Hedge Funds Could Face 35% Tax To Get Money Out Of Iceland

Nov 21 2014 | 8:53am ET

Hedge-fund creditors of Iceland’s failed banks have had hundreds of millions of dollars stuck in the country since the financial crisis. They may soon be able to take it out—but could be subject to a severe haircut for the privilege.

Iceland’s central bank Governor Mar Gudmundsson said this week that the country would impose an exit tax when it ends the capital controls keeping about US$6.6 billion from leaving the island; a plan is set to be finalized by the end of the month. Gudmundsson would not say how large a levy Iceland might impose—but a local newspaper run by Gudmundsson’s predecessor has said it could be as high as 35%.

That has creditors of Iceland’s failed bank, among them Davidson Kempner Capital Management and Taconic Capital Advisors, up in arms.

“There’s a thin line between justifiable taxation and expropriation of assets,” Johannes Runar Johannsson, a member of the Kaupthing Bank winding-up committee, told Bloomberg News. “A 35% exit tax is much closer to an expropriation of assets than a lawful taxation.”

Steinunn Gudbjartsdottir of the Glitnir Bank winding-up committee was just as blunt: “If something like this were to be imposed, it would amount to confiscation, nothing more.”

Gudbjartsdottir made clear that the bank’s creditors would not take a 35% tax lying down, saying that Glitnir would “take all lawful steps available to us to protect the interests of the creditors.”

“If this is one of the ideas which are on the table, then there doesn’t appear to be a will to reach a consensual solution,” she told Bloomberg. “If that’s the case, then this matter will have to be dealt with before the courts. That would mean that an end isn’t in sight in the near term.”

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