22.11.2013

Summary of the opinion of the Winding-up Committee on the Bill proposing amendments to the Bank Tax Act No. 155/2010.

The Opinion of the Winding-up Committee submitted to the parliamentary Economic and Trade Committee on 28 October 2013 discusses certain flaws in Chapter V of the Bill proposing amendments to the Bank Tax Act No. 155/2010. 

The Bill proposes to levy a special tax on financial undertakings in winding-up proceedings, which the Winding-up Committee considers to be incompatible with the objectives of Act No. 155/2010, i.e. to reduce systemic risk and the risk appetite of financial undertakings. Financial undertakings in winding-up proceedings are not authorised to pursue the "risky" activities which the tax is intended to counteract, according to Art. 1 of the Act, as their operating licenses have been revoked by the Financial Supervisory Authority. Furthermore, it is the nature of winding-up proceedings, as a joint enforcement action by the creditors of the financial undertaking concerned, that such activities will not be continued. In the view of the Winding-up Committee, the proposed tax is therefore both unjustified and illogical taking into account the objectives of the Act. 

The Opinion states, furthermore, that in the viewof the Winding-up Committee the special tax on financial undertakings impacts financial undertakings in winding-up proceedings unequally depending upon the relative proportion of their assets and liabilities. The lower the proportion of assets of the financial undertaking in winding-up proceedings relative to its liabilities, the greater is the tax burden levied on it; its assets will be depleted more in relative terms than if its assets were a higher proportion of its liabilities. As a result, the real tax rate of the bank tax can be considerably higher in actuality than is anticipated in the Bill. 

In addition, the situation of those financial undertakings currently in operation differs greatly from that of financial undertakings in winding-up proceedings, as the latter have considerably more limited possibilities of responding to the levying of the tax. As a result of all of the above-mentioned, levying this tax could in the view of the Winding-up Committee be incompatible with the principle of non-discrimination in Art. 65 of the Constitution of the Republic of Iceland ("the Constitution").

The Winding-up Committee also was of the opinion that there are ambiguities in the definition of the tax base, and that if the Bill is adopted in its present form the tax base will include all outstanding claims regardless of whether these claims have been recognised in the winding-up proceedings. In the event that the courts reject disputed claims this will unavoidably result in excess taxes having been collected, which is in the view of the Winding-up Committee could contravene with Articles 40 and 77 of the Constitution. 

Furthermore, the Winding-up Committee was of the opinion that the taxation could possibly infringe against considerations of protection of private property, as provided for in Art. 72 of the Constitution, as collection of the tax will reduce the assets of the insolvent estate; the Bill shows no regard at all for the estate's asset position, its income or possibilities of making payment of the tax. 

The Winding-up Committee also considered there to be doubt as to whether it was lawful to accord a special priority to a tax claim against a financial undertaking in winding-up proceedings over other tax claims in the winding-up proceedings. In the view of the Winding-up Committee, the above-mentioned could amount to a retroactive measure in winding-up proceedings which had already commenced and which therefore could infringe against the legitimate expectations of general creditors. 

The Opinion of the Winding-up Committee in its entirety in Icelandic is accessible on the website of the Icelandic parliament:

http://www.althingi.is/pdf/erindi/?lthing=143&dbnr=55  

Print