The recent circular Ε. 2057/2021 provides the necessary clarifications regarding the application of the provisions of article 48Α Income Tax Code (L. 4172/2013), regulating the exemption of legal entities – Greek residents from the capital gains tax, which arises from the transfer of participation titles (shares, capital parts, etc.) in Greek and EU companies.
According to art. 48Α ITC, the above exemption applies if:
a) the legal person whose titles are transferred falls within the types set in Annex Ι Part Α' of EU Directive 2011/96/ Ε.U., is a tax resident of an EU member state and is subject to any of the taxes set in Annex I Part Β' of the said Directive without having the option to choose or be discharged from the said taxation.
b) the participation of the transferring legal person is higher than 10% and
c) the participation is retained for minimum 24 months.
The above conditions must be jointly met at the time when the transfer of the shares takes place. The provisions of article 48Α are applicable for income generated as from 1.7.2020 onwards.
The starting point for the calculation of the retention period of the minimum participation percentage is the acquisition date.
It is clarified that in case of a corporate transformation resulting in a quasi-universal succession of the transformed company the starting point for the retention period of the participation percentage (24 months) is not affected.
Types of legal persons
The Circular clarifies that legal persons whose titles are transferred may be Greek or EU and also in the former case these may be SAs, Limited Liability Companies (under Annex Ι Part Α' EU Directive 2011/96/Ε.U.), as well partnerships (ΟΕ, ΕΕ).
Other legal entities, not bearing the form of a company (e.g. joint ventures and associations), do not fall in the above regime and thus any capital gain acquired by the participants from the sale of their titles is not exempted from income tax.
Similarly the transferring legal entity must be a Greek company with the legal type of SA, Limited Liability Company or partnership.
Transfer of titles
As transfer of titles is considered e.g. the sale, the contribution of titles for the coverage or increase of share capital, the exchange of titles, the transfer of titles in the frame of capital decrease and in the frame of distribution of dividends.
Accounting treatment of capital gain
If the amount of the capital gain arising from the transfer of participations being exempted from income tax is acquired by legal persons keeping double-entry books, then the said amount is recorded in a special reserves account. For the rest of the legal persons keeping single-entry books the exempted amount is simply deducted from the net income for the calculation of their taxable profit.
The above reserve is not subject to income tax neither upon distribution nor its capitalization (art. 47 par. 1 ITC does not apply). Nevertheless, in case of distribution it will be subject to withholding tax of 5%, under the reservation of par. 1 art. 63 ITC, as it falls under the definition of dividends (distribution of profits).
Deductibility of company expenses
Any expenses incurred and related to the transferred titles e.g. notarial fees, taxes, third party fees etc. as well as any financial cost (loan interests for the acquisition of the participations) are not deductible for tax purposes, as the relevant income from their transfer is tax –free.
Loss from the transfer of titles
Finally, it is clarified that for the deduction of any loss arising from the transfer of participation titles, the transfer should take place within the period from 1.1.2020 until 31.12.2022 and the titles should exist and be evaluated on 31.12.2019. If the losses upon finalization are less than those initially evaluated, the reduced amount is considered deductible. If the final losses are higher the evaluated amount is deductible.
You can download the Tax-i in pdf file here.