Contributed By Zepos & Yannopoulos
Businesses in Greece most commonly adopt the forms of a société anonyme (Ανώνυμη Εταιρεία or ΑΕ), limited liability company (Εταιρεία Περιορισμένης Ευθύνης or ΕΠΕ) or private company (Ιδιωτική Κεφαλαιουχική Εταιρεία or ΙΚΕ). All of these forms of companies are referred to as "capital companies" (κεφαλαιουχικές εταιρείες). One of the common features of all of these forms, as opposed to partnerships, is that the liability of their shareholders or members is limited in principle.
Large companies will most commonly take the form of an AE, which unlike the ΕΠΕ and IKE is subject to a minimum capital requirement (EUR25,000 as of 1 January 2019). The ΕΠΕ constitutes a corporate vehicle of choice for small- and medium-sized businesses. However, the popularity of the IKE form has risen in recent years, in view of the fact that it offers a flexible structure compared to an ΕΠΕ.
Small- and medium-sized enterprises engaged in service provision and family businesses often take the form of a general partnership (Ομόρρυθμη Εταιρεία or OE) or limited partnership (Ετερόρρυθμη Εταιρεία or ΕΕ).
Corporations and partnerships alike are taxed as separate legal entities.
In general, business entities are not transparent. Exceptions to this, such as Greek Venture Capital Mutual Funds (ΑΚΕΣ), are few in number.
The taxation of Greek undertakings for collective investment in transferable securities (ΟΣΕΚΑ) is calculated as a percentage of their net assets, and such tax exhausts the tax liability of the undertaking and its shareholders.
The taxation of Greek real estate investment companies (ΑΕΕΑΠ), which engage exclusively in the acquisition and management of real estate property, is calculated as a percentage of the average of the fair market value of their investments. This tax also exhausts the tax liability of the undertaking and its shareholders.
Subject to the operation of double taxation treaties, incorporated businesses are deemed to be resident in Greece if they are formed in accordance with Greek law, if their registered seat is in Greece or if the place of their effective management is in Greece. The place of effective management is determined on the basis of all facts and circumstances, with material factors being the place of exercise of the day-to-day business, the place where strategic decisions are adopted, the place where the annual shareholders’ meetings are held, the place where books and records are kept, the place where the meetings of the board of directors or other executive bodies are held, and the directors’ place of residence. The place of residence of the majority shareholders may potentially be considered along with the other factors. The rules on residence do not apply to certain companies operating under special shipping regimes.
The ordinary income tax rate that is applicable to businesses incorporated in the form of an AE, ΕΠΕ or IKE, or to partnerships in the form of an OE or EE, as well as to all other legal persons and entities defined in the Income Tax Code including local permanent establishments of non-resident entities, is 24% for the income of fiscal years 2019 onwards. Such reduced rate does not apply for credit institutions that have opted to apply a scheme available for enhancing capital adequacy which consists of conversion of deferred tax assets into deferred tax credits against the Greek State. Such credit institutions are taxed at the rate of 29%.
Business income derived by individuals who are directly engaged in a business forms part of their taxable basis, which includes any salary and pension income and is taxed at a progressive scale ranging from 9% to 44%. In accordance with the 2020 draft budget submitted to the Greek Parliament, a new tax bracket is to be introduced providing for a tax rate of 9%.
Reduced tax rates are available to companies formed as ΑΕs or ΕΠΕs on certain non-taxed profit reserves formed under growth incentive laws if capitalised. Prerequisites for this include, in certain cases, certain restrictions to ensure the continuity of the relevant company and the preservation of capital.
The taxable profits of incorporated businesses are based on accounting profits, subject to the special rules and classifications provided for in the income tax legislation. In general, taxable profits equate to the aggregate of revenues, including revenues from the disposal of assets, after subtracting business expenses (except for certain expenses that are explicitly provided for as non-deductible), depreciation allowed for tax purposes and certain provisions for bad debts. Categories of business expenses that are not deductible are explicitly defined, and include provisions (other than the specifically allowed bad debt provisions), penalties and fines, payments for goods or services exceeding EUR500 if not effected through banking transactions, unpaid social security contributions, payments to persons resident in the jurisdictions deemed non-co-operative or preferential (unless the taxpayer proves that these expenses were incurred for real transactions and do not result in profit-shifting aimed at tax avoidance or evasion), and certain other types of expenses. Payments to persons resident in EU and EEA jurisdictions that are deemed to be preferential are deductible in principle, unless it is proven from an exchange of information with the relevant jurisdiction that these expenses were not incurred for real transactions and result in profit-shifting aimed at tax avoidance or evasion. Specific limitations apply to the deduction of interest. Expenses related to participations yielding tax-exempt dividends and capital gains are not tax deductible in principle.
In addition, all business expenses must meet the following generic criteria in order to be deductible: they must have been actually incurred, they must have been incurred for business purposes or in the ordinary course of business, and they must have been properly recorded in the books and supported by adequate documentation.
Taxable profits are subject to readjustment in the case of transactions between related parties which are not in line with the arm’s-length principle. An individual or legal entity participating directly or indirectly in the capital or management of an enterprise is defined as a related party for transfer pricing purposes. A 33% threshold applies with respect to the minimum direct or indirect participation in the capital or the exercise of voting rights, above which entities are defined as related. The exercise of managerial control or decisive influence over an enterprise is also used as a means to define related parties, irrespective of any participation in the controlled enterprise’s capital or voting rights.
As a general rule, the profits of incorporated businesses are taxed on an accruals basis.
Any profits that are distributed or capitalised without having previously been taxed are subject to tax upon such distribution or capitalisation.
Subject to a governmental audit, a supertax deduction of an additional 30% of certain R&D expenses, including any depreciation of machinery and equipment used for R&D purposes, is available at the time such expenses are realised.
Profits derived by a business from the sale of assets produced by deploying its own patents, and from services provided with the use of its own patents, are exempt from corporate income tax for a period of three years, starting from the year when the relevant revenues were first accrued. The relevant profits are taxed when they are distributed or capitalised.
Certain instruments and equipment used for R&D that are set by governmental decision can be amortised at a 40% rate annually.
The currently available EU-compliant institutional framework for the establishment of private investment aid schemes aiming at the country’s regional and economic development includes state grants in the form of tax exemptions for eligible investments.
Incentives for the production of audiovisual content (such as movies, videos and television programmes), for the provision of ancillary services and for the development of source code for computer game software provide for a 30% deduction of eligible expenses incurred in Greece from taxable income.
As of the fiscal year 2018, incentives for the creation of new jobs are also available.
Specific tax incentives, such as exemption from real estate transfer tax, are available to entities that acquire property and commence activities in special industrial zones and entrepreneur parks.
Incentives for sustainable development include a 130% super-deduction for expenses related to environmental protection, such as expenses concerning the leasing of certain company cars of zero or low emissions, and expenses concerning the purchase, installation and operation of publicly accessible charging points for electric vehicles of zero or low emission and the purchase of season tickets for public transportation. Explicit deductibility for corporate income tax purposes of expenses related to CSR activities has also been introduced as an incentive for sustainable development.
During 2019, new legislation was introduced with the aim of streamlining the existing framework for attracting strategic investments in all sectors of the Greek economy through the grant of incentives. The rules define strategic investments as those investments, which, due to their strategic consequences for the national or local economy, are capable of producing material quantitative and qualitative results towards expanding employment, reconstructing production and enhancing the country’s natural and cultural environment. In accordance with the relevant provisions, such investments will be approved by a governmental committee if they meet certain quantitative or qualitative criteria (such as, for investments within certain industrial zones, having a budget in excess of EUR25 million and creating at least 50 new jobs). Strategic investments would mostly embrace extroversion, innovation, competitiveness, comprehensive planning, the preservation of natural resources in the context of the circular economy and high added value, notably in the business sectors of international trade and services. The tax incentives offered by the new framework are the stabilisation of the tax rate for 12 years, scalable tax incentives such as tax exemptions for certain categories of investments exceeding certain thresholds, and accelerated depreciation, as well as beneficial taxation for expatriate executives.
A tonnage tax regime applies in respect of ship-owning companies. The tax is calculated on the basis of the capacity and age of the vessel. In relation to vessels under the Greek flag, the tonnage tax exhausts any further income tax obligation of the ship-owning company and its shareholders with respect to income arising from the operation and exploitation of the vessel. Since 1 January 2015, vessels flying flags of EU or EEA Member States can also be within this regime in respect of defined types of vessels. With respect to vessels under foreign flags, tonnage tax is imposed only in relation to those vessels that are managed in Greece by companies that have established offices in Greece for such management, under a specially regulated regime. Under this regime, the income of such management companies is exempt from tax. Greek companies and foreign companies that have established an office in Greece under the aforementioned special regime and engage in activities other than the management of vessels, such as chartering, insurance and damage settlement, in respect of ships under the Greek or a foreign flag of total tonnage over 500 shipping tons, are subject to an annual contribution calculated on the basis of the amount of foreign exchange that is required by law to be imported into Greece annually in order to cover their operating expenses.
Tax losses incurred due to the conduct of a business within a certain fiscal year can be carried forward to be offset against profits made over the next five consecutive years. Previously untaxed profits that are taxed as a result of their distribution or capitalisation cannot be offset against tax losses incurred in the relevant year. Special rules apply for the amortisation of losses arising from an exchange of bonds under the Greek PSI programme, as well as in respect of banks, financial leasing and factoring companies from specified debt write-offs and disposals of loans and credits.
Τax losses incurred abroad, arising from the conduct of a business through a foreign permanent establishment, can neither be used to determine taxable profit in the same fiscal year nor carried forward, with the exception of final tax losses arising from the conduct of business through permanent establishments in EU/EEA Member States, provided that the relevant profits are not exempt from Greek income tax by virtue of a double taxation treaty between Greece and the relevant EU or EEA Member State.
According to a rule that was recently amended in order to transpose part of the EU Anti-Tax Avoidance Directive into Greek domestic law, subject to a de minimis threshold of EUR3 million annually, “exceeding borrowing costs” are not deductible by local corporations and local permanent establishments of non-resident entities to the extent that they exceed 30% of EBITDA, with a possibility to carry forward the non-deductible portion without any time limitation. “Exceeding” borrowing costs are defined as the amount by which the otherwise deductible borrowing costs of a company exceed taxable interest revenue and other economically equivalent taxable revenue. This limitation does not apply to several types of financial undertakings, such as credit institutions, insurance companies, and specific institutions for occupational retirement. As regards related-party transactions, this rule is applied after any transfer pricing adjustment.
Another restriction on the deduction of interest is that the portion of interest expenses corresponding to any rate exceeding the interest rate for credit lines to non-financial corporations referred to in the most recent Bulletin of Conjunctural Indicators of the Bank of Greece (as at the time of the loan) is not deductible. This limitation does not apply to interest on bank loans or bond loans, nor to interest paid to related parties.
There is no consolidated tax grouping regime in Greece.
Capital gains from the disposal of assets including shares in other corporations are fully included in the taxable basis of corporations for income tax purposes in the fiscal year in which they are realised.
As per a recent amendment to the Income Tax Code, Greek legal persons are exempt from tax on capital gains arising from the disposal of shares in EU Parent-Subsidiary Directive-qualifying subsidiaries (see 6.3 Taxation on Dividends from Foreign Subsidiaries) insofar as they hold at least 10% participation in those subsidiaries for a minimum holding period of 24 months. The provision shall apply for income generated from 1 July 2020 onwards.
Under a grandfather clause, losses arising from the transfer of shares realised until 31 December 2022 shall be deductible for tax purposes after 1 January 2020 to the extent that losses had been reflected in financial statement valuations having occurred until 31 December 2019.
Capital gains derived from certain qualifying corporate reorganisations, such as mergers, divisions, partial divisions, transfers of assets and exchanges of shares, are exempt from tax at the time of the relevant operation, subject to specific anti-abuse rules.
Value-added tax is levied on virtually all transactions relating to goods and services. The standard VAT rate is 24%, although reduced rates are also available in certain cases (eg, for certain agricultural supplies, hotel accommodation, certain social services, etc). VAT is imposed on the total consideration received for the supply of goods or services, excluding the tax itself. VAT is not a burden for companies with the right to fully deduct input VAT.
Stamp tax is levied on documents issued or executed in Greece in respect of certain transactions that are not subject to VAT.
The most common transactions that are subject to stamp tax are certain commercial leases, which are not subject to VAT, loans and transfers of ongoing business concerns. Certain types of loans are exempt from stamp tax, such as loans granted by banks and bond loans.
Stamp tax is applied at different rates depending on the type of parties to a transaction. Business transactions falling under the scope of stamp tax are, in principle, subject to a 2.4% rate applied on their value. The rate for commercial leases is 3.6%.
The transfer of real estate is subject to real estate transfer tax, which is imposed on a value imputed for tax purposes (either the so-called "objective value" or the actual transfer value agreed, whichever is higher) and is borne by the purchaser. The tax rate is 3%. An additional 3% municipality tax is applied on the amount of the real estate tax, so that the overall tax burden adds up to 3.09%. Reduced rates of real estate transfer tax apply in certain corporate reorganisations, such as mergers.
For the period 2020-2022, the sale by constructors of buildings that would normally be subject to 24% VAT shall be exempt from VAT, upon the filing of a relevant application. The exemption shall cover buildings that have been completed with building permits following 1 January 2006, as well as those that will be built within the aforementioned three-year period. The constructor will waive the right to deduct the VAT on the construction cost, and any VAT already deducted or refunded should be refunded to the State, through the filing by the constructor of an extra-ordinary VAT return, at the time of the sale of the building. Any non-recoverable VAT can be deducted as an expense for income tax purposes. A transfer tax at the rate of 0.2% is levied on sales and stock lending in respect of listed shares.
An annual banking levy applies on loans and credits granted by Greek and foreign credit and financial institutions. The applicable rates depend on the type of credit, and range between 0.12% and 0.6%.
Incorporated businesses owning property rights on real estate located in Greece are subject to a unified real estate tax (Ενιαίος Φόρος Ιδιοκτησίας Ακινήτων), commonly referred to as ENFIA, which consists of a main and a supplementary tax. The main tax applies to each property separately and is computed based on a formula that varies depending on the type and location of the real estate assets and a number of other parameters set in the law. The basis rate for the main tax (which is then multiplied by set coefficients depending on the particular case) ranges from EUR0.001 to EUR13 per square metre, depending on the type of property. The supplementary standard tax rate is set at 0.55%, with properties that are used by the taxpayer for its business activities being subject to a supplementary tax of 0.1%. A number of exemptions from the tax or reduced rates are available for specific categories of properties and/or taxpayers (eg, Real Estate Investment Companies).
A special real estate tax (Ειδικός Φόρος Ακινήτων) imposed on real estate owned as at 1 January of each calendar year at a rate of 15% of the value of the real estate imputed for tax purposes had been imposed for the purposes of tackling the ownership of Greek real estate by non-transparent structures. As a result, it is effectively not applicable to a great number of incorporated businesses owning Greek real estate, based on a number of exemptions. Recent amendments to the Special Real Estate Tax legislation harmonise the regulated investment vehicle exemption with the domestic and EU legislation that applies to relevant schemes.
A special tax is imposed on capital accumulation (φόρος συγκέντρωσης κεφαλαίων), at a rate of 1%. This tax applies on capital in cash or in kind contributed to legal entities of any form in the context of a capital increase. Such tax is not imposed on the capital accumulated upon the establishment of an entity. A duty of 0.1% on share capital is additionally imposed on companies taking the form of an AE in favour of the Greek Competition Committee.
Depending on the precise form of their activity, corporations may be liable to various municipal taxes/duties, such as cleaning, lighting and advertising duties.
A property duty is levied by each municipality at a rate ranging between 0.025% and 0.035% on the objective value of immovable property located in the territory of the relevant municipality.
A number of taxes in favour of third parties, such as the Lawyers’ Pension Fund, Universities, other funds and non-profit organisations, are applicable to incorporated businesses and other taxpayers, as the case may be.
Closely held local businesses usually operate in corporate forms, as companies with legal personality. Small and medium-sized enterprises and family businesses often take the form of a general partnership (OE) or limited partnership (ΕΕ).
Operation as a sole proprietorship is preferred only for very small-scale businesses.
An individual professional is taxed at progressive tax rates which, depending on the level of the income, may or may not lead to an effective rate that is lower than the combined effective rate of corporate taxation, together with tax imposed on profits distributions, where applicable (see 3.4 Sales of Shares by Individuals in Closely Held Corporations).
There are no tax rules that prevent closely held corporations from accumulating earnings for investment purposes.
Greek tax-resident individuals are subject to 5% income tax on profits and dividends from closely held corporations acquired as of 1 January 2020. Profits of small partnerships (in the form of an OE or EE) keeping single-entry books are taxed only at company level, with no further income taxation on profit distributions at the level of partners. Companies in the form of an AE, EΠΕ and IKE cannot keep single-entry books.
Capital gains of Greek tax-resident individuals derived from the sale of shares in closely held corporations are subject to 15% income tax. Gains on the sale of shares in closely held corporations are, in certain circumstances, calculated on an imputed manner set in the relevant rules on the basis of the level of the corporation’s equity.
Capital gains realised by employees and shareholders as a result of transferring shares in non-listed start-up companies purchased through the exercise of stock option rights acquired within a period of five years as of the company establishment are subject to 5% capital gains tax instead of employment income tax on the condition that a minimum period of three years shall have lapsed between the acquisition of the relevant stock options and disposal of the shares. Otherwise, employees are subject to 15% capital gains tax instead of employment income tax on the condition that a minimum period of two years shall have lapsed between the acquisition of the relevant stock options and disposal of the shares.
Capital losses from sales of shares and other securities can be carried forward for five years to be set off against future capital gains deriving from similar transactions only.
Capital gains are also included in the taxable base of individuals for purposes of the application of a "special solidarity" contribution. The special solidarity contribution was first enacted in 2011 as a temporary measure in the context of Greece’s austerity measures, but has become a permanent additional type of tax, which has been incorporated into the Income Tax Code. The special solidarity contribution is applied on the basis of a progressive scale, with the maximum rate being 10%.
Under domestic legislation, foreign tax-resident individuals are exempt from tax on capital gains derived from the sale of shares in Greek companies, provided they are resident in a jurisdiction that has a double taxation treaty with Greece. They can also be exempt from the special solidarity contribution under double taxation treaties.
Foreign tax-resident individuals are subject to withholding tax on distributions of dividends and profits from Greek companies, subject to relief or reduced rates under double taxation treaties.
The individuals’ tax regime provided for dividends from shares held in closely held corporations (described in 3.4 Sales of Shares by Individuals in Closely Held Corporations) is also applicable in relation to shareholdings in publicly traded corporations.
Greek and foreign tax-resident individuals are exempt from income tax on gains derived from the sale of exchange-listed shares, except where they hold at least 0.5% of the total share capital and the shares have been acquired on or after 1 January 2009, in which case they are taxed at 15%.
Taxable and tax-exempt profits alike are included in the taxable base of individuals for purposes of the application of the special solidarity contribution mentioned in 3.4 Sales of Shares by Individuals in Closely Held Corporations.
Non-Greek resident entities are taxable in Greece in respect of income acquired from a business activity carried out through a permanent establishment in Greece. Any interest, dividends and royalties attributed to such permanent establishment will be included in the taxable basis of the permanent establishment for income tax purposes and, in some cases, will be subject to withholding tax.
Under domestic legislation, entities that do not have a permanent establishment in Greece, as well as non-Greek resident individuals, will be subject to withholding tax on Greek-source interest, royalties and dividends, subject to the below specifications. Any tax so withheld exhausts their Greek tax liability.
Under domestic law, 5% withholding tax applies on dividends acquired as of 1 January 2020, and 10% withholding tax applies on dividends acquired before 31 December 2019. Dividends distributed to qualifying EU parent companies are exempt from any withholding tax, provided that:
Until completion of the minimum holding period, a bank guarantee for the amount of withholding tax that would otherwise be due can be deployed instead of payment of the withholding tax and a posterior refund claim. A special anti-avoidance rule prohibits the withholding tax exemption on the above qualifying dividend payments to the extent that the relevant exemption is claimed in the context of artificial arrangements that are not put in place for valid commercial reasons reflecting economic reality, but are instead aimed mainly at obtaining a tax advantage.
Under domestic law, 20% withholding tax applies on Greek-source royalties and 15% withholding tax applies on Greek-source interest.
Interest and royalties paid to qualifying EU associated companies are exempt from any withholding tax, provided that:
Until completion of the minimum holding period, a bank guarantee for the amount of withholding tax that would otherwise be due can be deployed instead of payment of the withholding tax and a posterior refund claim.
Withholding tax exemptions on the above types of payments also apply, under similar conditions to those applicable to payments to EU qualifying companies, in respect of payments to beneficiaries in Switzerland.
Interest payments effected as of 1 January 2020 towards non-resident individuals and legal entities that do not maintain a permanent establishment in Greece are exempt from interest withholding tax insofar as such interest is on corporate bonds listing on trading venues within the EU or on organised markets outside the EU, provided such markets are regulated by an authority accredited by the International Organization of Securities Commission.
Domestic withholding tax rates on interest, dividends and royalties can be reduced or eliminated if payments are made to beneficiaries in income tax treaty jurisdictions.
Greece currently has income tax treaties in force with the following countries (listed here in chronological order): the USA, the UK, Sweden, France, India, Italy, Germany, Cyprus, Belgium, Austria (revised), Finland, the Netherlands, Hungary, Switzerland (partly revised), the Czech Republic, Slovakia, Poland, Norway, Denmark, Romania, Bulgaria, Luxembourg, Korea, Israel, Croatia, Uzbekistan, Albania, Portugal, Spain, Armenia, Georgia, Ukraine, Slovenia, South Africa, Ireland, Turkey, China, Lithuania, Mexico, Kuwait, Latvia, Moldova, Egypt, Russia, Estonia, Iceland, Malta, Bosnia & Herzegovina, Tunisia, Morocco, Qatar, Canada, Saudi Arabia, Serbia, Azerbaijan, the United Arab Emirates and San Marino.
All tax treaties follow the OECD Model in principle, except for those concluded with the USA and the UK.
Based on data from the Bank of Greece, the primary tax treaty countries that foreign investors use to make investments in local corporate stock or debt are Germany, France, Switzerland, Cyprus, Canada, the USA, China, Luxembourg, the Netherlands and Spain.
To the extent that appropriate documentation, which includes a tax residence certificate signed by the competent foreign authorities, is available, it has not until now been common for local tax authorities to challenge the use of treaty country entities by non-treaty country residents. In this connection, it is to be noted that Greece has signed, though not yet ratified, the MLI – implementing the tax treaty-related BEPS measures. Based on the provisional list of expected reservations and notifications, it appears that Greece has, in principle, taken the mainstream approach by adopting most of the rules, including the principal purpose test preventing arrangements and transactions whose main purpose is to obtain the benefits of the tax treaty.
In the context of the transfer pricing rules introduced since 2008, most transfer pricing disputes have revolved around the applicability of more lenient penalties for failure to comply with transfer pricing documentation requirements and the burden of proving compliance with the arm’s-length principle. This latter issue has evolved over time. Administrative courts have also confirmed that, as long as the taxpayer produces the appropriate transfer pricing documentation, the burden lies with the tax authority, which is required to justify any challenge made to the taxpayer’s position (eg, by proving the inappropriateness of the selected transfer pricing method or the non-reliability of the selected comparables). More recently, the role of each related party in the development, enhancement, maintenance, protection and exploitation (DEMPE) functions of intangible assets has been an element of increasing significance in the scrutiny of related-party transactions between domestic licensees and foreign IP-holding entities. Also, matters concerning the reliability of comparable data, the definition of related parties, the use of full or interquartile range, the reasonableness of comparability adjustments and, lately, the appropriateness of selected transfer pricing methods have also been coming into the discussion. As tax authorities focus increasingly on transfer pricing and follow international developments closely, the discussion around transfer pricing issues is expected to become more vivid.
Limited risk distribution arrangements are extensively applied by multinational enterprises doing business in Greece. Tax authorities are carefully scrutinising these arrangements in the context of transfer pricing audits, focusing primarily on whether the return of the local entity can be considered consistent with the arm’s-length principle following in-depth reviews of its functional and risk profile. The reliability of comparables is also challenged in this context.
The current legal framework fully endorses the arm’s-length principle, as defined in Article 9 of the OECD Model Tax Convention and interpreted by the OECD Transfer Pricing Guidelines, following the revisions introduced as a result of Actions 8–10.
Compensating adjustments are allowed under Greek legislation.
Greece has incorporated Article 25 of the OECD model on mutual agreement procedures (MAPs) into most of its bilateral tax treaties, ratified the EU Arbitration Convention and enacted relevant implementation rules in domestic legislation. A Greek corporation may therefore request a competent authority’s assistance with the adjustment of its income in cases where a transfer pricing adjustment in a foreign country, in respect of a transaction to which such corporation is a party, may lead to double taxation.
Until recently, the application of MAPs processes was rare, as demonstrated by the relevant OECD statistics. This has mostly been due to the lack of legal and procedural framework. Having committed itself to the implementation of the OECD BEPS Action 14 minimum standard, Greece enacted the legislation required to establish clear procedural rules on access to and use of MAPs; the application of this legislation was then rendered possible after the determination of several procedural details (such as the competent authority, form and substance requirements, compatibility with cases pending before court, legal type and results of MAPs decision, communication requirements, etc) by means of administrative guidelines.
Certain issues with respect to access to MAPs remain unresolved, particularly in instances where domestic statutes of limitation apply or where domestic courts have issued decisions. With respect to these issues, which were identified during stage 1 of the MAP Peer Review, Greece has stated that it is currently considering a shift in its policy.
In general, local branches of non-local corporations are not taxed differently, in respect of their Greek profits, to local subsidiaries of non-local corporations. A tax on remittance of profits to the head office that was previously applicable has now been repealed. In practice, the deductibility of interest payments to the head office may sometimes be challenged by the tax authorities.
Capital gains of non-resident corporations on the sale of stock in local corporations are not subject to tax, provided that the stock is not held through a permanent establishment in Greece. Under a rule whose application has been suspended several times, and which is still in suspension until 31 December 2022, gains derived from the transfer of real estate property, as well as from the transfer of shares in companies that derive more than 50% of their value, either directly or indirectly, from real estate by individuals who are not engaged in business activities, are subject to capital gains tax at 15%. In view of the consecutive suspensions, it has not been clarified whether such rules may also apply to non-resident companies directly or indirectly transferring stock in local corporations.
Tax losses carried forward are forfeited if the direct or indirect participation in the capital or voting rights of a local company changes by more than 33% within a fiscal year, while at the same time – within the same or the next fiscal year – the local company changes its business activity in a way that affects more than 50% of its turnover as compared to the turnover prior to the change.
Tax losses are not forfeited if the company is able to prove that the activity change is grounded on reasons that are economically justifiable in the context of the company’s business, such as cost cutting, achieving economies of scale or achieving an intercompany restructuring.
Currently, no formulas are used to determine the income of foreign-owned local affiliates selling goods or providing services.
Τax authorities can determine taxable income through indirect techniques, such as by an analysis of the price to turnover ratio or cash position, and also through other techniques set out in the legislation.
Taxable profits are subject to readjustment in the case of transactions between related parties that are not in line with the arm’s-length principle.
Payments by local affiliates for management and administrative expenses incurred by a non-local affiliate may be disallowed to the extent they are not in accordance with arm’s-length standards, if they are not considered to serve the business purposes of the local affiliate or if they are not properly documented and recorded in the books reflecting the transactions of the relevant fiscal period. Payments to persons residing in states deemed as non-co-operative or preferential are not deductible, unless the taxpayer proves that these expenses are incurred for real transactions and do not result in profit-shifting aimed at tax avoidance or evasion. If the states in question are EU/EEA Member States, payments to persons that are resident in such states are, in principle, deductible. The regimes that are deemed to be non-co-operative or preferential are set annually by means of governmental decision on the basis of criteria set in the law, including, for preferential regimes, the criterion of taxation of profits or gains at a rate that is equal to or less than 50% of the applicable Greek income tax rate for corporations.
There are no constraints relating specifically to related-party borrowing by foreign-owned local affiliates paid to non-local affiliates, except that interest must be in line with the arm’s-length standard.
Local corporations are taxed on their worldwide income, so foreign income is included in their tax basis for income tax purposes, with the exception of business income attributable to a permanent establishment in one of the few jurisdictions that has a double taxation treaty with Greece that provides an exemption method. Any foreign tax paid can be credited against the Greek income tax payable, to the extent that the foreign tax does not exceed the Greek tax corresponding to such income. The ability of a local corporation to credit foreign tax is, in practice, affected by the way that the foreign creditable tax is calculated by the tax authorities.
There are no expenses that are treated as non-deductible because of attribution to exempt foreign income in particular. Limitations on the deductibility of interest on loans used to finance participations that yield tax-exempt dividend and capital gains income apply equally to foreign and domestic income.
Dividends from foreign subsidiaries are included in the tax basis of local corporations for income tax purposes.
An underlying tax credit in respect of tax paid on the profits from which dividends are derived at the source state is allowed with respect to dividends sourced from countries with which Greece has concluded a double tax treaty that provides for such a credit mechanism (such as the United Kingdom, China and Cyprus).
Inbound dividends received by Greek companies from qualifying EU subsidiaries are exempt from income tax under the following conditions:
The exemption from Greek income tax on dividends received by Greek companies from qualifying EU subsidiaries applies to the extent that such profits are not deductible by the subsidiary. This amendment targets hybrid instruments and aims at preventing situations of double non-taxation due to mismatches in the tax treatment of profit distribution between the states in which the subsidiary and the parent company are situated.
Gains or royalties derived from the transfer or licensing of an intangible developed by a local corporation to a non-local subsidiary are included in the taxable basis of the local corporation for income tax purposes. Transfers of intangibles between related parties due to business restructurings, whereby intangible assets or a transfer package consisting of functions, assets, risks and business opportunities are being transferred, whether within or outside Greece, should be made in exchange for arm’s-length remuneration, and any gain is taxable without the possibility of payment of the relevant tax in instalments.
Local corporations can be taxed on the income of their non-local subsidiaries and permanent establishments as earned, under CFC rules. In accordance with such rules, which were recently revised to incorporate part of the EU Anti-Tax Avoidance Directive as well as the BEPS measures into Greek domestic law, profits earned by a CFC are added to the taxable profits of the local corporation, under the following conditions:
CFC rules do not apply to companies or permanent establishments resident in EEA Member States, provided that such entities carry on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by all relevant facts and circumstances. In such cases, the tax authorities bear the burden to prove the absence of a substantive economic activity.
In the case of distribution by a CFC of profits that are included in the taxable basis of the local corporation, any CFC income taxed in a previous fiscal year is deducted from the relevant taxable basis.
There are no uniform rules related to the substance of non-local affiliates. Guidelines can be found on a case-by-case basis with respect to certain specific anti-avoidance provisions. Factors that can be taken into account are physical presence, full-time employees, active VAT number and taxation. Financial statements and information about the business organisation can also be taken into account, along with the other factors.
Gains on the sale by local corporations of shares in non-local affiliates are fully included in the taxable basis for income tax purposes, with the exception of gains on the disposal of shares in EU Parent-Subsidiary Directive-qualifying subsidiaries in respect of which legal persons are exempt under certain conditions (see 2.7 Capital Gains Taxation).
Apart from the specific anti-avoidance provisions mentioned above, on 1 January 2014 a General Anti-abuse Rule was introduced for the first time in Greece, as part of the wider measures to combat tax evasion or avoidance. Such rule was recently amended to incorporate part of the EU Anti-Tax Avoidance Directive into Greek domestic law. The rule allows tax authorities to ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement is to be regarded as non-genuine to the extent that it is not put into place for valid commercial reasons that reflect economic reality. In such cases, the tax liability is determined as the tax liability that would arise in the absence of such an arrangement.
In accordance with the relevant guidelines, the burden of proof is on the tax authorities. Moreover, no avoidance is considered to exist solely by reason of a taxpayer seeking to reduce its tax burden.
A specific anti-abuse rule applies in respect of tax-neutral corporate reorganisations such as mergers, share-for-share exchanges, spin-offs and demergers effected under the framework of the Income Tax Code, according to which tax benefits are withdrawn in whole or in part where the principal objective or one of the principal objectives behind the reorganisation is tax evasion or avoidance.
Tax authorities can audit the accuracy of tax returns, as well as the general compliance of taxpayers with their tax obligations, on the basis of procedures provided for in the Tax Procedures Code currently in force, and pursuant to the legislation applicable to periods prior to the Code’s enactment in 2013, depending on the year audited. The state’s right to assess taxes in addition to those deriving from a taxpayer’s tax return is, in principle, time-barred, and lapses after a period of five years as of the end of the year when a tax return is due to be filed (ie, effectively after six years as of the audited year). There are a number of derogations from this principle, either on the basis of specified exceptions or due to the operation of transitional provisions in relation to the regime applicable prior to the enactment of the Code. Exceptions include cases of tax evasion, where the prescription period is ten years in principle, and cases where the Greek tax authorities have requested information from foreign authorities, in which case the right is time-barred to lapse one year after the receipt of the information.
As regards the legislative extension of prescription periods immediately prior to expiry (a practice consistently followed in the past), in a landmark decision that was issued in 2017 and has been endorsed by the Greek tax authorities, the Supreme Administrative Court ruled that the legal provisions extending prescription periods should be in accordance with the constitutional principle of limited retroactivity of tax laws, and therefore should be enacted no later than one year after the year when the relevant tax obligation arose.
The Greek tax authorities are obliged to publish annually the number of full and partial tax audits prioritised for the following year on the basis of risk-analysis criteria and other available information, and they are subject to percentage-based audit targets.
In general, all large businesses can be expected to be audited within the time limits described above.
Taxpayers can challenge a tax assessment by filing an out-of-court administrative appeal against such assessment.
Greece is already largely compliant with the principles developed and the measures recommended by the OECD/G20 BEPS action plan. In addition, being an EU Member State, Greece is bound to transpose into domestic law the EU Directives that implement OECD/G20 BEPS conclusions at an EU level.
Since the introduction of a new income tax code on 1 January 2014, Greece had already implemented certain measures which are now compliant with the BEPS principles, namely CFC rules and interest deduction limitations. In relation to hybrid instruments, Greece has transposed into domestic law the amendments made to the EU Parent-Subsidiary Directive, in accordance with which dividends paid by EU-based qualifying subsidiaries are not taxed to the extent that such profits are not deductible by the subsidiary. Greece has also transposed into domestic law the EU Directives providing for the automatic exchange of information on cross-border tax rulings and advance pricing agreements between EU Member States.
Greece has recently updated its domestic legal framework regarding the mutual agreement procedure provided under tax treaties and the EU Arbitration Convention, through the introduction of special rules in the Tax Procedures Code and the publication of administrative guidelines. For the time being, the arbitration clause is found in few tax treaties, amongst which only one involves mandatory binding arbitration for cases not resolved within a three-year period. It is to be noted that there is no recorded precedent for the application of arbitration clauses by the Greek tax authorities. Also, the current legal framework fully endorses the arm’s-length principle, as defined in Article 9 of the OECD Model Tax Convention and interpreted by the OECD Transfer Pricing Guidelines, following the revisions introduced as a result of Actions 8–10. As regards Action 13, Greece has also introduced into domestic legislation the automatic exchange of CbC reports amongst EU Member States, as well as amongst the signatories of the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (concerning multinational enterprises with an annual consolidated turnover exceeding EUR750 million). A relevant bilateral agreement has also been concluded with the USA.
Greece has not yet ratified the OECD Multilateral Instrument (MLI) signed in June 2017. In relation to this, Greece has provided a list of expected reservations and notifications.
Furthermore, Greece has transposed into domestic law certain provisions of the EU Anti-Tax Avoidance Directive, thus modifying existing domestic tax rules on interest limitation, CFCs and the GAAR. It is anticipated that Greece is also to transpose into domestic law the EU Directive on the mandatory disclosure of information on potentially aggressive tax planning arrangements.
In general, the Greek government fully endorsed the BEPS project from the outset, was eager to adopt legislation in this direction and actively participated in the BEPS-related works, by means of including representatives of the General Secretariat of Public Revenue in the relevant working groups. Currently, this approach continues through, among others, the participation of the Independent Authority for Public Revenue in all the meetings of the Inclusive Framework on BEPS, where countries collaborate on the implementation of the BEPS package.
International tax has a high public profile in Greece, most notably with respect to transfer pricing and the general objective of transparency. Transfer pricing has become an area of primary focus, both in terms of public opinion and at the level of tax authorities. A fully dedicated team within Greece’s Independent Authority for Public Revenue deals with the transfer pricing legislative framework, including the issuance of decisions on APAs and MAPs. Also, a special tax audit unit auditing high net worth individuals, including in relation to non-reported assets held outside Greece, was established in 2013.
At this time, the primary focus in Greece is on the collection of taxes and the enhancement of attitudes towards tax compliance. Concurrently, one of the government’s tax policy goals is the creation of an attractive business environment through the reduction of tax rates affecting businesses. Such measures do not appear to be conflicting with the BEPS outcomes. In any case, it should be ensured that BEPS-related measures in particular and anti-tax avoidance rules are not implemented by the tax authorities in an overly restrictive manner.
There are no significant features of Greece’s tax system that are particularly vulnerable to measures aiming to achieve the BEPS objectives in particular.
As regards proposals for dealing with hybrid instruments, as mentioned in 9.1 Recommended Changes, Greece has transposed into domestic law the amendments made to the EU Parent-Subsidiary Directive, in accordance with which dividends paid by EU-based qualifying subsidiaries are not taxed to the extent that such profits are not deductible by the subsidiary, and are taxed to the extent that such profits are deductible by the subsidiary.
In addition, anti-hybrid rules are anticipated to become part of Greek law from 1 January 2020, once ATAD II (the Directive amending the EU Anti-Tax Avoidance Directive as regards hybrid mismatches with third countries) is transposed into Greek law.
Greece generally imposes tax on worldwide income, in the sense that it also exercises taxation rights in respect of the foreign-source income earned by Greek tax residents. Foreign tax residents are taxed in Greece under a territorial system – ie, they are only taxed on Greek-source income. It is notable that profits distributed by EU subsidiaries are exempt from corporate income tax in Greece, subject to specific requirements under the rules transposing the Parent-Subsidiary Directive. Also, legal persons are exempt under conditions from tax on capital gains arising from the disposal of shares in EU Parent-Subsidiary Directive-qualifying subsidiaries (see 2.7 Capital Gains Taxation). In such cases, apart from the generally applicable interest deductibility limitations, interest incurred as a result of financing the relevant participations is not deductible. The BEPS-related interest deducibility limitation of up to 30% of EBITDA operates subject to a de minimis threshold of exceeding borrowing costs set at EUR3 million annually, which makes it likely to affect a smaller number of Greek enterprises.
As mentioned in 9.7 Territorial Tax Regime, Greece does not have a territorial tax regime, and Greek CFC rules only capture profits of CFCs that fall under certain categories. When it comes to subsidiaries established in ΕΕΑ Member States, Greece does not have sweeper CFC rules: even if such states are low-rate jurisdictions, the relevant subsidiaries and permanent establishments are outside the scope of the CFC rules if such entities carry on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by all relevant facts and circumstances.
In the context of the MLI, Greece has expressed its intention to adopt the principal purpose test (PPT) rule in order to prevent the abuse of benefits derived from its tax treaty network. Greece has explicitly opted out of the Simplified Limitation of Benefits. Furthermore, as detailed in 7.1 Overarching Anti-avoidance Provisions, Greece incorporated a general anti-abuse rule into domestic law in 2014.
Both inbound and outbound investors may, therefore, be affected by a combination of the domestic law provisions, the proposed anti-avoidance rules to be included in the double taxation treaties, and the EU rules as transposed into domestic law. Consequently, existing and new structures should be carefully reviewed from all of these perspectives.
Prior to BEPS, the applicable legal framework for transfer pricing in Greece fully endorsed the arm’s-length principle as defined in Article 9 of the OECD Model Tax Convention and interpreted by the OECD Transfer Pricing Guidelines; currently, it also follows the revisions introduced as a result of Actions 8–10 of the OECD BEPS project. In general, no radical changes are expected under the BEPS transfer pricing changes. As regards documentation, the required content of the local transfer pricing files is not yet fully aligned with BEPS Action 13, particularly in relation to value chain analysis. Also, as mentioned in 9.1 Recommended Changes, one relevant change is that, in the aftermath of BEPS, Greece has also introduced into domestic legislation the automatic exchange of CbC reports amongst EU Member States, as well as amongst the signatories of the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (concerning multinational enterprises with an annual consolidated turnover exceeding EUR750 million) and the USA, with the first reporting year being the year commencing 1 January 2016. Surrogate reporting and local notification requirements have also been adopted.
Information on the ownership of intangible assets in the group, as well as related-party transactions for the licensing of rights on intangible assets, forms part of the transfer pricing documentation required under domestic law. The role of each related party in the development, enhancement, maintenance, protection and exploitation (DEMPE) functions of intangible assets is an element of increasing significance in terms of the scrutiny of related-party transactions between domestic licensees and foreign IP-holding entities.
Although transparency and country-by-country reporting is a positive measure in terms of combatting tax avoidance, care should be taken that the relevant implementation rules and their interpretation by the tax authorities lead to the minimum possible compliance burden for enterprises, and measures should be adopted to ensure that the relevant procedures do not lead to the unnecessary disclosure of commercial information.
Greece has not implemented any changes specifically relating to the taxation of transactions effected or profits generated by digital economy businesses operating largely from outside the jurisdiction. At a local direct taxation level, Greece has a legal framework regarding the taxation of short-term rentals in the sharing economy through digital platforms.
In the context of the OECD/G20 Inclusive Framework on BEPS, Greece participates in the OECD Task Force on the Digital Economy, which works towards a consensus-based long-term solution to the broader challenges arising from the digitalisation of the economy.
Greece has been generally supportive of the idea of a digital services tax in the EU, and has been aligned with the proposals of a number of other jurisdictions.
Greece imposes withholding tax on royalties paid to offshore owners in exchange for the use of intellectual property. Rates can be reduced or eliminated if payments are made to beneficiaries in income tax treaty jurisdictions. Moreover, payments to persons residing in states deemed as non-co-operative or preferential are not deductible, unless the taxpayer proves that these expenses are incurred for real transactions and do not result in profit-shifting aimed at tax avoidance or evasion.
BEPS recommendations are high on the agenda of the Greek tax administration and Greek lawmakers. During the last five years, Greece has implemented several measures targeting BEPS, also in an effort to increase the taxable base. Furthermore, it is anticipated that Greece will align its domestic legislation with the BEPS recommendations, as it has signed the MLI and expressed its intention to implement the BEPS-related measures. Currently, the focus of the Greek tax authorities is mostly on transfer pricing.