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Internal Market

PR(08)32: Iceland asked to amend restrictive rules on taxation of capital gains from the sale of residential real estate


Today, the EFTA Surveillance Authority delivered a reasoned opinion to Iceland for maintaining in force rules on deferral of taxation, and eventual tax exemption, of capital gains from the sale of residential real estate in Iceland which the Authority considers incompatible with the EEA Agreement. Currently, the granting of those tax advantages is made conditional on that the gains are reinvested within two years in comparable real estate located in Iceland and that the taxable person is resident in Iceland.

The Authority considers the Icelandic fiscal rules to contain a similar condition of national reinvestment to those found contrary to the EC Treaty and the EEA Agreement by the European Court of Justice in cases C-345/05 Commission v Portugal, and C-104/06 Commission v Sweden.

In the reasoned opinion the Authority concludes that the conditions of reinvestment within Iceland and residence in Iceland constitute restrictions to the free movement of workers in Article 28 EEA, the right of establishment in Article 31 EEA and the free movement of capital in Article 40 EEA.

The Authority considers the reinvestment condition liable to deter persons resident in Iceland from selling their real estate there in order to exercise their right to pursue employement, establish themselves, or invest in another EEA State. In the same way, the Authority concludes that by only granting those tax advantages to persons resident in Iceland, non-resident persons are subjected to unfavourable tax treatment incompatible with the free movement of workers, the right of establishment and the free movement of capital.

The purpose of a reasoned opinion is to give the State in question a last chance to take corrective measures before the Authority decides whether to bring the matter before the EFTA Court. Iceland has been given three months to take the measures necessary to comply with the reasoned opinion.


For further information, please contact:

Hallgrímur Ásgeirsson,
Director, Internal Market Affairs Directorate
tel. (+32)(0)2 286 18 60

Rúnar Örn Olsen
Senior Officer, Internal Market Affairs Directorate
Tel. (+32)(0)2 286 18 52


18 june 2008

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