The majority of tax controversies in Greece arise following a tax audit initiated by the tax authorities. The taxpayers to be audited are selected on the basis of a risk analysis made centrally by the tax administration, using criteria not officially published. Once the taxpayer is selected for audit, an audit order is issued and notified to the taxpayer, thus initiating the tax audit. Furthermore, unannounced tax audits may be performed on the spot to check the compliance of taxpayers. Depending on the findings, tax audits may result in the assessment of taxes, penalties and interest against the taxpayer, which the latter has the right to dispute.
A tax controversy may also be initiated in cases where:
In both the above-mentioned cases, the tax authorities may:
There is no official statistical data as regards the taxes that more often give rise to tax controversies, either in terms of nature or values involved. In practice, however, it appears that the most common areas of tax controversy for legal entities concern corporate income tax (including transfer pricing), VAT and stamp duty. For individuals, tax controversies arise mostly in relation to personal income tax and property taxes.
Tax legislation in Greece is often complex, and at times outdated, not adjusting to the changing economic reality and new types of transactions carried out. As a result, there are many issues whose tax treatment is currently not regulated by Greek tax law. At the same time, tax legislation is widely fragmented, with many decisions and circulars being issued for the interpretation of the applicable legal framework and the provision of guidelines for its implementation. Furthermore, especially since the financial crisis, tax legislation has been subject to constant amendments, which are sometimes not easy to keep up with.
In view of the above, it can be difficult for taxpayers to achieve full compliance with their tax obligations and therefore mitigate the possibility of a tax controversy. They are protected, however, when they have followed the interpretation and guidelines contained in the circulars and decisions issued by the tax administration, which are binding for the tax authorities. As long as this is the case, the taxpayers cannot be assessed with taxes and penalties.
However, Greek tax legislation does not provide for the issuance of binding tax rulings, so it is not possible to receive, in advance, the binding position of the tax administration on the tax treatment of certain transactions, and thus reduce uncertainty. Written queries may be filed with the tax administration, although their prevailing policy is no longer to issue individual replies, but, when they receive multiple queries on the same issue, to issue (where possible) general guidelines through circulars. However, even when they issue individual replies, the tax auditors are not bound by them and can adopt a different position.
There is an exception for transfer pricing, where advance pricing agreements (APAs) can be concluded with the tax authorities.
The OECD’s base erosion and profit shifting (BEPS) recommendations and the EU’s recent measures to combat tax avoidance have not yet had an impact on tax controversies in Greece. The reason for this is that they are relatively new and not many audits have yet been performed for the fiscal years in which these rules have been in effect. It should be noted that the statute of limitations for the right of the tax authorities to perform audits is, in principle, five years starting from the end of the tax year in which the relevant tax return should be filed and usually the tax authorities perform audits towards the end of this period.
There have been isolated cases where the general anti-abuse rule (GAAR), contained in the Tax Procedures Code has been invoked by the tax authorities; however, the Administrative Courts have not yet examined and commented on this rule.
Upon issuance of the final tax assessment note following an audit, the taxpayer is obliged to pay the total amount assessed within 30 days. Making this payment is not a pre-condition for disputing the assessment further. However, when an administrative appeal is filed and 50% of the assessed amount is paid, payment of the remaining 50% can be suspended by law. If the administrative appeal is rejected and the taxpayer proceeds with a judicial appeal at first instance, the suspension remains (although in the event that the appeal is dismissed, payment of the suspended amount will be burdened with 8.76% interest per year, from the date it had originally become due).
However, if the judicial appeal is dismissed at first instance, payment of 20% of the main tax upheld by the first instance court that is due (excluding penalties and interest) is a condition for the admissibility of the second instance appeal.
If the assessed amounts are not paid when they become due, without being lawfully suspended, they become overdue, and the tax administration has the right to take enforcement measures.
Nevertheless, even before the tax debt becomes due and payable, the tax administration may impose so-called safeguard measures in order to avoid the imminent risk of not collecting taxes. Such measures include the seizure of movable and immovable assets or claims of the debtor.
In a case where, in the context of a tax audit, the tax authorities consider that the taxpayer has not paid VAT; insurance premium tax; or taxes, duties and contributions which are either withheld or passed on to the counterparty, the amount of which exceeds EUR150,000, they have the right to proceed with the following safeguard measures against the taxpayer:
Where the taxpayer who is found not to have paid the above amount of taxes is a legal entity, the aforementioned safeguard measures are also imposed against any individual involved in the management, administration and representation of the legal entity.
The safeguard measures are lifted if 70% of the total assessed amount is paid, or the taxpayer submits a guarantee letter of an equal amount in favour of the Greek State.
Penalties and Criminal Proceedings
When an additional tax assessment is made, apart from the main tax due, penalties and interest are also assessed. These penalties include the administrative penalties that are applicable to the tax infringements identified and therefore administrative offences are not subject to a procedure separate from the additional tax assessment.
Should, however, the tax infringements result in tax evasion that triggers criminal liability, criminal proceedings may be initiated against the taxpayer (or their representatives, when the taxpayer is a legal entity).
As mentioned in 1.1 Tax Controversies in this Jurisdiction, the taxpayers to be audited are selected on the basis of a risk analysis made centrally by the tax administration, using criteria not published. Therefore, the tax administration identifies those taxpayers for whom there is an auditing priority; however, the way in which this qualification is made is not disclosed. In this respect, tax audits may also be triggered by information the tax authorities receive from other countries (when the taxpayer is involved in cross-border transactions) or from audits performed on other taxpayers, for example when a supplier is found to have been issuing fictitious invoices. Furthermore, unannounced tax audits may be performed on the spot to check the compliance of taxpayers, usually those engaged in the retail sector where the risk of tax evasion is high (eg, unannounced visits to restaurants to check the issuance of retail receipts to the customers).
A tax audit can be initiated at any time within the statute of limitations; ie, as long as the right of the tax authorities to proceed with an assessment has not expired under the statute of limitations rules. According to these rules, the tax authorities have the right to assess taxes within five years, starting from the end of the tax year in which the relevant tax return should be filed.
The aforementioned statute of limitations is extended as follows.
As long as the statute of limitations has not lapsed, there is no time limit for the completion of the audit, although the tax audit order issued for the particular audit provides an indicative duration of the audit.
The issuance of a tax audit order, or the tax audit itself, does not suspend or interrupt the statute of limitations. Any such suspension occurs only upon the issuance of the final tax assessment note to the taxpayer.
Usually, the main part of the audit is performed from the tax authorities’ offices. Upon initiation of the tax audit, the tax authorities serve a written request to the taxpayer, requesting them to provide certain data from their books and records. The taxpayer provides them electronically and then the audit is performed remotely. However, during the audit, the tax auditors may regularly visit the taxpayer’s premises to discuss certain issues they need to clarify with them, or to check additional documentation.
As regards corporate income tax, the deductibility of expenses is still the main focus of tax auditors. In this respect, the tax auditors may challenge this deductibility on two grounds:
In relation to VAT, the application of exemptions and reduced VAT rates is scrutinised, both with regard to the substantive conditions for their application, as well as the formal conditions (eg, the existence of supporting documentation evidencing the nature of the VAT-exempt activity or the goods that are subject to the reduced rates).
Stamp duty has been another area of focus for tax auditors, especially cross-border intercompany loans and whether their execution is deemed to have taken place in Greece, as per the territoriality rule. In this respect, auditors will review the flow of payments made in the context of such loans.
Lately, the focus of audits has also shifted to transfer pricing, with the tax auditors scrutinising the benchmarking studies. Cross-border cost-plus structures are also reviewed for permanent/fixed establishment purposes.
Overall, the tax authorities still focus equally on substantive issues as well as formal ones (as regards the existence and proper issuance of fiscal documentation); in the coming years, however, it is expected that more focus will be placed on the substantive issues.
Cross-border exchanges of information and mutual assistance have increased, especially with regard to VAT audits, where cross-border exchanges of information and assistance are more common. The audits usually focus on discrepancies detected in the transactions declared in EC Sales Lists, whereas audits on possible carousel frauds are also performed. Lately, multi-country audits have started being conducted, again with regard to VAT. Additionally, this exchange of information has recently started to be extended to the income of individuals generated in other countries.
From a strategic point of view, during a tax audit it is important for the taxpayer to respond in a timely manner to any requests raised by tax authorities. This means that the taxpayer should provide all documentation and data requested, and be prepared to provide explanations and clarifications on issues not clear to the tax auditor. Orderly bookkeeping, prompt retrieval of any supporting documentation requested and solid explanations may have a positive impact, since otherwise the tax auditors may be negatively predisposed and therefore become more aggressive.
Upon completion of the tax audit, the competent tax authorities that performed it shall serve the taxpayer with a preliminary audit findings report, together with a provisional assessment note on the amount of taxes and penalties to be assessed.
The taxpayer shall have a 20-day deadline to submit an explanatory memorandum raising arguments against the audit findings together with any supporting documentation.
Following the review of the aforementioned memorandum, the tax authorities may accept the arguments raised by the taxpayer either fully or partially, or may reject them entirely. Accordingly, and within a month from receiving the memorandum, they shall issue the final audit report and the final tax assessment notes assessing the taxes and penalties.
Upon being served the final assessment notes, the taxpayer shall have a 30-day deadline (60 days if the taxpayer is not established in Greece) to submit an administrative appeal before the Dispute Resolution Unit, a special directorate of the Independent Authority for Public Revenue, which is exclusively competent to review administrative appeals.
The submission of such an administrative appeal is a condition of admissibility for any subsequent judicial appeal before the competent court.
The Dispute Resolution Unit shall have a 120-day deadline to issue a decision on the administrative appeal (the deadline is suspended from August 1st to 31st). Upon the lapse of the aforementioned deadline, and in so far as no decision has been issued, the administrative appeal shall be considered as tacitly rejected.
In such a case the tacit rejection can be challenged by filing a judicial appeal with the competent administrative court, the explicit rejection of an administrative appeal is challenged in the same way.
Judicial tax litigation is only initiated following the explicit or tacit rejection by the Dispute Resolution Unit of the administrative appeal filed by the taxpayer. Direct recourse to the courts without prior filing of an administrative appeal is not permitted. The judicial appeal is filed within 30 days (or 90 days for taxpayers not established in Greece) from the service of the negative decision by the Dispute Resolution Unit or the tacit rejection of the administrative appeal.
As long as the amount of the main tax or tax penalty under dispute is lower than EUR150,000, the case is lodged before the Administrative Court of First Instance. If the amount exceeds the aforementioned threshold, the case is directly lodged at first instance before the Administrative Court of Appeals.
Initially, the taxpayer must submit an appeal before the competent court, as defined in 4.1 Initiation of Judicial Tax Litigation. The competent court is also determined by reference to the place of establishment of the taxpayer filing the appeal. The appeal should include the legal and factual arguments against the negative decision of the Dispute Resolution Unit or the tacit rejection of the administrative appeal. Subsequently, and in any case no later than 15 days before the hearing date, the taxpayer has the right to submit additional grounds for the appeal. The document containing these additional grounds should be officially served by the taxpayer to the litigant tax authorities through a court bailiff.
The competent court shall set a hearing date and notify the parties accordingly. The taxpayer has the right to ask for an adjournment of the hearing, explaining the reasons they are asking for it. Usually, the first time an adjournment is requested, the court agrees to it. However, requests for adjournment in subsequent hearings are less likely to be accepted.
The tax administration must submit before the court the case file, together with a report which sets out its position on the case, at the latest 30 days before the hearing date (although in practice this deadline is usually not observed). The taxpayer must furnish any supporting documentation and evidence to the court up to one day prior to the hearing date.
Following the hearing, the parties shall have three working days to submit a memorandum to elaborate further on any arguments already raised. Upon the lapse of this deadline, each party shall have three more working days to rebut the arguments offered by the other party in its memorandum.
The procedure is then completed, the court examines all documents submitted and issues its decision.
As mentioned in 4.2 Procedure of Judicial Tax Litigation, any supporting documentation and evidence should be submitted to the court up to one day prior to the hearing date. The supporting documentation submitted by the taxpayer is very important for the substantiation of their arguments and it is taken into account by the court. It is often the case that the court will dismiss appeals on the ground that the supporting documentation submitted by the taxpayer was not sufficient to prove their arguments.
Witness testimony is possible both in the form of an affidavit and through direct examination in court.
An affidavit may be furnished to the court, together with the other supporting documentation. In order for such an affidavit to be admissible, at least ten days prior to the testimony date, the taxpayer should notify the State (with an invitation served to the litigant tax authorities through a court bailiff), on the date, time and place (ie, the notary public’s office) where the testimony will take place. This is to allow the tax authorities to have the opportunity to attend the testimony and ask questions if they so wish, but in practice they never attend.
The court may, of its own motion or following the request of a litigant party, order the examination of a witness before the court or before the Judge-Rapporteur, even if the witness has already testified via an affidavit. The request of a party for such an examination must be either included in the appeal or in a special application submitted to the court five days prior to the hearing date. This option, however, is not usually followed in practice.
It is often the case that witness testimonies are not taken into account equally by the court with the rest of the supporting documentation (eg, agreements, invoices, extracts from the accounting books).
In the tax litigation proceedings before the administrative courts, each party has the burden to prove any facts it has invoked and support the argumentation it has raised, unless otherwise provided by law. The other party shall have the right to submit evidence in rebuttal.
As regards criminal proceedings, the competent criminal authorities should provide all the necessary evidence to substantiate the accusation, while the taxpayer needs to prove their own arguments.
The procedure before the court is standard: all legal arguments should be included in the judicial appeal at the time of its filing with the court, or with an additional document that can be filed up to 15 days prior to the hearing. Therefore, the Greek State will have the time and opportunity to review these arguments and rebut them with its own memoranda. Thus, there is no room for a strategy as regards the timing of the raising of arguments. The same applies for supporting documentation and evidence. They should be submitted to the court up to one day before the hearing date. Usually, the tax authorities do not comment on the documentation and evidence submitted, but they focus on rebutting the legal argumentation raised by the taxpayer.
It used to be debated whether all arguments should already be raised, and the supporting documentation and evidence submitted, at the level of the administrative appeal, or whether it was possible for them to be raised and submitted for the first time at the level of the judicial appeal. The Supreme Administrative Court, however, has now ruled that arguments relating to the facts of the case cannot be raised for the first time at the level of the judicial appeal if they had not already been raised with the administrative appeal. On the other hand, legal arguments related to the validity and interpretation of the applicable legislation or legal principles may be raised for the first time with the judicial appeal. In this respect, it is advisable for the taxpayer to raise all their arguments and submit all evidence at the level of the administrative appeal.
In principle, and with certain limited exceptions, Greek law does not provide for a settlement procedure during the judicial phase, which, if entered into by the taxpayer, could result in the reduction of the payable amounts.
Payment in Advance
The payment of the amounts assessed is not considered as acceptance of the assessment by the courts. As mentioned above, in 1.5 Additional Tax Assessments, upon filing of the administrative appeal and payment of 50% of the assessed amount, payment of the remaining 50% is suspended. The suspension continues even if the administrative appeal is rejected and a judicial appeal is filed. If the court issues a negative decision for the taxpayer, the taxpayer needs to pay the remaining 50%; however, this will be burdened with interest of 8.76% annually (from the date this amount had originally become due). Therefore, when it is ambiguous whether the case will be won at court, taxpayers opt to pay the total amount assessed at the beginning, in order to avoid paying interest if they lose.
Expert reports can be submitted as additional evidence. This could be opportune, especially as regards issues that present a certain degree of complexity for judges; eg, transfer pricing issues or issues requiring clarification on the accounting treatment of transactions.
The jurisprudence of international courts is usually taken into account by Greek courts and it is often the case that the courts base their rulings on such jurisprudence. This occurs especially when they examine VAT cases, where they almost always invoke relevant ECJ jurisprudence.
Doctrine may be referenced by Greek courts, in order to substantiate a position they have taken, but not that often. The same applies for the jurisprudence of foreign courts, with the Supreme Administrative Court being more likely to reference it, rather than the lower courts.
As regards international guidelines, BEPS reports have not yet started being invoked, whereas the OECD Commentary on the Model Convention on Income and on Capital, and the OECD Transfer Pricing Guidelines are invoked when relevant issues are examined by the courts.
If the amount of the main tax or tax penalty under dispute exceeds EUR150,000, the case is lodged directly before the Administrative Court of Appeals. In such a case, this court rules at first and last instance and its decision is not subject to an appeal (at second instance) but only to a writ of cassation before the Supreme Administrative Court.
Recourse to the Supreme Court is allowed only for matters relating to the interpretation of law. The writ of cassation is admissible in so far as the disputed amount exceeds EUR40,000. This amount refers to the main tax (not including penalties or interest). An additional condition of admissibility is that, for the legal matter in question, there is no prior jurisprudence of the Supreme Administration Court, or the contested decision of the Administrative Court of Appeals is contrary to existing jurisprudence of the Supreme Administrative Court or other supreme courts (including the ECJ or the ECHR), or to an irrevocable decision of an Administrative Court.
If the amount of the main tax or tax penalty under dispute does not exceed EUR150,000, the case is lodged before the Administrative Court of First Instance. In such a case, its decision is subject to an appeal (at second instance) before the Administrative Court of Appeals, provided that the amount under dispute exceeds EUR5,000. The appeal may be based on both legal and factual grounds. The decision of the Administrative Court of Appeals is again subject to a writ of cassation, under the conditions mentioned above.
Administrative Court of Appeals
The second instance appeal before the Administrative Court of Appeals is filed within 60 days from the date on which the decision of the Administrative Court of First Instance is served. The deadline is extended to 120 days for taxpayers not established in Greece. Additional grounds other than those included in the initial appeal can be put forward; however, the relevant document should be submitted to the Administrative Court of Appeals, at the latest, 15 days before the hearing date. The document with the additional grounds should be officially served to the litigant tax authorities through a court bailiff.
The court will set a hearing date and notify the litigant parties accordingly. The taxpayer has the right to ask for an adjournment of the hearing, explaining the reasons for which they are asking for that adjournment. Usually, the first time an adjournment is requested, the court agrees to it. However, requests for adjournment in subsequent hearings are less likely to be accepted.
The taxpayer should submit all supporting documentation and evidence, at the latest, by the day before the hearing. The tax administration must also submit before the court the file of the case, together with a report which sets out its position on the case, 30 days before the hearing date (although this deadline is usually not observed in practice).
Following the hearing, the parties shall have three working days in which to submit a memorandum to elaborate further on any arguments already raised. Upon the lapse of that deadline, each party shall have three more working days to rebut the arguments elaborated by the other party in its memorandum.
The procedure is then completed, the court examines all the documents submitted and issues its decision.
Supreme Administrative Court
As regards the writ of cassation before the Supreme Administrative Court, it is filed 60 days after the contested decision of the Administrative Court of Appeals is served to the taxpayer. If the taxpayer is not established in Greece, the deadline for the filing is extended to 90 days.
The Supreme Court shall set a hearing date and notify the applicant taxpayer accordingly. The latter should further serve the writ to the litigant tax authorities 20 days prior to the hearing date. Given the nature of the writ of cassation, no supporting documentation and evidence is submitted. The parties may submit a memorandum, to elaborate further on their arguments, six full days prior to the hearing. At the hearing, they may also make a request to the court president to submit an additional memorandum, within a fixed deadline to be determined by the president.
At the hearing, both representative lawyers of the taxpayer and the Greek State have the right to elaborate fully on their arguments and they may receive questions from the judges.
It is often the case that the hearings before the Supreme Administrative Court are adjourned ex officio, due to the heavy workload of the judges.
Cases where the amount in dispute is less than EUR60,000 (this amount refers to the main tax, not including penalties and interest) are heard by the single-judge Administrative Court of First Instance. If the amount exceeds EUR60,000 and up to EUR150,000, the case is heard by the Administrative Court of First Instance sitting with three judges.
If the amount exceeds the amount of EUR150,000, the case is heard at first and last instance by the Administrative Court of Appeals sitting with three judges.
The appeal against the decision of the single-judge Administrative Court of First Instance is heard by the single-judge Administrative Court of Appeals, while the appeal against the decision of the Administrative Court of First Instance sitting with three judges is heard by the Administrative Court of Appeals sitting with three judges.
Both the Administrative Court of First Instance and the Administrative Court of Appeals have many chambers comprised of different judges. The allocation of the cases to each chamber is made internally.
The writ of cassation before the Supreme Administrative Court is heard by the competent chamber of the Court sitting with five judges, who differ for each case, depending on the internal allocation of the cases that has been made. Important cases may be referred to the chamber sitting with seven judges or the Plenary of the Supreme Administrative Court.
In principle, there is no alternative dispute resolution (ADR) mechanism applicable for taxes in Greece.
Please see 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.
Please see 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.
Greek tax law does not provide for the issuance of binding rulings. Written queries can be filed with the tax authorities and the latter can provide written answers; however, these answers are not binding and the tax auditors can adopt a different position in the context of a tax audit. There is an exception, however, as regards transfer pricing, where APAs are available.
Please see 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.
Please see 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.
When an additional tax assessment is made, apart from the main tax due, penalties and interest are also assessed. These penalties include the administrative penalties that are applicable to the tax infringements identified, and therefore the administrative offences are not subject to a separate procedure from the additional tax assessment. When the taxpayer assessed is a legal entity, the individuals managing and representing the legal entity are also jointly liable for payment of the assessed amounts (taxes and penalties). Namely, if the legal entity does not pay its tax debt and it becomes overdue, the tax authorities have the right to approach the aforementioned individuals and request payment of the debt. At the same time, as mentioned in 1.5 Additional Tax Assessments, the tax authorities have the right to impose safeguarding measures against the taxpayer (or their representing individuals) in order to ensure collection of the tax debts.
If the taxpayer commits tax evasion, they will also have criminal liability. Tax evasion is an offence triggering criminal liability, when the taxpayer intentionally avoids the payment of taxes, evidenced by omitting to file a tax return or filing an inaccurate tax return, or recording fictitious expenses in their accounting books.
Tax evasion also requires that certain thresholds of tax not paid be exceeded on an annual basis; ie, EUR50,000 for VAT or EUR100,000 for any other tax, this threshold being applicable separately to each type of tax.
When the taxpayer is a legal person and tax evasion is committed, the burden of criminal liability is borne by the individuals who manage and represent the legal entity.
In practice, following the issuance of the final tax assessment notes, and as long as the aforementioned thresholds for committing tax evasion are met, the tax officers – without examining or assessing whether the element of “intention”, as required by law for the offence of tax evasion, actually exists – will submit a criminal complaint to the competent Public Prosecutor against the persons bearing criminal liability.
The tax administration has clarified through relevant guidelines that ordinary income tax adjustments (ie, disallowed expenses), as well as TP adjustments and stamp duty, should not be considered as falling under the scope of tax evasion.
Furthermore, a separate criminal offence is provided by Greek law, when the tax debts of a taxpayer exceeding EUR100,000 have become overdue and the taxpayer does not pay them within four months from when they became overdue.
Criminal proceedings are suspended, until the deadline for the taxpayer to challenge the assessment expires, or if the taxpayer has challenged the assessment, until an irrevocable decision by the administrative courts is issued.
Please see 7.1 Interaction of Tax Assessments with Tax Infringements and 7.2 Relationship between Administrative and Criminal Processes.
As mentioned in 7.1 Interaction of Tax Assessments with Tax Infringements, the tax administrative infringement process is not separate from the additional tax assessment.
As regards the tax criminal procedure, following the submission of the criminal complaint by the tax authorities against the persons bearing criminal liability for the offence of tax evasion (and unless the relevant proceedings have not been suspended), the Public Prosecutor, on the basis of the evidence available, can decide either to initiate a pre-interrogation or interrogation procedure, to send the case directly to the competent criminal court, or to close the file. At the pre-interrogation or interrogation stage, the accused individual has the right to submit a defence statement along with all available supporting documentation. At this point, the Public Prosecutor may decide not to continue the criminal procedure or to send the case to the criminal court. In the latter case and at the hearing, the accused individual should present all substantiating documentation, in order to support their case. Following the hearing and the examination of the facts and evidence, the court shall issue its decision.
Criminal tax cases are heard exclusively by criminal courts, which are totally separate from administrative courts, which only decide on the tax assessments, on the basis of tax law.
Reduction of the applicable penalties for tax offences is only possible during the course of the audit and until the issuance of the preliminary audit findings report. After the audit has started, the taxpayer can voluntarily file corrective tax returns and pay any tax due, prior to that tax being assessed. In such a case, the applicable penalties are reduced. However, the reduction applies under the condition that the taxpayer will waive their right to challenge the payment of the taxes and penalties further.
Furthermore, once the tax assessment is finalised, no reduction is provided in the event that the taxpayer pays the total amount assessed, which becomes due anyway within 30 days from the assessment.
No such agreement is possible, whereas if the total amount assessed is paid, although the criminal tax trial will still take place, in practice it should be expected that the individual will be acquitted.
In criminal proceedings, the decision of the first instance court is subject to an appeal at second instance before the competent criminal court.
Pursuant to guidelines issued by the Greek tax administration, transfer pricing adjustments should not be considered as falling under the scope of tax evasion. Therefore, in the event of such findings, criminal proceedings are not initiated.
However, as regards tax assessments arising from the application of the general anti-abuse rule (GAAR) or the specific anti-abuse rule (SAAR), tax authorities should be expected to submit a criminal complaint, where the relevant thresholds for committing tax evasion have been exceeded. Nevertheless, such rules are still not commonly invoked by tax authorities and therefore they do not result in tax disputes. There have been isolated cases where the GAAR has been invoked, especially in stamp duty cases; given, however, that the non-payment of stamp duty does not fall within the definition of tax evasion, no criminal proceedings have been initiated in this respect.
Until now, limited use of MAPs has been made in cases of tax assessments concerning cross-border elements, due mainly to the lack of response by the Greek tax authorities. Therefore, it has been more common for recourse to be made solely to domestic litigation.
In 2017, however, a renewed legislative framework was introduced for the processing of applications through MAPs, which provides for a structured review and response to such applications. Therefore, it may be possible for MAPs to start being used more by taxpayers. Nevertheless, it should be noted that if recourse has also been made for the same matter to a domestic court and the latter issues a decision, then the MAP can no longer proceed.
In 2020 Greece also implemented Directive 2017/1852 on tax dispute resolution mechanisms in the European Union. In 2021 the Multilateral Instrument (MLI) was also ratified, but neither of the two has yet had an impact on resolving double taxation issues, as they are very recent.
As mentioned in 7.8 Rules Challenging Transactions and Operations in this Jurisdiction, the GAAR or SAAR are still not commonly used and therefore no tax disputes have arisen due to their application. The same also applies with respect to the principal purpose test (PPT) introduced by the MLI and the amendments made in the DTTs, as the ratification of the MLI is very recent. It should be expected, however, that it could potentially create more disputes with the tax authorities. The taxpayers would normally bring such disputes before the courts, the position of which cannot be predicted in advance, given the lack of precedent.
Transfer pricing adjustments have mostly been challenged under domestic litigation. There have been fewer cases where the MAP has been used, on the basis of both the EU Directive and the applicable double tax treaty.
APAs are provided for in Greek tax legislation and are increasingly used as a mechanism to mitigate litigation in transfer pricing matters. Roll-back APAs have been introduced into Greek tax legislation as well.
APA applications are filed with the Directorate of Tax Audits of the tax administration and comprise the following stages.
The decision on the APA should be issued within 120 days from filing the relevant application. However, in cases where arrangements with foreign tax authorities need to be made, the above deadline is not applicable. The duration of the decision on the APA cannot exceed four years.
Until now, it was more common for litigation to be generated from cases concerning withholding taxes, and more specifically the definition of royalties (which are subject to withholding tax) versus business income (which is not subject to withholding tax). In such a case, litigation could be mitigated if the agreements in place gave a detailed description of the services actually provided (in order for their nature to be more easily defined) and, accordingly, the invoices contained sufficient descriptions or made reference to the agreements in place.
However, transfer pricing litigation is increasing, with APAs being suitable to mitigate litigation. Furthermore, there has been some litigation involving permanent/fixed establishment assessments concerning cost-plus structures, with the tax authorities adopting aggressive interpretations of the respective provisions of double taxation treaties and VAT legislation, which, however, have so far been upheld by the courts as well.
There have been state aid disputes in the past involving taxes. One such dispute concerned tax-free reserves that certain companies had been allowed by law to form from their undistributed profits, under the condition that the respective amounts would be used in the next three years for certain investments.
However, the European Commission decided that the above incentive constituted state aid incompatible with the single internal market.
The practice followed for such recovery is that the competent tax authority issues an assessment note requesting the taxpayer to pay the tax that was not paid due to the application of the measure that has been qualified as unlawful/incompatible state aid.
There have been cases where taxpayers have challenged the assessment notes issued by the tax authorities by filing administrative appeals before the Dispute Resolution Union and judicial appeals before the competent administrative courts. However the courts tend to confirm the assessments made by the tax authorities.
In practice taxpayers have not recovered the taxes they have paid on the basis of measures that have subsequently been qualified as unlawful/incompatible state aid, invoking extra-contractual civil liability of the state.
Greece has chosen to apply Part VI on arbitration to all 57 DTTs it has concluded, which therefore qualify as Covered Tax Agreements. Only three of these DTTs (with Switzerland, Canada and Mexico) already include an arbitration clause, but even for those Part VI is applicable.
As regards the existing DTTs that already include an arbitration clause, the DTT with Switzerland excludes from the scope of arbitration, matters for which a decision has already been rendered by a Greek or Swiss court or administrative tribunal. The DTT with Mexico allows arbitration only to the extent the taxpayer agrees in writing to be bound by the decision of the arbitration board.
Under the MLI, Greece has reserved the right to exclude from the right to submit to arbitration, cases:
Greece has selected to apply the Independent Opinion Procedure.
In 2020, Greece implemented Directive 2017/1852 on tax dispute resolution mechanisms in the European Union. Given that its implementation is recent there is no precedent yet as regards its application.
The recent international and EU legal instruments to settle tax disputes were not already used in Greece.
Both Pillars will take effect in Greece. It remains to be seen how they will be implemented, in order to evaluate whether they could mitigate tax controversies.
Decisions adopted in the context of the mutual agreement procedure are published on the website of the Independent Authority for Public Revenue, without mentioning the details of the taxpayer concerned. If the taxpayer disagrees with the publication of the whole decision, a summary is published, which includes the description of the matter, the second country involved, the tax year and the legal basis for the decision.
The legal instruments available so far have been the DTTs (prior to the MLI) and the EU Arbitration Convention. Furthermore, the EU Dispute Resolution Directive has been implemented, as well as the amendments in the DTTs after the MLI. Given that the last two have been recently implemented, so far, the most common legal instrument used to settle tax disputes has been the old DTTs (prior to the MLI), although their use has not been very extensive.
It is very common for lawyers to be hired by taxpayers in order to initiate and carry out the available procedures for the settlement of tax disputes.
No fees apply at the administrative stage.
For lodging an appeal at first and at second instance, the taxpayer shall pay a court duty equal to 1% of the amount under dispute and up to the amount of EUR15,000.
If the aforementioned court duty exceeds the amount of EUR3,000, only this amount has to be paid; any remaining amount up to the amount of EUR15,000 will be assessed by the court decision, if negative for the taxpayer.
Upon submission of the appeal at first or second instance the taxpayer shall pay one third of the court duty, whereas the remaining amount should be paid prior to the hearing date.
If the appeal is rejected, the court duty shall be forfeited in favour of the Greek State. However, if the appeal is accepted, the court duty is refunded to the taxpayer (any such refund does not bear any interest).
With the appeal, the taxpayer can ask for the assessed amount of taxes and penalties they have already paid to be refunded with interest. Indeed, when they issue positive decisions for the taxpayers and order the refund of taxes and penalties, the courts usually award interest as well.
Please see 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.
The Greek Ministry of Justice issues, on a quarterly basis, certain statistics regarding the number of court cases per instance.
As regards the administrative courts, based on the latest report available for 2020, the pending tax cases (including customs cases) on 31 December 2020 were as follows.
In the Administrative Court of First Instance – 15,830 total pending tax cases, comprising:
In the Administrative Court of Appeals – 6,339 total pending tax cases, comprising:
As regards the Supreme Administrative Court, based on the latest report available for 2020, the total pending tax cases on 31 December 2020 were 3,622 analysed per amount under dispute as follows:
No statistical data is available as regards the number of cases per tax type and their value.
No statistical data is available regarding which parties have succeeded in litigation.
Given the multiple stages of a tax controversy, it is important that the taxpayer sets the defensive line from the very early stage of the audit in order to be in a position to present a solid case before the tax administration and the competent courts. In this context, depending on the issues involved, the best efforts should be put forward in order to present the tax administration and courts with detailed and conclusive evidence on the factual background of the case as well as any administrative guidelines and jurisprudence on the interpretation of the applicable provisions. It should go without saying that the whole tax controversy procedure requires close monitoring at each stage in order to meet the deadlines and safeguard the best outcome.
The Role of the Dispute Resolution Unit
In the case of tax assessments, the taxpayer is not allowed to have direct recourse to the court. It is mandatory to first file an administrative appeal with a special directorate within the tax administration: the Dispute Resolution Unit (DRU). Such a procedure gives the tax administration the opportunity to re-examine the issues that gave rise to the tax assessment and, if possible, resolve the dispute in a very short period of time, without it being necessary for the dispute to be brought before the administrative courts. The DRU is obliged to issue a decision within 120 days from the filing of the administrative appeal and, if it issues a decision in favour of the taxpayer, the dispute is resolved irrevocably, since the tax authorities do not have the right to challenge the decision before the court.
In addition, the decisions of the DRU usually serve as a binding precedent for the tax auditors. If the DRU has resolved a certain issue in favour of the taxpayer, the tax auditors normally refrain from challenging that same issue in the audits they subsequently perform, since they know that the assessment will be overturned by the DRU if the taxpayer files an administrative appeal.
This procedure for resolving tax disputes at an administrative level, in the form that it currently stands, was introduced in 2014. Although the role of the DRU is to operate as an independent body, in the beginning of its operation, the DRU was clearly inclined to issue decisions in favour of the tax authorities. The fact that the personnel of the DRU were officers who had previously worked for the tax administration contributed to this favourable treatment of the tax authorities’ assessments.
As the years have passed, however, it appears that the DRU is transforming into a truly independent body, issuing decisions that find in favour of taxpayers’ long standing tax issues. Indicative examples of such ground-breaking decisions are discussed in this article.
Imposition of Stamp Duty on Loans
Under Greek stamp duty legislation, loans (both the capital and the interest) are subject to 2.4% stamp duty. At the same time, however, the territoriality rule applies, according to which no stamp duty applies as long as the loan agreements are signed abroad and they do not concern movable or immovable property located in Greece, or obligations executable therein.
As regards the latter condition and in line with older guidelines of the Greek Ministry of Finance, all Greek companies that wanted to borrow funds from affiliated companies abroad were using foreign bank accounts where relevant deposits were made. On that basis it was argued, and the tax authorities accepted, that the relevant obligations from the loans were executed abroad through the deposits in the foreign bank accounts.
However, the position of the tax auditors changed at some point, and they started assessing huge amounts of stamp duty and penalties on intercompany loans received by Greek companies from abroad, arguing that the use of foreign bank accounts by the Greek companies did not render the loans executed abroad, as long as the loan capital was subsequently remitted to and used in Greece.
At the same time, Greek VAT law provides that transactions within the scope of VAT (even when exempt therefrom) are not allowed to be subject to stamp duty. There were strong arguments, however, that the granting of interest-bearing loans, not only by financial institutions but also by companies, was a transaction (supply of service) within the scope of VAT qualifying as a “granting of credit”.
Following assessments of hundreds of millions of euros, the Supreme Court eventually decided that the practice of the tax authorities of imposing stamp duty on interest-bearing loans was indeed a transaction within the scope of VAT and accordingly declared the imposition of stamp duty on such loans illegal from the date VAT was introduced in Greece (ie, 1987).
Although however, the above rulings of the Supreme Court were issued more than one and a half years ago, the Greek tax administration has not officially endorsed them yet. Therefore no guidelines have been provided to the tax authorities to stop imposing stamp duty on interest-bearing loans. As a result, relevant assessments continued to be made which were challenged by taxpayers before the DRU.
Following a review of the respective administrative appeals, the DRU has issued decisions, annulling the stamp duty assessments on the basis of the Supreme Court case law, despite the lack of official guideline from the Greek tax administration. The DRU has even gone one step further, applying the Supreme Court case law not only to interest-bearing loans, but to other forms of credit, such as cash pooling and zero balancing.
Recovery of VAT in the Case of Bad Debts
Greek VAT law, as it currently stands, does not provide for the recovery of VAT in the case of bad debts; ie, when a supplier has issued an invoice and has paid the corresponding VAT to the tax authorities, while the client has not – for any reason – paid the amount of the invoice (including the VAT) to the supplier. In situations like this, the VAT becomes a financial burden for the supplier, contrary to the neutrality principle, since the supplier is obliged to pay to the tax authorities VAT that has not been collected from the client.
The issue was brought to the Supreme Court, which ruled that, in accordance with EU VAT law and the case law of the Court of Justice of the European Union, taxpayers are entitled to recover the VAT in cases of bad debts. It limited this right, however, to cases where the clients that were in default of payment had been declared bankrupt, had been placed under special administration or had entered into rehabilitation agreements.
The case in which the Supreme Court issued the above decision concerned a specific retailer that had entered into a rehabilitation agreement which provided for the write off of part of the creditors’ claims. The Greek tax administration issued guidelines for the endorsement of the Supreme Court decision, limiting their application, however, to the creditors of the specific retailer for which the above decision was issued. Therefore, any other suppliers who had paid VAT that had not been collected were still not entitled to recover this VAT.
Following the Supreme Court decisions, taxpayers started claiming the VAT paid in other cases of bad debts by filing administrative appeals. The DRU has issued decisions, allowing the recovery of VAT in cases where the client has been declared bankrupt or has entered into a rehabilitation agreement, despite the lack of general guidelines from Greek tax authorities, thus relieving taxpayers from the VAT burden.
Income Tax Deductibility of Participation Costs
Greek tax legislation (Article 48 paragraph 4 of the Income Tax Code) provides for the non-deductibility of business costs related to participation in an entity that generates tax-exempt dividend income in accordance with the EU Parent/Subsidiary Directive 2011/96/EU (“participation exemption”). he Greek tax administration’s interpretation of this rule adopts the position that the non-deductibility is not dependent on the actual payment of tax-exempt dividends but shall apply irrespectively, as long as business costs are incurred for participating in another entity.
In a case where a taxpayer had issued a bond loan to finance the acquisition of the majority of shares in another entity, which the taxpayer subsequently absorbed, the DRU accepted that the above limitation does not apply to business costs comprising of the interest payable under the bond loan. The rationale behind this position was that it would never be possible for the taxpayer to receive tax-exempt dividends from the other entity, since that entity had been absorbed.