Tax treatment of the tax paid abroadfor the tax years before the 1st of January 2014
Pursuant to Article 109 par. 4 and 5 of the previously in force Income Tax Code (Law.2238/1994 – hereinafter “ITC”), the tax paid in advance, the withholding tax and the tax which “demonstrably” paid abroad regarding the income obtained abroad, are considered to be deductable from the total due income tax amount (including the additional tax) in Greece. In no case, the tax paid abroad can be higher than the tax amount which is attributable to such income in Greece. To prove the amount of tax paid abroad, a certification of the state’s competent Tax Authority in accordance with Double Taxation Convention is required.
Furthermore, the Order of the Ministry of Finance dated on 06.12.2013 (Δ12Β 1095997 ΕΞ 2013), clarified both the order in which the deductable taxes reduce the total due income tax amount and the tax treatment of the tax paid abroad, when a credit balance arises from the income tax liquidation. In particular, the aforementioned taxes are deducted in the order mentioned in the declaration form, i.e. first the tax paid in advance, second the withholding tax and finally the tax paid abroad. So, as for the legal entities, the amount of tax paid abroad shall be taken into account during the income tax liquidation and in particular shall be deducted from the corresponding tax in Greece. However, in the event of a credit balance or an increase in the existing credit balance, the tax paid abroad shall not affect the refunded credit amount and this is why the payment of this tax “took place” abroad and not in Greece and therefore a tax refund may not paid in Greece.
Finally, the recent Circular of the Administration ΠΟΛ.1060/2015, which expressly refers to Article 109, par. 4 of the previous in force ITC, states that taxes shall be deducted from the total tax amount in the following order:a) Withholding tax,b) Tax paid in advance andc) Tax paid abroad.The amount of the excess may be refunded only in cases under above points (a) and (b), provided that the tax amount is higher than the total tax due.
It is noted that recent, binding decisions of the Athens Administrative Court of Appeal (Decisions no 1765/2014, 2988/2014 and 2359/2014) “ratify” the above settled view of the Administration. According to the above case law, provided that there is a debit amount, the tax paid abroad shall be deducted from the total due income tax by an amount equal to that left after the deduction of withholding tax and tax paid in advance and only up to the amount of that balance.
Finally, concerning the current legal framework, it should be noted that the view of the Administration remains unchanged and this is proven both by the Articles 9, 67 and 68 par. 6 and 3 of the new Income Tax Code (N.4172/2013), which include provisions substantially similar to those of the previously in force article 109, par. 4 and 5 of Law.2238/1994 and the relevant recent Circulars of the Administration no. ΠΟΛ.1060/2015 and ΠΟΛ.1067/2015.