7th July 2017
Iceland has had a major problem with tax evasion in recent years. Not only has the country lost between 3% and 7% of its total GDP over the last 30 years to non-compliance, but the Panama Papers leak also revealed that its former Prime Minister, Sigmundur Gunnlaugsson was concealing millions of pounds offshore, not exactly setting a good example.
Gunnlaugsson stood down shortly after the revelation and became the papers first major scalp. Over 10,000 demonstrators gathered outside the country’s parliament building to demand his head after the documents were initially leaked. However, it appears as if the government may be planning to tackle its ongoing problem with tax after its Minister of Finance, Benedikt Johannesson, held a press conference where he announced that Iceland had ‘declared war’ on tax evaders. Strong words, but what do the authorities actually intend to do?
The Panama Papers leak wasn’t the only source of Iceland’s tax evasion issues. Reports by two separate workgroups revealed the worrying amount lost to evasion every year and proposed a novel solution. Namely, reducing the use of cash across the economy. They recommended removing the 10,000 ISK banknote from circulation immediately and the 5,000 ISK note in the near future as well as upping business transparency and making it more difficult for bankrupt businesses to simply get a new identity number (known as kennitala) and start up again under a new guise.
However, the war declarations have not been met with much positivity within Iceland. One of the MP’s from the Minister of Finance’s own group, The Reform Party was recently reported to have said “all taxes are violence” while popular radio personality Mani Petursson called the idea “a disgusting attack on the public of this country.” It does also have some defenders, particularly within the financial arena with economist Jon Steinsson saying that he believes it would “set up a roadblock” for those who intend to cheat on their taxes.
Whether Iceland truly does declare war on tax evaders remains to be seen, it’s likely that the volume of dissenting voices may delay the move away from cash for some time. However, this does hint that Iceland is beginning to take its tax evasion issues seriously and it’s therefore likely that, in the coming years, the law will adapt and it will become more challenging for evaders to get away with breaking the law. It’s also likely to raise the workload for those agencies operating compliantly and with the highly challenging Icelandic language to contend with – and punishments increasing all the time – it’s not worth taking the risk if you’re unsure about the legal status of your firm or the contractors you’re placing.
If you’re looking for tips to tackle the challenging Icelandic tax arena then get in touch with the experts.