Iceland’s First Transfer Pricing Court Case Shifts Burden of Proof

June 2025

In a landmark transfer pricing case, the Reykjavík District Court ruled in favor of the Icelandic tax authority, raising serious concerns about the burden of proof in tax disputes.

The case involved an Icelandic subsidiary processing calcite algae for its Irish parent. Despite reporting losses between 2016 and 2020, the taxpayer provided transfer pricing documentation in 2020 applying a cost-plus method with a 50% markup.

The Director of Internal Revenue (DIR) rejected the methodology, imposed a reassessment increasing taxable income by ISK 488 million, and added a 25% surcharge. The taxpayer’s appeal was denied in 2022, and the court upheld the adjustment in 2023.

The ruling suggests that when documentation is considered insufficient, the DIR may impose adjustments without proving that the reassessment reflects an arm’s length outcome. This effectively shifts the burden of proof to the taxpayer, a move critics argue conflicts with the investigative principle in Article 10 of the Administrative Procedure Act, which requires higher scrutiny for more burdensome administrative actions.

This case sets a concerning precedent, implying that taxpayers bear the full responsibility for justifying their transfer pricing, even in the absence of clear evidence from the tax authority.

Read The Full English Translation Here: Iceland - TPcases