Joint bank accounts – Inheritance and gift tax issues

Joint bank accounts – Inheritance and gift tax issues

Based on the recent law 4916/2022, article 25 par. 2 case (c) of the Greek Inheritance, Gifts and Parental Gifts Taxation Code – L. 2961/2001 (hereinafter referred to as “the Code”) was amended and extends the exemption from Greek inheritance taxation for deposits maintained in joint bank accounts including cash deposits and all kinds of securities that are held not only in bank accounts held in Greece but also abroad, with the exclusion of non-cooperative jurisdictions.

It is noted that, in order for the exemption to apply, the contract with the foreign bank should include a clause providing that after the death of any of the co-beneficiaries of the joint account, the deposits are automatically transferred to the other living co-beneficiaries, i.e. without the operation of inheritance rules. It is reminded that the same clause needs to be included in the contract with a Greek bank in order for the exemption to apply.

It is pointed out that the law provision refers explicitly only to the exemption from inheritance tax and not from gift tax. Therefore, Greek inheritance tax will not be triggered if the co-beneficiary of the joint-bank account withdraws money from the joint bank account kept abroad after the death of the other co-beneficiary, regardless of the subsequent use of that money e.g. for the purchase of real estate or other assets in Greece or abroad.

However, there is a potential risk that the Greek tax authorities may consider, upon a tax audit, that Greek gift tax may potentially be triggered upon either of the following occasions:

1. a) Upon the withdrawal of money from the joint bank account during the other co-beneficiary’s lifetime, in excess of any amounts deposited in the joint bank account by the co-beneficiary withdrawing the money.

It is noted that the above risk does not derive explicitly from the law, but from tax audit practice.

or

1. b) After the death of the other co-beneficiary, upon the future use of said money (again in excess of any amounts deposited in the joint bank account by the co-beneficiary withdrawing the money) e.g. for the purchase of real estate or other assets either in Greece or abroad.

In this respect, a recent Decision of the Dispute Resolution Directorate (No 1359/2021) ruled that the tax benefit of the law goes up to the point of the withdrawal of the money from the joint bank account and that further use of that money, e.g. for the purchase of real estate, qualifies as an “informal donation” of money which is a separate event and is subject to gift tax.

In specific, the Dispute Resolution Directorate ruled that the Head of the Tax Office may, according to article 34 par. 3 of the Code, classify as a gift, in total or in part, any transfer of property that is made without a consideration and may conceal a gift. The burden of proving that a gift is concealed in the case of transfer of cash amounts lies with the tax authority; however, given the difficulty entailed in evidencing the concealed gift, it is accepted, based on case law, that there can be a presumption of a gift if the following conditions are cumulatively met:

1. a) the concerned persons are relatives;
2. b) the Head of the tax office may justifiably rule out any other source for the money that constitutes the property increase of the person being considered the donee; and
3. c) the Head of the tax office may justifiably determine that the financial status of the person that is considered the donor allowed him to make the gift.

Moreover, based on article 35 par. 1 case (c) of the Code, any movable property located abroad of a foreign national that is donated to a Greek or foreign national who has his residence in Greece, is subject to Greek gift tax.

It is important to note that the Dispute Resolution Directorate is an out-of-court body, whose purpose is to quickly resolve tax disputes before the initiation of court proceedings but also as a prerequisite (required step) before any court proceedings are initiated. Decisions issued by the Dispute Resolution Directorate can be challenged in the administrative courts, so it is not certain whether the tax courts would accept or not the above reasoning/ interpretation of the Dispute Resolution Directorate regarding the use of the money withdrawn from joint accounts, which seems not to be in alignment with the tax provisions.

In any case, based on the provisions of article 44 par. 1 of the Code (as amended and in effect as of 1/10/2021), especially the parental gift or the gift to the persons belonging to category A’ (close relatives) of any asset, as well as the parental gift or the gift of cash to the above persons, which is carried out by money transfer through financial institutions, are subject to tax, which is calculated at a 10% rate, after deducting a one-time tax-free amount of 800,000 euros (i.e. tax-exempt threshold).

Therefore, even if the tax authority considers, upon a tax audit, that a gift of money takes place either upon the withdrawal of the money from the joint account or upon the purchase of real estate, gifts of money up to the amount of 800,000 euros that are made to person falling under category A (close relatives) shall be exempt from gift tax, provided of course the conditions of the law are met.

 

*             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.