The general anti-avoidance rules in Greek law – Article 38 Law 4144/2013
Under the article 38 of the Tax Procedure Code (KFD), a general provision against the abuse of possibilities and discretions of configuring legal relations provided by legislation to the extent that this aimed to tax avoidance and resulted to, due to non-taxation, to the non-payment of tax either in whole or in part, is introduced for the first time in Greek tax law. In particular, it is provided that while determining the tax amount, the tax authorities have the right to disregard any configuration of legal relations, which is artificially done (artificial manipulation) in order to avoid taxation and due to that the configuration results in obtaining tax benefits.
It is clarified that the tax authorities have not the discretion, as might one incorrectly consider drifted by the wording of the relevant provision, but have a circumcised power. This also arises from the continuity of the provision, which provides that in such case, when the tax authorities note an artificial manipulation as mentioned above, they are required to aim, for tax purposes, at their particular substance from a purely economic perspective.
The crucial elements of the actual provision, which must be met in order for the tax authorities to have the right to ignore a tax purposes legal relations’ configuration and which must be proved (burden of proof) by the tax authorities, are the following:
a) Manipulation or series of manipulations.
b) This manipulation (or a series of manipulations) should be artificial.
c) The artificial manipulation should aim at anti – avoidance.
d) The artificial manipulation should result in a tax advantage.
a) With the option of using the term “arrangement” (manipulation), the legislator intends to include every human action in the regulatory field of the provision, mainly of course, but not only, unilateral legal acts and contracts, in order to be clear that this is a provision of general application and can thus be able to include every case which is possibly beyond the perception of the legislator at that time. It is also clarified that not only the independent actions are included, but also the complex and the combined ones.
b) A requirement, in order for a manipulation to be disregarded by the tax authorities a manipulation, as indicated above, is to be feigned (“artificial”) and by that the provision means the obvious, namely that the manipulation has no commercial or even economic substance, in other words it is an unexpected action of an entrepreneur or a professional. This is mentioned explicitly by the provision as one of the criteria that the tax authorities take into account, in order to consider the feigned (artificial) or not of a manipulation, but in fact it summarizes all the mentioned criteria. Specifically, the tax authorities shall consider whether (each alternative or more):
1) The legal description of the individual stages which consist a manipulation, is incompatible with the legal substance of the whole manipulation.
2) The manipulation or a series of manipulations is applied in a manner that is not compatible with an ordinary (logical, normal) business behavior.
3) The manipulation or a series of manipulations includes elements which result in the hedging or the annulment between them.
4) The conclusion of transactions has a rotatory nature.
5) The manipulation or an array of manipulations leads to a significant tax advantage, but this is not reflected on the business risks, which the taxpayer undertakes, or on his cash flows.
6) The expected profit margin before the tax is significant compared to the amount of the expected tax advantage.
The law requires for the manipulation to be “artificial” in order for the tax authorities to have actually the right not to take it into account, it entails that if a manipulation results in a tax advantage, without being feigned in that sense, then the tax authorities have no right not to take it into account, but have to respect it.
c) Further, the provision clarifies that if a manipulation aims at tax evasion, this is not considered subjectively, based on the possible intention of the taxpayer / taxpayers, but objectively, based on whether it is objectively contrary to the object, the concept and the purpose of the tax provisions that would be applied otherwise.
Furthermore, the tax evasion should be the main (crucial, important, essential) purpose of the present artificial manipulation and this will occur; when any other target which is or could be attributed to the manipulation seems trivial, taking into account all the circumstances in the case.
d) To ascertain whether the artificial manipulation has indeed resulted in a tax advantage, the tax authorities should compare the amount of the tax due, given the present manipulation, with the amount due by the same taxpayer and under the same conditions, if this manipulation would not be taken into account.
It follows that in any case the tax authorities should be able to clearly substantiate how the artificially formed legal relations should be configured by the taxpayer or taxpayers, so that they have a commercial or an economic substance in order to result to the amount of the tax due without the artificial manipulation and difference tax due finally results.