Iceland: Re-instatement of the ”pro-rata temporis” tax calculation method on interest
Effective
1 January 2014
Clearstream Banking1 will apply the “pro-rate temporis” tax calculation method to all coupon payments, transactions and redemptions relating to Icelandic debt securities (hereinafter referred to “taxable events”), excluding zero-coupon securities2.
The “pro-rata temporis” tax calculation method that will be implemented is identical to the method that was in force until 31 May 2011.
From 1 January 2014, withholding tax to be applied on interest will be calculated according to the period of holding and the respective (maximum) tax rate as determined by the successive laws, as follows:
| Before 1 September 2009 | 0% |
| 1 September 2009 to 31 December 2009 | 15% |
| 1 January 2010 to 31 December 2010 | 18% |
| 1 January 2011 to 31 December 2011 | 20% |
| As of 1 January 2012 | 10% 3 |
Note: In Iceland, any gains realised on debt securities are considered for tax purposes as interest payments.
Background
Following the suppression of the “pro-rata temporis” tax calculation method as of 1 June 2011 by the Icelandic Tax Authorities (RSK)4, the State Internal Revenue Board (YSKN) issued a ruling invalidating the use of a tax method based on the tax rate in force on the payment or settlement date of the “taxable event”, regardless of the rates in force during the accrual periods.
As a consequence, the RSK has informed market participants, including Clearstream Banking, that the “pro-rata temporis” tax calculation method must be re-instated.
Impact on customers
The re-implementation of the “pro-rata temporis” tax calculation method involves no change to the pre-requisite information that must be provided in the customers' instructions5. Based on the pre-requisite information provided by the customers for every purchase and sale of debt securities, tax will be calculated on the “taxable event” according to the holding period and rate in force at the time of accrual.
Customers are reminded that, if the beneficial owners are not identified for the “taxable event”, tax is calculated and applied at the account level6 and the maximum rates are applied.
In addition, if the respective clean and dirty prices are not provided, the market closing price of the day before the trade date (or, if this is not available, the latest available price quoted on Nasdaq OMX before trade date) is issued for the calculation.
Exemption or relief at source and standard refund procedures remain available for eligible beneficial owners, as described in our Announcements A11047 (reclaim), dated 13 April 2011, and A11058 (relief at source), dated 9 May 2011.
Further information
For further information, customers may contact the Clearstream Banking Tax Help Desk on:
| Luxembourg | Frankfurt | |
| Email: | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Customer Service or their Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
2. Kúlubréf/skuldabréf án vaxta (debt securities without coupon distribution), for which the tax rate applicable is the rate in force when the sale occurs.
3. For non-residents of Iceland.
4. As published in our Announcement A11064, dated 20 May 2011.
5. See our Announcements A10013, dated 22 January 2010, and A11058, dated 9 May 2011.
6. Consistent with the “first-in, first-out” (FIFO) method and reporting requirements imposed by the RSK, tax is calculated and applied at account level with the first non-allocated purchase remaining on the account.
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