Aggressive tax planning of large multinationals and risks

The aggressive tax planning of large multinational groups, often with the direct or indirect support of the tax administrations of some states, even within the EU, led the OECD member states to take measures and decisions to curb the phenomena of tax evasion and tax avoidance.

These are the 15 known actions to tackle Base Erosion and Profit Shifting (BEPS), the main pillar of which is taxation of profits in the state where they are actually created and not in the country where a business has formally been set up. 

In this context, the substance overrides the form and therefore, what is being considered is whether a company really has the status (personnel, infrastructure, know-how, equipment, etc.) required to conduct business, which it relies on. Otherwise, if a company is just a "shell" without real business activity, profits should be paid back to the country where they are actually created.

Furthermore, the actions are governed by the principle of transparency, which includes the obligation to exchange information between states on rulings on privileged regimes, the provision of more detailed information in the context of intra-group transactions, the disclosure of aggressive tax planning agreements etc.

Greek tax legislation has already adopted internationally enforced rules and practices, providing tax authorities with significant "weapons" in order to deal with phenomena such as tax planning, tax evasion and tax avoidance with more complete legal coverage than in the past.

In this context, before a Greek company decides to "move" (typically and not essentially) abroad, it should take into account the following:

• An enterprise, even if it is established in another country, is taxed in Greece, since its real administration is exercised in Greece. The "place of effective administration" shall be judged on the basis of facts and circumstances, taking into account in particular the place of day-to-day administration and strategic decisions, the place of the annual general meeting of shareholders or members, the place of books and records, the place of meetings of the administration, the domicile of the members of the administration, the domicile of the majority of shareholders or partners, etc.

• Tax audit may disregard any artificial arrangement aimed at avoiding taxation and results in a tax advantage. Settlement (transaction, agreement, event, etc.) is artificial if it is devoid of economic or commercial substance and in this case the tax authorities may ignore it and impose the tax due as if that arrangement did not exist.

• Under certain conditions, a tax resident in Greece may be taxed on the undistributed income of a company in which he / she is a resident and which is established and taxed in a state with a preferential tax status (e.g. Cyprus, Bulgaria, etc.) or a non-cooperative state (e.g. Hong Kong, FYROM). It concerns mainly cases where the income of the foreign company is "passive", namely dividends, rights, interest, rents, etc. and derives to a significant extent from invoicing to taxable persons (natural or legal).

It is obvious that now any tax planning should take into account the above basic principles. Furthermore, taxpayers should be aware that the tax authorities of the States have the possibility and the obligation, upon request, to exchange information about their taxpayers, while the mechanism for the automatic exchange of financial information (e.g. balances of bank accounts) between the tax authorities of the EU Member States, as well as other countries.

G. Samothrakis, J. Panou
Posted on Sunday newspaper, "Kathimerini", 10/06/2018

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