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Internal Market: Iceland's rules on the taxation of mergers are discriminatory



Iceland is in breach of the EEA Agreement by taxing companies that merge cross-border on unrealised capital gains. This is the conclusion of a reasoned opinion delivered by the EFTA Surveillance Authority today.

According to Icelandic tax rules, companies in Iceland that merge cross-border within the EEA are required to pay tax on all capital gains relating to assets and shares when they leave Iceland even though the gains have not been realised. Icelandic companies that merge with other companies within Iceland are under no such obligation. The Authority considers those rules to be a restriction on the freedom of establishment and the free movement of capital. The rules make it less attractive for companies to make use of their right to establish themselves in other EEA States.

The Authority does not contest that Iceland may protect its right to tax gains that accrued while a company was established in Iceland. However, Iceland should apply less restrictive measures to protect this right. Instead of requiring companies to pay tax on unrealised gains at the time of relocation, Iceland could e.g. offer companies to defer the payment of the tax.

A reasoned opinion is the second stage of the infringement procedure. The Authority can bring the matter before the EFTA Court if the State fails to comply with the reasoned opinion within two months.

For further information, please contact:

Ms Rakel Jensdóttir
Officer, General Internal Market
Tel: (+32)(0)2 286 18 26

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