In the cases where the total income declared by the taxpayer, his spouse and dependent members is lower than the imputed income determined on the basis of Articles 31-32 of the Income Tax Code (ITC), the resulting difference is taxed on a case by case basis as income from paid employment, as income from business activity, etc., while at the same time it is burdened with an additional special solidarity contribution.
Reducing the difference
In order to avoid taxable income being determined based on the presumptions, taxpayers have to cover the additional difference between their actual income and the higher amount of income set by the presumptions.
To this end, they may state in their tax return the following amounts (Article 34, par. 2 of the ITC & POL 1076/2015), which must be actually collected (and simply credited) and for which they bear the burden of proof in order to legally invoke:
(a) Actual income received in the relevant year by the taxpayer himself, his spouse and his dependents, which are exempt or taxed in a specific manner. Such incomes include compensation due to dismissal from work, profits from mutual funds, interest on treasury bills and Greek government bonds, interest on deposits in banks, etc.
If such income is acquired abroad, it is recognized if it has been taxed in Greece or is legally exempt from that tax. In order to prove the tax or legal exemption, such income must have been included in a statement of income tax as long as there was an obligation to do so.
(b) Monies not regarded as income under the provisions in force and acquired in the relevant year by the taxpayer (e.g. a lump sum on retirement, a compensation from his insurance company, etc.)
(c) Cash amounts arising from the disposal of assets (e.g. real estate, cars, movables, shares, bonds, unit certificates of unit trusts and other securities) in the relevant year. In any case, a taxpayer invoking a sale price of an asset must demonstrate with official evidence that he is the owner of the asset as well as the price of the sale of the asset (e.g. a copy of a contract or a pre-agreement, a notary's certificate, etc.).
The acquisition cost is deducted from the sale price received within the relevant year, i.e. the former being the price paid within the same or a previous year for the purchase of the asset.
If the cost of acquiring the asset sold was deemed to be a "presumption" in the year in which it was acquired and the taxpayer claims capital consumption for that year, then the price paid in that year for its acquisition should not be deducted from the sale price and the entire amount of the price should be taken into account to cover the additional income difference.
d) Foreign exchange (or euros) imported by the taxpayer in Greece, so long as its acquisition abroad is justified. For the amounts imported, an original document issued by the bank is required to verify that the taxpayer is the beneficiary of the imported money, the amount of the imported amount, the currency, its exchange in euros and the country of origin.
Also, when it comes to covering the cost of acquiring an asset, it must be proven that the investment of the funds and their change into euros, if they are in a foreign currency, was made before the relevant expenditure was incurred.
(e) Loans received in the relevant year and evidenced by a notarial document or a private document of a certain date. It is required with a certain date, to prove the conclusion of a loan and the payment of the sums paid in the relevant tax year.
A loan agreement that has been prepared abroad requires a formal translation into Greek. Also, a foreign exchange certificate for these amounts and a welfare certificate is required if they are in a foreign currency.
Also, in the case of covering the cost of acquiring an asset from those referred to in Article 32, it must be shown that the loan was received before the relevant expenditure was incurred. If the loan is made out of book-keeping, then a certificate from the company is required.
(f) Grant or parental allowance for which the relevant tax return (gift or parental benefit) has been submitted by the end of the year in which the relevant expenditure was incurred.
(g) Consumption of capital that has been shown to have been taxed in previous years or legally exempt from tax.
It should be stressed that any amount paid to obtain the income claimed by the taxpayer reduces the latter and the resulting balance is what limits or covers the total annual expenditure.
Consumption of previous years' capital
In particular, for the determination of each year of the capital that the taxpayer may claim for consumption, the following shall be carried out:
- The taxpayer sums up the actual income taxed or legally exempt from tax, which results from the offsetting of the positive and negative items (e.g. losses) and the amounts mentioned above (from donations, loans, sales of assets , etc. after deducting any amount paid to obtain such income) and any other amount that has been proven to have been received (e.g. winnings, etc.).
- The sum of these incomes shall be deducted from the costs specified in Articles 31 and 32 of the ITC, i.e. the objective expenditure and the costs of acquiring assets, irrespective of whether the taxpayer is exempt from the application of such presumptions.
- The net amount resulting from the above transactions is the amount that the taxpayer may claim in his tax return to "cover" the difference of the presumptions.
It is clarified that the years for which consumption is invoked should be consecutive and lasting until the preceding year. The positive algebra sum of these years will be the total capital formed in these years.
If in one year the income is determined on the basis of the imputed expense, then it is considered that there is no capital left to be invested for that year (considered nil) and does not negatively affect the positive balances of previous years.
If, however, a negative balance arises in one year and there is an exemption from the objective expenses of Articles 31 and 32 of the ITC then that year negatively affects the positive balances of previous years.
If there are neither objective costs nor services of art. 31 or those which exist are less than 3,000 Euros (in the case of unmarried, divorced or widowed taxpayers) and 5,000 Euros for spouses, in the determination of the capital of previous years, there will be a deduction of sums to be determined based on the social, economic and family situation of the taxpayers and their proven living costs. These amounts can under no circumstances be less than 3,000 Euros and 5,000 Euros respectively.
Furthermore, there is no time limit to cover the expenditure on capital consumption, therefore capital expenditure may be invoked to cover the difference in any previous years.
The statements for tax years for which the limitation period has been completed constitute solid proof of the amounts entered therein without the need for other supporting documents. Tax returns data that are not listed in the statement are taken into account only after cross-checking.
Posted on "The Accountant" magazine, May 2018 edition.