The Greek authorities maintain an active list of non-cooperative jurisdictions for tax purposes (including tax heavens). A question we often receive from clients in Greece revolves around the practical implications of doing business with such countries.For instance, if a Greek company has received an invoice from a country on the list, would this expense be acceptable for the Greek authorities?
With the internationalization of transactions, e-commerce, the freedom on relocation of individuals and companies, as well as other globalization developments, the line between legal tax planning and tax avoidance becomes difficult to define. Sometimes, as a result, authorities lean back on simple definitions in order to define clear cut strategies. Tax heavens are considered to be countries that maintain discretion via their legislation and/or refusal in tax cooperation as well as countries with significantly lower or zero taxation.
The current tax regime of an expense payable to an off-shore company from Greece is determined by the Tax Law no. 4172/2013. Under this law as well as some additional local directives (P.O.L 's ) there is a general rule concerning unacceptable invoices from abroad (regardless of the country of their origin). According to this rule, if the rate of the corporate taxation of the country of origin of the disputed invoice is less than the 50% of the Greek corporate income tax rate (currently 29%; will be 28% as of 2020) the invoice is not acceptable as a recognized expense. Therefore, invoices from countries that have a corporate income tax rate of less than 14% are not acceptable.
In case that the invoice is from a country included in the non-cooperative jurisdictions list published annually in Greece, there are some additional prerequisites in order for the invoice to be accepted . Those include the following: 1) The goods/services purchased must be essential for the operation of the Greek company and must be within the usual scope of the company's expenses. So for example, an offshore company selling coffee, can export to a Greek coffee trading company (but not to, say, steel industry company); 2) The transaction must be a real one and the value of goods or services must not be lower or higher than the usual prices available in the local market; 3) The goods must be recorded in company's books and accompanied by all legal documents such as delivery notes, bank payments, customs documents, etc.
According to the directive (POL) 1113/15, an expense is acceptable if a) It contributes to the expansion of operations / growth or b) it contributes to the materialization of actions within the frame of the corporate social responsibility.
It must be mentioned here that is not allowed for the tax authority to audit the feasibility of the expense, but only the precautions mentioned above (except for those expenses mentioned in Article 23 of the 4172 law) as well as the intra-group transactions which are determined in the same law (4172/13) and 4174/13 additionally.
The burden of proof of whether such an expense is to be accepted or not falls on the tax authority's side.
This is where the list of non-cooperative tax jurisdiction comes into play. As an exception to the above rule, when a local (Greek) company pays an expense to a company located in a country listed in the current catalogue of off-shore companies, there is a reversal of the burden of proof. Consequently, the Greek company must prove that the expense was real and within the range of its usual trade transactions.
An additional important point of the last tax law (4172/13) is the general anti-avoidance rule. A tax audit can ignore any existing artificial arrangement or arrangements resulting in tax avoidance. According to this rule, the tax authority can ignore virtual transactions even if they appear to be valid.
The list of 42 counties with unacceptable tax regimes follows below:
|Bermuda||Bosnia and Herzegovina||Bulgaria||British virgin islands||United Arab Emirates|
|Marshal islands||Turks and Caicos Islands||Isle of Man||Hungary||Uzbekistan|
|Oman||Paraguay||Rep. of North Macedonia||Saudi Arabia||Sri Lanka|
As you will note, the list includes a number of EU countries as well as third countries with traditionally strong economic relations with Greece. We advise clients to seek professional assistance and careful tailored advice in case of transactions with any of the above jurisdictions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.