A new tax law, Law 2386/96 was published in the Government Gazette on 7 March 1996.

It contains amendments concerning income tax, tax audits, tax evasion, VAT, capital taxation, excise duties on tobacco products, alcohol and mineral oil, as well as certain amendments to the legislation relating to company mergers.

The purpose of this newsletter is to highlight the most important amendments introduced by the law.

INCOME TAX

Taxation of profits on sale of interests in a partnership, a business as a whole or other business rights

The tax on the gain arising from the transfer of an interest in a business or of an entire business including its intangible assets such as goodwill, trademarks, privileges etc. or of any business rights (e.g. patent licence etc.), is no longer withheld and subsequently paid by the purchaser to the tax authorities but it is paid directly by the seller by filing the respective tax return with the competent tax office before the transfer takes place. If the return is not filed, the purchaser is jointly and severally liable for the payment of the tax due.

DONATIONS

Donations over Drs 100 000 to state and municipal hospitals and to hospitals which are legal entities of private law and are subsidised by the State Budget, as well as to welfare foundations of the public or private sector (provided that their expenses are met by subsidies from the State Budget at a percentage of at least 70%), are not taken into account for determination of imputed income for tax purposes.

INCOME FROM RACEHORSES

Income from prizes and trophies arising from the possession and exploitation of racehorses used in horse races is independently taxed at the rate of 15%. The tax due is withheld when the payment of prize or trophy is made and it is paid to the state until the 15th day of the month following that in which the withholding took place.

MINIMUM NET INCOME FROM A TRADE OR PROFESSION

The following changes to the provisions concerning the determination of a minimum income from a trade or profession are introduced:

  • The provision for the determination of a minimum income does not apply to personal enterprises on condition that the business is carried out by a person who is over 65 years of age and who has continuously been carrying out the business for the past 10 years.
  • If the taxpayer brings his/her case concerning the determination of his/her minimum net income from trade before the competent tax court, the amount of tax that will be imposed pursuant to the court's decision is not exempt from penalties that apply to late payment of tax.

WITHHOLDING INCOME TAX

The 1% withholding income tax on the net amount of invoices of fuel supplies to the public sector is extended to tobacco products. The existing exemptions from the obligation to withhold income tax are extended to cases where the supplier is ELBO or where the purchaser is Olympic Airways and its subsidiaries, the duty-free shops, the Agricultural Bank of Greece, the Public Petroleum Corporation including its subsidiaries and sub-subsidiaries. The above mentioned changes apply to invoices issued from 8 February 1994 with regard to supply of goods and from 22 March 1994 with regard to supply of services.

DEADLINES FOR FILING THE ANNUAL INCOME TAX RETURNS

  • The deadline for filing income tax returns which, include employment income or income from the participation in partnerships, joint ventures or associations of civil law (if they do not keep accounting books at all, or keep accounting books of first or second category of the Code of Books and Records), is extended from 12 March to 17 March.
  • Income tax returns which include income from renting farms must be filed by 15 April.
  • Income tax returns of persons who carry out a personal business or an independent profession and do not keep accounting books or keep accounting books of first or second category should be filed according to the following timetable determined by the first letter of their surname:

Alpha            -  Until 2 March
Beta - Gamma     -  Until 3 March
Delta - Epsilon  -  Until 4 March
Zeta - Yota      -  Until 5 March
Kappa            -  Until 6 March
Lambda - Mi      -  Until 7 March
Ni - Pi          -  Until 8 March
Ro - Sigma       -  Until 9 March
Taf - Omega      -  Until 10 March
The deadline is automatically extended to the first working day, if the due date is a public holiday. The same deadlines apply also to partnerships or joint ventures or associations of civil law which do not keep accounting books or keep books of the first or second category of the Code of Books and Records.

OBLIGATIONS OF NOTARIES PUBLIC AND OTHER INSTITUTIONS

  • Where farming land is transferred, the notary public involved is now obliged to request a certificate proving that the income that corresponds to the land under transfer has been declared.
  • Public services and banks are obligated to request a similar certificate in order to pay farming subsidies, compensations or to grant licences for selling farming goods at open - air markets.

MERGER INCENTIVES

The following tax incentive is offered to enterprises which operate under any legal form (except that of a corporation-AE) and merge with a view to forming a partnership or a limited liability company (EPE) or a corporation (AE):

  • 25% of the profit up to Drs 20 million and 20% of the profit in excess of Drs 20 million of the new legal entity are tax exempt for the first 5 years following the merger.
In order for the above incentive to be available, the following conditions must be met:

  • If the new legal entity is a partnership its capital should be at least Drs 20 million, 1/3 of which must be paid in cash.
  • If the new legal entity is a limited liability company (EPE) its capital should be at least Drs 40 million.
  • If the new legal entity is a corporation (AE) its capital should be at least Drs 100 million.
  • The merging enterprises must have been operating for at least four years prior to the year of the merger.
  • The tax exempt profits are taken to a special "tax free" reserve of the new entity and are subject to tax when distributed (or the new legal entity is dissolved).
  • The valuation of any contributions in kind is carried out by the Committee provided in Article 9 of L. 2190/1920.
  • The requirements, restrictions and rules stipulated by articles 2, 3, 5, 6, 9, 10 and 12 of incentive L.D. 1297/1972 will apply to the aforementioned mergers. These articles provide for the exemption from taxation of certain transactions, the depreciation of contributed assets, the revocation of tax incentives due to dissolution of the new company or due to transfer of tax exempted real estate property.
  • The merger must take place until 31 December 1998.
The following amendments to L. 2166/1993 are introduced:

  • The tax incentives offered by L. 2166/1993 will no longer apply where the merging enterprises are absorbed by a newly established AE or EPE or where an existing enterprise transfers certain business segments to a newly established corporation.
  • Incentives offered by L. 2166/1993 in case of scission will continue to apply on condition that the parts of the old corporation are absorbed by already existing corporations.
  • Any tax losses of the entities which are absorbed are no longer offsetable against any profits of the acquiring/absorbing legal entity.
  • Enterprises engaged in the construction or exploitation of immovable property (real estate), other than hotel real estate, can no longer benefit from the provisions of L. 2166/1993.
  • The aforementioned changes with regard to L. 2166/1993 will affect those transformations of enterprises which will be carried out after 7 March 1996 as well as those which have already started but they will be completed after the publication.

TAX AUDITING AND TAX EVASION CRIMES

The following anti-evasion measures have been adopted:

  • Business contracts between businesses and the State, banks, public organisations, or public sector enterprises, municipalities, insurance companies and credit cards companies do not have to be authenticated by the tax authorities (retrospective effect from 23 March 1990).
  • The fine for: a) issuing false or fictitious invoices or certain other records b) falsification of invoices or other records, c) being an accomplice in such act or d) receiving such an invoice or record, with the knowledge of the intend to commit tax evasion, is increased with the minimum being Drs 5 million and the maximum Drs 50 million.
  • The administrative penalties (non-participation in public bids, disallowance of the right to receive tax certificates etc.) provided by Article 95 par. 12 of L. 2238/1994 are extended to legal entities and joint ventures in which the individual or legal entity which has been sentenced for the tax evasion described in the paragraph above, participates.
  • The crime of tax evasion is also committed when the taxpayer does not present his books and records to the tax inspector or invokes their loss, although he/she had an obligation to safeguard them. The penalty for this kind of tax evasion is at least 3 months imprisonment accompanied by a fine ranging from Drs 1 million to Drs 10 million.
  • Certain administrative measures (i.e. lifting of banking secrecy, non-issuance of tax certificates) relating to large scale tax evasion, are extended to the chairman and the managing director of a corporation (AE) as well as the administrator of limited liability companies (EPE) or partnerships. These measures are not imposed if the taxpayer pays 80% of the tax (plus penalties) due.
  • The non-payment of withholding taxes, VAT, duties is considered a criminal offence if the tax etc. is not paid within 30 days (previously 15) from the due date, provided that the amount of tax not paid is over Drs 100 000 (previously Drs 10 000).
  • The confiscation of goods transported without an accompanying tax record (or with an inaccurate record) is abolished.

ISSUES RELATING TO CAPITAL TAXATION

The Law introduces a new method for determining the taxable value of real estate which is located in areas where the system of the "objective value" does not apply. This method separates the value of the land from the value of any building (construction) on the land.

VAT

The most important changes to the VAT legislation, introduced with the new law are the following:

  • Contract works (third party fees - facon) are defined as a supply of services and this definition applies to intracommunity contract works also.
  • Services relating to movable tangible goods and valuation services carried out in Greece, are not subject to Greek VAT, if the recipient of the service is VAT registered in an EU member-state and the goods in question are not subsequently dispatched abroad. Similarly, where this type of services are carried out in an EU-member state and they are provided to a VAT registered person in Greece, they are subject to Greek VAT if they are subsequently dispatched to Greece.
  • The taxable value of imported goods may include transport expenses from the original destination to a place not only within Greece but also in another EU member-state.
  • With regard to volume discounts these can only be taken into account for VAT purposes (i.e. reducing the output VAT) if the discount percentages are notified to the tax office of the supplier of goods/services at least four months prior to the period in which they are going to take place.
  • This unprecedented provision means that businesses will not only be obliged to disclose in full their commercial/marketing policies but will also have to do so well before the year end. They will also have to do it before they have a chance to determine the volumes sold for the year, which in many cases is the determining factor for the percentage discount to be granted.
  • Expenses incurred by the supplier of goods/services in the name and on behalf of its customers can only be deducted from the Vatable value of the supplies if:

-the corresponding tax records have been issued in the name of the customer (and are passed to him), and
-the supplier has recorded such expenses in a suspense account in its books.

  • The exemption on imports and intra-community acquisitions of goods which are intended to be re-exported outside the EU is restricted to the value of exports carried out in the previous 12-month period (or the previous accounting period if this is a 12-month one).
  • A number of definitions are introduced in connection with the VAT exemption covering the exportation of goods (outside the EU). The definitions refer to concepts such as:

-fitting equipment
-fuelling and provisioning
-travellers not established in the EU
-residence of individual travellers etc.

  • The exemption of the supply of and the importation of airplanes applies on condition that these are to be used by airlines which are mainly involved in international transports (or by the State).
  • The chartering of touristic yachts is now VAT exempt only if they visit ports outside Greece during their voyage.
  • The obligation to file a statement for the discontinuance of business is extended to the persons inheriting a business.
  • There is no obligation to appoint a fiscal representative in the case of intra-Community carriage of goods and for the provision of intermediation services where the supplier of services is established outside the EU and the recipient of the services is VAT registered in the EU.
  • The obligation to file the LISTING return is extended to intra-Community acquisitions (previously applied only to intra-Community supplies).
  • Effective from 1 April 1996, VAT periodic returns must be filed with the competent tax office even if no VAT is payable. As regards periodic VAT returns referring to the period 1 January-31 March 1996 for which no VAT is due or the amount of VAT due is not over Drs 1 000 they can be filed from 1 April to 10 June 1996. The due date for the filing of the periodic returns is set (from the 1st of April) at the 20th of the month in which the return is due. There is no change in the obligation of taxpayers with accounting books of the third category to file monthly returns, or those with books of the second category to file bi-monthly returns or those with books of the first category or without books to file quarterly periodic returns.
  • Under the new law a possibility exists to reduce the penalty imposed when, as a result of the tax audit, it is established that the taxpayer has offset VAT or received a VAT refund by for any reason, including from illegal acts other than transactions involving fictitious, false or falsified records. This possibility applies provided that the dispute is resolved administratively. In this case, the penalty (which is generally equal to 5-times the VAT avoided) is reduced to 1/5 if paid in one lump sum prior to signing the administrative settlement.
  • Taxpayers who do not file a periodic VAT return are subject to additional tax at 300% of the amount of VAT they avoided.
  • Taxpayers filing inaccurate periodic VAT returns are subject to additional tax at 200% of the VAT avoided if the amount of the unpaid VAT is up to Drs 1 million and at 300% if it is over Drs 1 million.
  • Late filing, inaccurate filing or non-filing of the annual VAT return gives rise to fines of Drs 30 000, Drs 100 000, Drs 150 000 respectively.
  • Non-compliance with the provisions of the VAT legislation in general is subject to a penalty for each violation ranging between Drs 20 000 and Drs 400 000 (previously no minimum was stipulated).
  • The non filing of certain VAT returns or the non payment to the State of VAT which has been charged gives rise to the imposition of the criminal and administrative penalties provided by articles 89 to 97 of 2238/1994.
  • A new VAT evasion crime is introduced when a VATable person established outside Greece sells goods in Greece without having a VAT number and without issuing the records provided by the Greek Code of Books and Records.
  • The statute of limitation provided by Article 52 of the VAT Law is reduced from 10 to 5 years and in exceptional cases from 15 to 10 years. However, the statute of limitation for debts to the State which have been assessed pursuant to the VAT Law is set at 10 years after the end of the year during which they became due.

For further information contact Marios T. Kyriacou or Angela Iliadis, KPMG Peat Marwick Kyriacou, Athens, Tel No.: +30 1 6062100; Fax No.: +30 1 6062111 or enter text search "KPMG Peat Marwick Kyriacou" and "Business Monitor".

The comments in this release are intended to bring to the reader only a general awareness of the information dealt with. No action should be taken without first obtaining qualified professional advice specifically related to the factual circumstances of each case.