The establishment of companies as well as the transfer of business or professional activities abroad involve tax hazards, even when they are real and do not take place in the context of aggressive tax planning.
The Greek Audit Authority is now reinforced with legally enacted instruments, adopting internationally applied rules and tested practices to deal with phenomena which it may consider to be "abusive" practices with the purpose of tax evasion and avoidance. Tax auditing may focus on:
Audits aim to determine whether a foreign company or company has a de facto "tax residence" in Greece and therefore should be subject to Greek taxation.
Tax residence is linked to the place of actual management of foreign companies, with the criteria set out in Article 4 of Law 4172/2013 (e.g. place of daily administration, strategic decision making, book-keeping, board meetings, residence of board members, etc.).
It is now necessary for the foreign company to have a foreign entity (office, staff, etc.) and it is not enough to be just an 'invoice vendor'.
Under Article 38 of Law 4174/2013, tax audit may ignore any transaction, action or arrangement that it considers to be an "artificial arrangement" and results in a tax advantage. In order for this to happen, the audit must show that the arrangement is devoid of economic / commercial substance and impose a tax as if that arrangement did not exist. There is also the risk of losing the tax advantage granted to intra-group dividends and payments by Articles 48 and 63 of Law 4172/2013.
Under the conditions of Article 66 of Law 4172/2013, Greek taxpayers may be taxed in Greece for undistributed profits of companies in which they participate if these companies are established in countries with preferential status such as Cyprus, Bulgaria and other or non-cooperative states such as Bahrain, Bahamas, Panama, etc.
If the audit considers that there are such "quasi-distributed" profits for the shareholder, it will tax them as profits from a business activity rather than as dividends, that is a 45% tax for profits of more than € 40,000 plus increments.
They are audited from 1/1/2014, based on Article 50 of Law 4172/2013 and Article 21 of Law 4174/2013, mainly cross-border transactions between a Greek company and related companies abroad as well as Greece to ascertain whether the 'equal distance principle' has been respected for such transactions. That is, whether or not such transactions (e.g. sales, purchases, services, rights, loans, etc.) were made on terms that would apply between unrelated businesses. If the audit proves that this principle was not met, then it adds any profits that the Greek company has avoided to its profits and taxes them accordingly.
In addition to the above, the information available on the basis of the "automatic exchange of information" among about 120 countries has recently been added to the tax authority's arsenal and will provide annually data of Greeks for bank accounts, interest, dividends, capital gains and other not only from EU Member States but also third countries such as Liechtenstein, Monaco, Switzerland etc.
Banks, stockbrokers and other entities providing such data from abroad are required to identify the actual shareholders of companies, bank account holders, etc.
In this context, tax audits must now focus on the substance rather than on the type of the audited transactions, actions or corporate forms and restructuring in order to deal effectively with tax evasion and avoidance.
G. Samothrakis, J. Pannou
Posted on Sunday newspaper, "Kathimerini", on 25/03/2018