The new Income Tax Code (ITC - Law 4172/2013) enables companies to transform themselves without incurring a tax burden in this process. In the past years, such incentives were provided by pre-existing laws 2166/1993, 1297/72, etc., which, however, imposed several conditions and restrictions.
These laws continue to apply in parallel to the ITC regulations and businesses may choose in which regulatory framework they will be subject to.
The ITC (Articles 52-56) regulates the following cases of transformations carried out from 01.01.14 onwards:
- Asset contributions against shares, i.e. divestments of a branch or industry.
- Conversion of a Greek branch of a foreign company to a subsidiary.
- Exchanges of shares / securities.
- Mergers and divisions: absorption of one or more companies by another existing company, merger of two or more companies with the formation of a new company, division of a company into two or more existing or new companies, including partial splitting.
- Transfer of registered office from Greece to another member state of the EU, as a European company (SE) or a European cooperative society (SCE).
The types of domestic companies that can make use of the relevant provisions are public limited companies, limited liability companies and private equity companies.
It must be clarified that the process of approving and completing the transformation, assessing the contributed data, determining the exchange ratio, etc. is determined in accordance with the provisions of the company law (codified law 2190/1920, law 3190/1955, etc.) and is subject to the approval of the competent supervisory authorities, as the case may be. As a consequence, tax provisions do not affect the application of the corporate framework as dictated by relevant corporate law.
If an enterprise has chosen to be subject to the provisions of Law 4172/2013, it will receive the following tax reliefs and benefits:
- Exemption from income tax of any goodwill arising during the transformation. Goodwill is calculated on the basis of the difference between the market value of the transferred assets and liabilities and their taxable value.
- Exemption from any tax (e.g. property transfer tax), stamp duty, fee or levy in favor of the State or third parties of the relevant transformation contract, the contribution and the transfer of the assets and any relevant act or agreement. However, a capital raising tax is due. The receiving company may transfer the tax losses of the transferring company.
The receiving company carries out depreciation of assets in accordance with the rules applicable to the transferring company if the transformation (e.g. merger or split) has not taken place.
The receiving company may transfer the reserves and provisions made by the transferring company with the tax exemptions and conditions applicable to the transferring company if the transfer has not taken place.
However, the anticipated benefits are totally or partially eliminated when the transformation has tax evasion or avoidance as its main objective or as one of its main objectives.
The above provisions apply to transformations taking place between Greek companies and companies which are tax residents of a European Union State, subject to the conditions laid down in each case by the law.
Also, the provisions of Law 2578/1998 on cross-border transformations, which are applied in parallel with the above provisions, remain in force, in any cases not regulated by this provisions.
G. Samothrakis, J. Panou
Posted on Sunday newspaper Kathimerini, 20/11/2017