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Greek tax provisions for Lebanese citizens who are Greek tax residents

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Greek tax provisions for Lebanese citizens who are Greek tax residents

What is the practical and legal significance for a Greek tax resident of the facts that Lebanon:

i. does not have a Treaty for the avoidance of double taxation with Greece and it used to be a non-cooperative jurisdiction until 2017.
ii. it has become a party to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
i. The first main consequence of the absence of a Double Taxation Convention between Greece and Lebanon until August 31st, 2017 is the risk of the same income being taxed twice, in Greece and Lebanon as well.

In particular, in cross-border transactions, given that each State has a right to tax the income earned in its territory but at the same time the other State has the right to tax the income earned by its tax resident, there is a risk that part of the income may be taxed under more than one jurisdiction. Therefore, according to OECD guidelines, States conclude bilateral conventions to avoid double taxation.

In this case, Greece and Lebanon have not signed such a double taxation convention; therefore, it is possible for part of the income to be taxed twice.

However, in order to avoid double taxation, Greece has allowed for the credit of tax from abroad, through the following provisions in its domestic law:

a. For income earned from January 1st, 2014 to December 31st, 2017, according to Article 9 of Law 4172/2013, if a taxpayer who is a tax resident of Greece earns income abroad during the tax year, the payable income tax of this taxpayer, regarding the aforementioned income, is reduced by the amount of tax paid abroad for this income. The reduction of income tax outlined in the previous paragraph may not exceed the amount of tax that corresponds for this income in Greece (to avoid a tax return in Greece).

The payment of tax abroad is evidenced by the relevant supporting documents, according to the provisions of the Code of Tax Procedure (Circular 1067/2015 and Article 16 of Law 4174/2013). In particular, a certificate from the competent tax authority or Chartered Accountant (of the country in which tax has been paid) must be filed and, in the case of tax being withheld by a legal entity or an individual, a statement by that person certified by the competent tax authority or a certification by a Chartered Accountant is required. This certification is not necessary when the withholding is carried out by a public institution, an insurance body or a financial institution. Please note that these documents must be Apostille or be certified by the consular authority and be officially translated into Greek.

If the foreign tax has been paid in a currency other than the euro, the calculation shall take place based on the exchange rate between the euro and the foreign currency on the date the tax was paid abroad, as stated on the relevant certificate of the competent tax authority or Chartered Accountant. However, in the case of periodical payments, the average annual exchange rate of the Bank of Greece is used.

b. On the contrary, for the tax years before January 1st, 2014, there was no relevant provision for tax credit. Exceptionally, for dividends received prior to January 1st, 2014, through Circular 1129/2011 (which refers to Circular 1052/2007 for interest rates) the tax administration has accepted that in order to avoid payment of tax on the tax that has also been paid abroad (double taxation), tax withholding will be carried out by the intermediary banks on the net amount entered from abroad, that is to say, on the amount remaining following the deduction of the amount of tax that may have been paid to it.

A second consequence of the absence of a double taxation convention between Greece and Lebanon is that the Greek tax law considers Lebanon as a non-cooperative state.

In particular, following the OECD guidelines, the provision of Article 65 of Law 4172/2013 was enacted, according to which the legislator is empowered to determine, on a yearly basis, the non-cooperative states, i.e. the States that have not signed information exchange conventions with Greece. More specifically, until August 31st, 2017, Lebanon was considered a non-cooperative state, according to the following Ministerial Decisions: Circular 1024/2018 for 2017, ΔΟΣ Γ 1188835 ΕΞ 2016 (Official Gazette Issue B 4569/30.12.2016) for 2016, Circular 1279 (Official Gazette Issue B 2905/31.12.2015) for 2015, ΔΟΣ Γ 1039110 ΕΞ 2014 (Official Gazette Issue B 570/07.03.2014) for 2014 .
Since Lebanon was considered a non-cooperative state, there is a risk that the provisions of Article 66 of the Income Tax Code (Law No 4172/2013-ITC), along with Circular 1076/2014, will apply regarding controlled foreign companies.

More specifically, the income of the individual that is a tax resident of Greece includes the undistributed income of a foreign legal person or legal entity who is a tax resident of another country, provided that the following conditions are accumulatively met:

a. the taxpayer, individually or along with other affiliated persons, as those are defined in Article 2(f) holds (directly or indirectly) stocks, shares, voting or participation rights in the capital which come up to more than 50%, or are entitled to receive more than 50% of the profits of the legal person or legal entity in question,
b. the foreign legal person or entity above is subject to taxation of a non-cooperative state or a state with preferential tax regime, i.e. a special regime that allows for lower taxation levels compared to the general regime,
c. more than 30% of the foreign legal person’s or entity’s net income (before tax) falls within one of the following categories:
• interest or any other income derived from financial assets,
• rights or any other income derived from intellectual property,
• dividends and income from the transfer of shares,
• income from movable assets,
• income from immovable assets, unless the state of the taxable legal person or entity would not be entitled to tax income under an agreement concluded with a third country,
• income from insurance, banking and other financial activities.
d. the foreign legal person or legal entity is not a company whose main class of shares is traded on a regulated (stock) market.

ii. As of September 1st, 2017, Lebanon is not considered to be a non-cooperative state as it signed the OECD Convention on Mutual Administrative Assistance in Tax Matters. This is of particular importance, first of all, as Article 66 of Law 4172/2013 does not apply due to the fact that one of the conditions of its application, the company being located in a non-cooperative state, has become redundant.

In addition, the CRS Multilateral Competent Authority Agreement‎ is now in force. This means that from 2018 onward, Greece (in accordance with Greek Law 4428/2016) and Lebanon respectively are obliged to report the following information for all reportable bank accounts of individuals held under different jurisdiction:
a. name, address, taxpayer identification number, place and date of birth of each reportable person who is a beneficiary of the account;
b. the account number;
c. the name and identification number of the Reporting Financial Institution;
d. the account balance or value of the account at the end of the relevant year or other appropriate reporting period, or if the account was closed during that year or period, at the date that the account was closed on.

Furthermore, according to the OECD Convention on Mutual Administrative Assistance in Tax Matters, contracting states are required to exchange tax information following the relevant request of one of the states and provisions are made for the following: automated exchange of information voluntarily, simultaneous exchange of information to the contracting parties, the conditions for the performance of tax audits abroad, the cases of requests for administrative assistance, and the conditions for assistance on tax collection issues.

In summary, according to the above, from September 1st, 2017, Lebanon and Greece will exchange information at a State level and through the financial institutions, regarding the bank account balances of the persons who reside in the above States. Consequently, if a tax resident of Greece has deposits in a bank account in Lebanon, the above automatic exchange of information at a State level and the general tax cooperation of the States may cause the conduction of a tax audit in Greece.

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