Taxing bankrupt companies, i.e. the estates of the failed Icelandic banks?
In her blog (in Icelandic), minister of social affairs Eygló Harðardóttir has aired the idea that the estates of failed financial companies could be taxed. Yes, that debt should and could be taxed. Harðardóttir is not the first to mention this possible source of taxation – the idea has been around for a while, mostly mentioned by the minister’s party members, i.e. from the Progressive party. One of those is party leader and prime minister Sigmundur Davíð Gunnlaugsson.
Harðardóttir underlines that she is not the minister of finance so it is not for her to decide on this source of taxation but she finds it utterly natural and even desirable that estates should be taxed.
Others beg to differ. I mentioned this idea to some lawyers in Iceland who said that taxing the estate of a bankrupt company, i.e. taxing debt, runs contrary to what is normally seen as a taxable source. The minister clearly begs to differ.
The feeling in Iceland is that since the estates of Glitnir and Kaupthing are owned by foreign creditors the estates are particularly attractive as a source of income for the government. It is though not entirely correct that this will only hit foreign financial institutions – Icelandic creditors, i.a. pension funds and the state itself, own ca. 7-8% of claims in these two estates.
Taxing the estates is clearly being considered – but there are no doubt lawyers in the ministry of finance and elsewhere who will make clear that this would be a highly questionable practice.
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