Tax-i 133: Limitation period for pendinf tax cases - Wealth increase
By the recent decision 2934/2017 the Supreme Court ruled on the possibility to classify the data of the taxpayers’ bank deposits as "supplementary" tax data. Further, Ministerial Circular POL. 1175/2017 provides clarification regarding the audit of the taxpayers' unjustifiable wealth increase.
Data from Greek banks: Do not constitute “Supplementary Data”
The plenary session of the Supreme Court ruled that the data on the balances and transactions of domestic bank accounts, irrespective of whether they constitute income, do not constitute “supplementary data”, since the tax audit had access on such data within the original five-year limitation period. Consequently, the said data may not justify the issuance of a supplementary tax audit report or the extension of the five-year limitation period to ten years.
Unconstitutional extensions of limitation period
Further, the Supreme Court repeats the reasoning of the 1738/2017 decision, according to which an extension of the limitation period may be granted only by a law provision adopted no later than the year following the one to which the tax liability relates.
The Decision lists all provisions as from 2006 onwards, which extended the limitation period shortly before its expiry (and not within the year following the one of the tax liability), i.e. in an unconstitutional way. It also explicitly refers to the provision, regarding the retroactive application of the 20years limitation period in cases of tax evasion committed before the implementation of the Code of Tax Procedure (i.e. before 1.1.2014) and particularly for cases of years 2008 onwards.
The decision concludes that the issue of unconstitutionality of the extensions granted has already been judged by plenary by Decision 1738/2017 and no further judgement by the plenary is required.
The most important issues clarified with the said Circular are the following:
Meaning of “wealth increase”
The credit in a bank account of an amount arising from a known/apparent source is not considered as wealth increase from an unlawful or unjustifiable or unknown source (thus, it is not taxed as a profit from a business activity).
The same applies even if the said amount has not been declared in the relevant income tax returns. In such cases, the tax assessment is effected depending on the type of income (e.g. income from real estate, capital, etc.).
Objective inability to submit data
The non-submission of data of domestic bank accounts due to objective inability of submitting the relevant documentation (e.g. due to the expiry of the obligation of the bank to keep the relevant records), entails the acceptance of the taxpayer’s claims, unless the tax authority has other evidence to reject the claims of the taxpayer.
Non extension of the tax audit in previous years
If the acquisition of the investment was effected in a period other than the audited years or the inbound remittance from abroad derives from savings/income of previous years, the relevant credits are justified for the audited period and they do not give rise for an extension of the tax audit to such previous years.
Time of tax on wealth increase
The amount remitted into a bank account, that was considered as an increase of wealth, is taxed as income from business activity of the financial year during which it was first inserted into the account holder's property.
The remittance of the amount from a beneficiary’s bank account to another bank account of the latter (in Greece or abroad), does not constitute an increase of wealth.
Credit from entrepreneurial activity
Credit originated from entrepreneurial activity is taxed as income from business activity and is subject to other taxes (e.g. VAT), if not already taxed.
Credit in case of participation in a Legal Person
In case the audited person participates in any legal person, the amount credited in its bank account, which is linked with transactions or income of the legal entity, does not constitute an increase of wealth. In such case the relevant amount may be considered as loan or as a "cash facility".
Excess amount from the sale of property
The excess amount from the sale of property, characterized as such from the audit, is not considered as an increase of property.
Repatriation of Funds
In case the provisions for repatriation of Funds have applied and the relevant tax has been paid, the tax liability for the amounts declared and for which the tax is paid, is exhausted. The said amounts may be repatriated and used to justify the deemed acquisition expense for the purchase of property.