended convention in force since 1 November 1996 (amended convention not yet in force in USA) Ratified Ratified by Iceland 27 December 2002
89 Ukraine
Multilateral Convention
Signed
91
United States
Multilateral Convention
Signed
* The Netherlands Antilles were dissolved on 10 October 2010, resulting in two new constituent jurisdictions (Curaao and Saint Maarten), with the other islands (Bonaire, Saint Eustatius and Saba) joining the Netherlands as special municipalities. The TIEA signed with Iceland continues to apply to all resulting entities.
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ANNEXES 101
Taxation Laws
Income Tax Act, Act no. 90/2003 Act on Withholding of Financial Income, Act no. 94/1996 Regulation on Annual Reporting, Regulation no. 1299/2011
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102 ANNEXES
Other Laws
The Constitution of Iceland of 1944, as amended Act on Bankruptcy, Act no. 21/1991 Accounting Act, Act no. 145/1994 Act on Annual Accounts, Act no. 3/2006 Administrative Procedure Act, Act no. 37/1993 General Penal Code No. 19, 1940 Act on the Role of the Special Prosecutor, Act no. 135/2008 Act on Professional Lawyers, Act no. 77/1998 Regulation on Lawyers Trusteeship Accounts et al., Regulation no. 1192/2005 Regulation on Annual Accounts, Submission and Publication of Annual Accounts, Regulation no. 664/2008
Other materials
FSA Guidelines No. 3/2011
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ANNEXES 103
The assessment team met with representatives of the following entities: The Ministry of Finance Directorate of Internal Revenue Directorate of Tax Investigations District Commissioners Office of the Special Prosecutor Icelandic Central Bank Icelandic Securities Depository Registers Iceland The Financial Supervisory Authority, Iceland The Icelandic Bar Association The Institute of State Authorised Public Accountants The National Commissioner of the Icelandic Police
PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT ICELAND OECD 2013
OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2013 08 1 P) ISBN 978-92-64-19195-2 No. 60565 2013
ICELAND
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by 120 jurisdictions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. The standards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 and Phase 2 reviews. The Global Forum has also put in place a process for supplementary reports to follow-up on recommendations, as well as for the ongoing monitoring of jurisdictions following the conclusion of a review. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please refer to www.oecd.org/tax/transparency and www.eoi-tax.org.
Consult this publication on line at http://dx.doi.org/10.1787/9789264192003-en. This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information.
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