Iceland has a relatively large tax treaty network with 51 tax treaties, all of which contain a provision for the Mutual Agreement Procedure (MAP) for resolving disputes on the interpretation and application of the tax treaty provisions. The majority of Iceland's treaties follow paragraphs 1 through 3 of Article 25 of the OECD Model Tax Convention.
The peer review found that Iceland is largely in line with the Action 14 Minimum Standard for dispute resolution mechanisms. However, there are some areas for improvement:
- Tax Treaty Network: Twelve of Iceland's tax treaties need to be amended to fully comply with the Action 14 Minimum Standard. Iceland has signed and ratified the Multilateral Instrument, which has modified six of its treaties to meet the requirements. For the remaining six treaties, Iceland has reported different stages of action, ranging from initiating negotiations to having no plans for updates.
- MAP Guidance and Profile: Iceland provides clear and comprehensive MAP guidance and has published its MAP profile, which is considered complete and often detailed.
- MAP Statistics and Analysis: Iceland's MAP statistics show that it has a modest experience with resolving MAP cases. The average time to close MAP cases during the Statistics Reporting Period (2019-2022) was 8.94 months, which is close to the 24-month target. The review found that Iceland's competent authority is adequately resourced to handle the MAP caseload.
- Practical Application of the Action 14 Minimum Standard:
- Prevention of Disputes: Iceland has no bilateral Advance Pricing Arrangement (APA) programme in place, so there are no elements to assess regarding the prevention of disputes.
- Availability and Access to MAP: Iceland provides access to MAP in transfer pricing cases, cases involving the application of anti-abuse provisions, and cases with audit settlements. However, there is a risk that access to MAP may be denied in eligible cases where the issue has already been decided under judicial remedies provided by Iceland's domestic law. Additionally, Iceland does not have a documented bilateral consultation or notification process for cases where its competent authority considers the objection raised in a MAP request not to be justified.
- Resolution of MAP Cases: Iceland's staff responsible for MAP cases have the authority to resolve cases independently and without being influenced by policy considerations.
- Implementation of MAP Agreements: Iceland meets most of the requirements for implementing MAP agreements. However, there is a risk that not all MAP agreements will be implemented due to domestic time limits in some of its tax treaties.
Overall, Iceland has made significant progress in implementing the Action 14 Minimum Standard. However, it needs to address the gaps identified in its tax treaty network and the practical application of MAP to fully align with the standard.
