Greece

Nikos Evangelopoulos
Ernst & Young
Greece

Since mid-2009, when Greece entered financial turmoil, the country has been facing multiple difficulties in terms of re-financing the State debt. Nikos Evangelopoulos, of Ernst & Young discusses the tax reforms that are being implemented as a result.

Several austerity measures have been implemented in the last year in Greece. Last year's rescue package from the EU and the IMF offered a breath of fresh air to the Greek economy, but was not enough. In the meantime, other EU members such as Ireland and Portugal are facing similar problems, heightening the uncertainty for the potential recovery and restart of the Greek economy. Also, recently, markets indicated a concern that Spain and Italy will be next in line. In an attempt to avoid further spreading of such worries, a new rescue package for Greece has been approved, but investors are still in fear of a default.

In an effort to strictly comply with its reform program, the Greek state is obliged to put into effect severe measures, with an emphasis on tax matters. Greece is also required to comply with the rules set by both the IMF and the EU, achieve pay cuts and reduce public sector spending and human capital, all aiming at the reduction of its annual deficit.

However, it seems that Greece has entered a vicious cycle of increased tax rates and reduced revenues. The recession is still here and now the Greek Government is trying to form measures to support investments in the renewable energy and tourism industries, to boost competitiveness, to promote exports and, overall, return to growth in 2012. Ernst & Young's latest Eurozone forecast suggests more structural reforms and privatisations are needed to ensure medium-term growth. Coping with political and closed-professions resistance though, is a big challenge.

Already sparking a public debate is the fact that the new minister of finance has recently announced that a tax system reform will take place this autumn. In the meantime, important changes in tax legislation are continuously being introduced.

In March 2011, for instance, a new tax law under the title 'Confrontation of tax evasion, organisation of the audit authorities and other provisions' introduced important changes in the Greek tax legislation with respect to the tax residence of individuals, corporate income taxation, taxation of dividends and distributed profits and tax dispute resolution. It also introduced strict criminal sanctions and audit procedures.

Criminal measures and sanctions

The non-payment of debts assessed by the tax and customs authorities is considered as a "continuing offence".
The offence of tax evasion by non-filing or filing an inaccurate income tax return is enacted as a "continuing offence".
Criminal prosecution does not start if the taxpayer has a certain and accrued claim against the Greek state or local government, which is equal to or greater than the taxes, duties and contributions for which the criminal prosecution was supposed to start.
In case of felonies, the fact that the accused has finally paid his taxes, duties and contributions plus any other surcharges, duties and fines, is taken into consideration for the suspension of the penalty because of an appeal.
The institution of the "prosecuting officer of financial crimes" is introduced.
The prosecuting officer of financial crimes, when performing his duties, is not subject to the restrictions of the privacy regulations regarding tax, banking, stock exchange and any other kind of privacy while it has access to any kind of public authority or organisation handling any private data.

Income Taxation

Corporate income tax

The corporate income tax rate for income accrued in fiscal year 2010 is set at 24%. For income arising in fiscal year 2011, the corporate income tax rate is reduced to 20%.
The Greek branches of foreign partnerships are subject to tax in Greece based on the provisions applicable to Greek partnerships.

Taxation of distributed profits

Profits distributed or capitalised by Greek SAs, Ltds and other similarly taxed entities, both cash and shares, in the form of dividends, interim dividends, BoD and directors fees, as well as to bonuses paid to employees out of the company's profits, regardless of whether the beneficiaries are Greek or foreign individuals or legal entities, including those repatriated or credited by the Greek permanent establishments of foreign enterprises to their head office or other permanent establishments located outside Greece, are subject to 25% withholding tax. This rate applies to distributions and capitalisations that are approved by the competent corporate bodies as of January 1 2012 and onwards; exceptionally, profits which are distributed or capitalised within 2011 are subject to 21% withholding tax.
When a company distributes profits that include dividends received from its participation in another legal entity, the amount of tax that has already been withheld from these dividends and corresponds to the proportion of them deemed to be further distributed, is deducted from the tax that the company is obliged to withhold upon such distribution.
In case the EU Parent-Subsidiary Directive applies, dividends distributed by a Greek company to an EU legal entity are exempt from withholding tax. If these dividends include profits received from its participation in another legal entity, the Greek company is entitled to a refund equal to the tax withheld from these profits, which corresponds to the proportion of them deemed to be further distributed.

Inbound dividends from the EU – participation exemption

The Participation Exemption system is introduced with respect to dividends that Greek SAs and Ltds receive from other EU companies in which they participate by 10% for at least two consecutive years, in accordance with the provisions of L.2578/1998 as applicable now. These dividends are tax exempt at a corporate level, insofar as they are registered under a tax-free reserve account. If these dividends are further distributed or capitalised, then they will be subject to the 25% withholding taxation (or 21% in case the distribution or capitalisation takes place within 2011). This provision applies to dividends received as of the effective date of the present Law.

Dividend remittance to the Greek State

In case shareholders of Greek companies do not collect their dividends within a five-year period, starting from the end of the year in which their distribution was decided, then these dividends are taken over by the Greek state. The distributing company is responsible for remitting such dividends to the state and subject to the penalties provided by the applicable legislation for late, inaccurate or non-remittance.
The above penalties do not apply to any amount of dividends already taken over by the state.

Determination of enterprises' net income

Transactions with persons and entities established in non-cooperative countries or preferential tax jurisdictions are not tax deductible in principle.
The list of countries that are considered as non cooperative for tax purposes, for calendar years 2010 and 2011, is set by the minister of finance and economy.
However, such enterprises that enter into transactions with persons and entities are given the possibility of having the corresponding expenses deducted, as long as they prove that these transactions are real, take place in the ordinary course of business and do not aim at a shift of profits, income or assets driven by tax avoidance or tax evasion purposes.
A person or entity is considered established in a preferential tax jurisdiction when it is either exempt from taxation, or when its profits, income or assets are subject to tax at a rate which is equal to or lower than 60% of the corresponding tax rate of the Greek legislation.
Donations made by enterprises to sports clubs are not recognised as tax deductible.
Thin-capitalisation rules do not apply to security management companies operating under L.3606/2007, as is already the case for banks and leasing companies. This provision applies to financial years ending on December 31 2010 and onwards.
The right to deduct an extra 50% of R&D expenses incurred during a fiscal year is extended up until December 31 2014.

Sale of listed shares

The sale of shares listed in the Athens Stock Exchange or in any recognised foreign stock exchange market, which have been acquired up until December 31 2011, is subject to transaction tax at a rate of 0.15%, which will increase to 0.20% for sales taking place as from April 1 2011 and onwards.
Gains resulting from the sale of listed shares acquired up until December 31 2011 continue to be exempt from income taxation.
Capital gains resulting from the sale of listed shares, which are acquired as from January 1 2012 and onwards, will be subject to tax based on the general income tax provisions, irrespective of whom they are made by. In addition, any loss resulting from these sales will be recognised for tax purposes.

Other corporate income taxation provisions

Enterprises which are subject to the extraordinary contribution levied on their net income based on the provisions of both L.3845/2010, and L.3808/2009 (for profits accrued in financial year 2008), are entitled to a refund of the amount of this extraordinary contribution, which corresponds to income earned in respect of their participation in other companies, and which has already been paid by the latter.
All companies and legal entities are obliged to file their income tax returns electronically.
Corporate restructuring procedures are simplified.

Value added tax

Taxpayers are allowed to pay VAT in three monthly installments.
A building shall qualify as "new" and consequently its supply shall fall under the scope of VAT for a period of three years after completion of its construction.
The entities that exploit logistics centres pursuant to the provisions of articles 1-21 of L.3333/2005, will be eligible to opt to be subject to VAT and will be entitled to deduct the amount of VAT that corresponds to the construction and maintenance cost. Such VAT will be subject to a ten-year adjustment period, starting from the first year of use of the hubs.
When licenses to emit greenhouse gases are transferred within Greece, the taxable person to whom such transfers are made will be liable for payment of the VAT due. This will help in restraining tax evasion observed in EU in the form of carousel VAT fraud.
Directives 2009/162/EC and 2009/69/EC are incorporated in the Greek law amending the Greek VAT Code accordingly.

Other taxes

Funds repatriation

The right to benefit from the funds repatriation provisions is extended until September 30 2011; the tax rate applicable on the transferred assets is increased from 5% to 8%, so as to be identical to the one imposed on assets remaining deposited abroad.
The notion of funds is broadened and includes not only deposits in foreign banks, but also deposits in the form of financial (or not) products, such as shares, parts, bonds, life insurance contracts linked to investments etc.

Real estate property taxation

The special real estate tax does not apply to:
- Companies that lease their immovable property to shipping companies governed by L.89/1967, insofar as the latter exclusively use said property for the establishment of offices or warehouses. This provision is applicable as from January 1 2010.
- Collective institutions (for example insurance funds and institutional investors) established outside Greece and holding investments in real estate property located in Greece, as long as these institutions operate under the supervision of their respective countries' competent authorities and their registered seat is not established in a non-cooperative country. This provision applies as from January 1 2011.

Inheritance tax

The provision exempting from Greek inheritance tax the movable assets located abroad and belonging to a Greek resident, who was also established outside Greece for at least 10 consecutive years, is re-introduced in the Greek legislation and retroactively applicable as from the date of its abolishment by L.3842/2010.

Taxation of ships

The tax and contribution rates applicable to ships flying the Greek flag and the contribution rates applicable to Greek-owned ships flying a foreign flag insured with "NAT", are re-adjusted by four percentage points on an annual basis for the years 2011to 2015.

Customs regulations

Enterprises engaged in the manufacture of tobacco products must be provided with an authorisation from the minister of finance before the start-up of their business operations, with a provision of renewal every three years.

Implementation of Directive 2008/55/EC

Directive 2008/55/EC, which codifies the existing EU law on the recovery of claims from Greece arising in another EU member state and concerning a debtor who resides in Greece, as well as the recovery of claims from the other EU member states arising in Greece and concerning a debtor who resides in another EU member state, is transposed into Greek law (law 1402/1983).

Audit procedures – Tax dispute resolution

Tax certificate

Auditors and audit offices are required to issue an annual tax certificate further to an audit carried on in parallel, when performing statutory audits on SAs and Ltds and focusing on the correct application of the tax legislation.
In case there are no specific remarks and findings of violation of the tax legislation to be reported, the company will not undergo a regular tax audit, unless it is randomly selected pursuant to art.80 of L.3842/2010.
Infringements of the tax legislation, inaccurate payment or non-payment of taxes have to be reported in the tax certificate, in detail.
The tax certificate becomes an integral part of the tax audit report, in case it includes specific tax data with respect to the audited company, which have been affirmed by the competent tax authority.

Tax penalties – surcharges

The maximum rates of surcharges are reduced and may no longer exceed (a) 60% of the amount of tax assessed for the late filing of tax returns and (b) 120% for the filing of an inaccurate tax return or for non-filing. This provision shall apply with respect to tax returns filed after the publication of the law.
An administrative fine of €1,000 ($1,400) up to €50,000 is imposed to individuals or legal persons that do not provide the ministry of finance with the information requested during tax audits or with any specific information or statements.
A fine of €5,000 to €100,000 is imposed to organisations and entities that breach their obligation to provide information or data or provide inaccurate information.
The measures for safeguarding the financial interests of the state do not apply to taxpayers who have not paid VAT and other withholding taxes of more than €150,000, if these taxpayers have certain and accrued counter-claims against the state at least equal to their liability. If the counter-claim is lower than the taxpayer's liability, the state is obliged to reduce the lien placed on his bank accounts to an amount equal to the state's claim.

When overdue debts become public domain

Overdue debts towards the Greek state shall be mentioned in the website of the Ministry of Finance in case they exceed the amount of €50,000 per individual or legal entity and provided that they are overdue for a period of over one year. This does not apply to cases where either the taxpayer is paying his liability in installments and for as long as he is in compliance, or the payment of the liability has been suspended because of a court decision.
The Code of Books & Records violations for the erroneous recording in the accounting books of the enterprise or the concealment of taxable items, such as the issuing of false tax records or the non-issuing or inaccurate issuing of tax records, become public domain as well.

Offsetting of claims

It is possible to offset certain and accrued claims against the Greek state, as proven with a final court judgment or state document, against debts owed to the state.
The setting off is initiated either by the taxpayer or ex officio by the state.
Refund of taxes due by the state may be offset against any other taxes to be attributed to the State.
Claims of the state that have been time barred may be set off for a period of three years starting from the completion of the statute of limitation period.

Tax payable upon filing of a judicial recourse

The amount of main tax, additional and other taxes and duties to be paid for the filing of a judicial recourse against a tax assessment is increased from 25% to 50%, with the exception of fines for which the payable amount remains equal to 25%. This provision applies to judicial recourses filed after the law comes into force.
Taxpayers are granted the possibility to pay, in installments, taxes, duties and contributions, assessed by a temporary tax note issued based on the company's compliance with the provisions regarding advance and withholding taxes.

Fiscal Arbitration Body

An independent special Fiscal Arbitration Body (FAB) is established, charged with the resolution, through arbitration, of tax disputes of amounts exceeding €150,000.
The FAB has the power of the tax or customs authority with respect to the administrative settlement of the dispute.

Committee for the administrative settlement of tax disputes

A five-member Committee for the administrative settlement of tax disputes of amounts exceeding €50,000 is established in the General Directorate of Tax Audits of the Ministry of Finance.

Enhancement of international administrative cooperation in the field of direct taxation

A Department of the International Administrative Cooperation in the field of direct taxation is set up in the Division of the International Financial Relationships of the Ministry of Finance. The Department is authorised to enhance the exchange of information and the mutual administrative assistance in terms of double tax treaties for the avoidance of double taxation and other European and International commitments of the state, to negotiate with the scope to concluding or revising the relevant international agreements, to cooperate with the competent Greek tax or audit authorities for the promotion and the utilisation of the information obtained from the competent foreign authorities and to monitor the compliance of internal legislation to the European Regulations and Directives.

Other

Government bonds

An exemption from income tax is introduced on pledge or repos – reverse repos concluded as of December 1 2010 onwards on bond loans issued by the Greek state (irrespective of the issuance date of the titles).

Right over public real estate land

An individual or legal entity is entitled to construct a building over public real estate land not owned by him and exercise ownership rights over it.
The right over surface of public real estate land cannot exceed 50 years or be lower than five years.

Nikos Evangelopoulos (nikos.evangelopoulos@gr.ey.com), Tax Partner, Ernst & Young, Athens Greece