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New Income Tax Code

Iason Skouzos - TaxLaw > Practice Areas  > Tax Law  > New Income Tax Code

New Income Tax Code

In late July 2013 a new Income Tax Code (ITC) was adopted by the Greek Parliament, applicable from January 1st, 2014 onwards. In essence, the new ITC is featured by a completely new conception consisting in the introduction of general principles instead of an extensive enumeration of specific cases and a system of insight in the substance rather than in the form of a specific transaction or arrangement in general.

In brief:
• The basic tax rates are not amended, however the new law provides for 4 main categories of gross income, based on the nature of its source, and in effect it assumes 4 main sources of income, whereof each is connected with a different tax treatment: a) Income from employment and pensions; b) Income from a business activity; c) Income from capital; and d) Income from capital gains. Unless a type of income can be conceptually allocated into one of these 4 categories, it cannot be taxed in Greece.
• Under the new ITC there has been a major change in the basic conception of deductibility of expenses. As opposed to the former ITC, the standard rule under the new ITC is that each and every expense performed by a business entity is deductible as long as:
a) It has been incurred in the interest of the entity or in the ordinary course of its business, i.e. it should be “operational” (as opposed to private expenses). In practice the term “productive” is broadly used implying that the expense should potentially aim at earning income/profit (not capital);
b) It refers to a transaction actually performed (i.e. it should have been actually (i.e. not virtually or fictitiously) incurred) and with a value not lower or higher than the market one as calculated according to data available to the tax authority;
c) It has been properly entered into the entity’s accounting books within the accounting period it has been incurred (i.e. it should be certain (indisputable), accrued and specified (liquidated)) and is documented by the proper documentation (i.e. the proper tax record stipulated by the pertinent legislation, a pertinent agreement etc.).
Specifically R&D expenses are deductible increased by 30%, subject to filing of a specific application accompanied by certain documents.

By way of exception, certain types of expenses are enumerated which are not deductible wholly, partially and/or conditionally. In addition, as a general clause:
a) Each and every expense in consideration for the purchase of goods or the receipt of services exceeding € 500 is not deductible, even if it is deemed to be of a “productive” nature, unless it has been wholly or partially paid through a bank payment instrument; and
b) Each and every expense paid to an individual or a legal entity being a tax resident in a non-cooperative country or being subject to a preferential tax regime (enjoying a privileged tax status) is not deemed to be deductible unless the taxpayer substantiates that the expense relates to an actual transaction performed in the normal course of business and that it does not result in the transfer of profits or income or capital outside the Greek tax jurisdiction for the purpose of tax avoidance or tax evasion. Such expense is still deemed to be deductible if the collector is a tax resident in an EU or an EEA member state provided that there is a legal ground for the exchange of information between Greece and such member state.
• A legal entity whose place of effective management is located in Greece is now deemed to be a tax resident in Greece.
• The special tax regime applicable to BoD fees has been abolished and now they are treated either as income from employment or as dividends depending on the arrangement.
• The TP rules have not been in essence amended. The implementation ministerial decision on the TP documentation requirements has been issued, whereas the issuance of a similar simplification decision applicable to SMEs (in accordance with the EU law) is still pending. No essential changes have been brought about in the APAs regulations except for the extension thereof to foreign enterprises, the introduction of a certain period within which the tax authority must issue their decision on an APA application (120 days), the extension of the validity period of the relevant decision (up to 4 years instead of 2) and the abolition of the right to renewal of the APA decision.
• The term “income from capital gains” includes now income derived from:
a) The transfer of real estate or a right thereon (including contribution thereof to a company/partnership in subscribing to the initial share capital or to a share capital increase);
b) The transfer of securities (i.e. listed -where the transferor participates in the share capital by at least 0,5% and the shares to be transferred were acquired on January 1st, 2009 onwards- or non-listed shares, interest in a partnership, government bonds and treasury bills or corporate bonds, derivatives) or a business entity as a whole (including contribution thereof to a company/partnership in subscribing to the initial share capital or to a share capital increase),

as long as such transfer (in either case) does not constitute a business activity. The performance of three (3) similar transfers within a period of six (6) months (for transfers of securities, except for securities listed on a stock exchange and government bonds and unless the beneficiary is professionally, i.e. in the course of her/his business activity, engaged in such transfers) or a period of two (2) years (for transfers of real estate) are deemed to be a business activity.

Capital gains as determined as per above are taxed at 15%. As a result, especially for the transfer of real estate the 10% transfer tax on the transfer value is no longer applicable and has been replaced with a 15% tax on the income (capital gains) derived from the transfer.
• New provisions on business restructurings in accordance with the EU Merger Directive have been introduced.
• Certain anti-avoidance rules, e.g. CFC-rules, have been introduced

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