Exit taxation rules
Τhe provisions of Article 66A of the Greek Income Tax Code have introduced exit taxation rules in Greece, transposing into the Greek legislation the relevant provisions of the EU Council Directive 2016/1164/EU (ATAD). Decision A. 1231/2020 of the Governor of the Independent Authority for Public Revenue provides details for the implementation of the relevant provisions.
Purpose of exit taxation rules
Exit taxation rules apply to transfers of assets, tax residence or business of a legal person outside Greece which result in the loss of the State’s right to tax and aim to ensure that the economic value of any capital gain will be taxed even though such capital gain has not yet been realized at the time of the exit.
Persons subject to exit tax (taxpayers)
The persons subject to exit taxation are:
- Legal persons or legal entities which are tax residents in Greece and are subject to corporate income tax in Greece;
- Permanent establishments in Greece.
The provisions do not apply to individuals.
Cases where exit taxation rules apply (taxable events)
A taxpayer shall be subject to tax in Greece, at an amount equal to the market value of the transferred assets, at the time of exit of the assets, minus their value for tax purposes, in any of the following circumstances:
(a) transfer of assets from its head office in Greece to its permanent establishment in another Member State or in a third country in so far as Greece no longer has the right to tax the transferred assets due to the transfer;
(b) transfer of assets from its permanent establishment in Greece to its head office or to another permanent establishment in another Member State or in a third country in so far as Greece no longer has the right to tax the transferred assets due to the transfer;
(c) transfer of its tax residence from Greece to another Member State or to a third country, except for those assets which remain effectively connected with a permanent establishment in Greece;
(d) transfer of the business carried on by its permanent establishment from Greece to another Member State or to a third country in so far as Greece no longer has the right to tax the transferred assets due to the transfer.
Exit taxation rules do not apply to the following asset transfers, provided that the assets are set to be returned to Greece within a period of 12 months from the transfer:
- asset transfers related to the financing of securities or assets posted as collateral, or
- where the asset transfer takes place in order to meet prudential capital requirements or for the purpose of liquidity management.
In this case, a zero tax return must be filed and the tax authorities may request a letter of guarantee.
However, if the assets are not returned to Greece within the above twelve (12)-month period, late payment interest is calculated on the total amount of the tax due from the date of submission of the tax return.
Determination of the taxable base – Calculation of the tax
Tax is imposed on the market value of the assets transferred, at the time of their exit, minus their value for tax purposes.
The tax is calculated at the Corporate Income Tax rate applicable in the tax year of exit (currently at 22%).
The market value of the assets transferred from Greece to another Member State or third country is determined in one of the following ways:
- By means of a valuation report by two (2) certified auditors or by an auditing firm or, where applicable, by two independent certified valuators.
- On the basis of the value of the assets transferred, as such is depicted for accounting purposes in the taxpayer’s accounting books, provided reporting is made under Fair Value Measurement standards.
- On the basis of the value of the assets transferred, as determined for intra-group transfer pricing documentation purposes, in accordance with Article 21 of the Code of Tax Procedure.
A special tax return shall be submitted three (3) working days before the taxable events, as those are specified above.
The tax return must be sent via post or via e-mail message to the competent Tax Office (DOY) of the Independent Public Revenue Authority (AADE).
The tax return shall be accompanied, where applicable, by the following supporting documents in order to evidence the market value of the transferred assets:
(a) the valuation report, or
(b) the last copy of the company’s accounting books (e.g. general ledger etc.) depicting the value of the assets transferred, in cases where reporting is made under Fair Value Measurement, or
(c) the documentation of the market value, in accordance with one of the accepted transfer pricing documentation methods provided by Article 21 of Law 4174/2013. In particular, the TP comparability analysis shall be provided; a complete TP documentation file is not required. The above also applies for taxpayers which are not subject to the provisions of Article 21 of Law 4174/2013.
In addition, the following documents are also submitted:
(d) any appropriate record for monitoring of the tax base of fixed assets, from which the value of the transferred asset for tax purposes can be derived, and
(e) the latest official financial statements showing the current assets to total liabilities ratio, and
(f) a letter of guarantee, if applicable.
Payment of tax
The tax is paid in a lump sum upon submission of the tax return.
It should be noted that the payment of the tax exhausts any income tax liability of the taxpayer, partners, shareholders and members regarding these amounts.
Exceptionally, a taxpayer shall have the right to defer the payment of the exit tax by paying it in instalments over 5 years (once per year, interest-free) in any of the following circumstances:
(a) transfer of assets from its head office in Greece to its permanent establishment in another Member State or in a third country that is party to the Agreement on the European Economic Area (EEA Agreement)
(b) transfer of assets from its permanent establishment in Greece to its head office or another permanent establishment in another Member State or a third country that is party to the EEA Agreement;
(c) transfer of its tax residence to another Member State or to a third country that is party to the EEA Agreement;
(d) transfer of the business carried on by its permanent establishment to another Member State or a third country that is party to the EEA Agreement.
However, the deferral of payment shall be immediately discontinued and the remaining of the tax shall be paid in a lump sum, in the following cases:
(a) if the transferred assets or the business carried on by the permanent establishment of the taxpayer are sold or otherwise disposed of;
(b) if the transferred assets are subsequently transferred to a third country;
(c) if the taxpayer’s tax residence or the business carried on by its permanent establishment is subsequently transferred to a third country;
(d) if the taxpayer goes bankrupt or is wound-up;
(e) if the taxpayer fails to pay one instalment within three (3) months from the deadline for its payment.
Obligation to provide a letter of guarantee
A letter of guarantee is required from the taxpayer in the following cases:
- Where there is a demonstrable and actual risk of non-recovery of the tax for whish payment has been deferred over five (5) years, namely when the current assets to total liabilities ratio of the legal entity (Current Assets/Liabilities), as derived from the official financial statements of the last tax year, is lower than one (1). In this case, the guarantee shall be equal to two (2) instalments and shall expire three (3) months and two (2) working days after the deadline for payment of the last instalment.
- Where the assets set to be returned to Greece within a period of twelve (12) months, and for the purpose of non-application of the exit taxation rules upon exit, the guarantee shall be equal to the total amount of the exit tax that would be paid. The exemption shall be finalized, and the guarantee shall expire six (6) working days after the lapse of the twelve (12) month-period from the date of exit, provided the assets have been returned to Greece.
Transfers to Greece
In case the transfer of assets or of the tax residence or of the business carried out by the permanent establishment is directed to Greece, the acquisition value of the assets for tax purposes shall be the value set by the Member State of the taxpayer or the permanent establishment, unless it does not reflect the market value.
Entry into force
The provisions of Article 66A apply to transfers of assets, tax residence or activity from Greece to another Member State or third country that take place from 1.1.2020 onwards.
* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.