Tax Law Newsletter. December New draft tax bill

Transcription

1 Tax Law Newsletter December 2012 New draft tax bill

2 New Draft tax bill Introduction On December 13 th, the Greek Government submitted to the Parliament for enactment a draft bill which brings several important amendments to law 2238/1994 (Income Tax Code) and law 2859/2000 (VAT Code). Despite earlier rumors for an overall tax reform, changes are now partial, while further amendments are expected within the first semester of The main new elements, in comparison to the current Income Tax Code, of the draft bill which is expected to be enacted shortly, may be highlighted as follows: A. INCOME TAXATION I. Individual taxation Income tax return The requirement to file an income tax return is now expanded to all individuals over 18 years of age, irrespectively of the amount of taxable income. Income from employment Income acquired by private businesses or entrepreneurs providing services by virtue of a written agreement to up to three (3) employers or to more than three (3) if, in the latter case, 75% of their total turnover derives from one (1) employer, is now considered and taxed as employment income. The new employment income tax scale consists of three brackets with tax rates 22%, 32% and 42%. The highest tax rate shall apply for annual income exceeding 42,000 Euros. A gradually decreasing tax credit (maximum 2,100 Euros) is provided depending on the total taxable income and is not anymore conditional on submission by the taxpayer of receipts from living expenses. 2

3 Tax on rentals Individual income incurred from lease of real estate is subject to taxation at 10% up to 12,000 Euros and at 33% for the rest. Tax credits Tax credits for individual income (e.g. house rentals, insurance premiums, tuition fees, loan interest for first house) have now been dramatically limited, with the exception of a few remaining, such as 10% on medical expenses and donations to the Greek or EU States and various non-profit organizations. II. Corporate taxation Sale and lease back Capital gain from sale and lease back with individuals/legal entities established in noncooperative countries or countries with a preferential tax regime may be tax-free if it is proven that the respective agreements represent real transactions and were not made with the intent of tax evasion or avoidance. Tax deductibility of expenses Detailed rates of depreciation per asset are now replaced by six new rates on categories of assets; goodwill from acquisition of a business is subject to a 10% depreciation rate, as well as multi-year depreciation expenses pursuant to the provisions of the Greek General Charter of Accounts. The right of lump sum depreciation is now provided in respect to fixed assets with acquisition value up to 5,000 Euros (previously 1,200 Euros). Provisions for remuneration of employees due to future retirement are now not tax deductible. Allowances/gifts granted by the company to its employees either in cash or in kind as a reward for their performance are deductible for tax purposes as long as relevant social contributions have been paid in time and they have been taxed as employment income. Expenses related to internet access are deductible by 50%. Expenses related to organization of workshops and meetings for employees and customers outside the prefecture of the company s/branch s seat are now tax deductible up to the amount of 300 Euros per participant. Ministerial decisions already issued specifying allowed and disallowed expenses remain in force as long as the new law does not provide otherwise. 3

4 Arbitrary income assessment The rejection of books (arbitrary calculation of gross income and/or taxable income) has now been limited only to cases where proper accounting books and records are not kept or not furnished at all. In this case the tax authority has the power to determine the gross and the taxable income based on certain parameters in regard to the activity and the operation conditions of the company (e.g. sales and purchases, gross profit margin, invested capitals, loan amounts etc.). Arbitrary income assessment is now disconnected from any violations of the tax legislation. Partnerships and entrepreneurs Income from business activity acquired by entrepreneurs, private businesses and partnerships (OE) or limited partnerships (EE) with single entry accounting books is subject to taxation at 26% for income up to 50,000 Euros and at 33% for the part of income exceeding 50,000 Euros. New private businesses and entrepreneurs (business start-up as from 1/1/2013 and onwards) with income up to 10,000 Euros shall be taxed at 13% for the first 3 years of their operation. Income acquired from private agricultural businesses is taxed at 13%. Such provision shall apply in respect to income acquired as from and onwards. Corporations Corporate tax rate for corporations (AE), limited liability companies (EPE) and permanent establishments is increased to 26% (previously 20%). Dividends and profit distributions by corporations, limited liability companies and permanent establishments are subject to 10% withholding tax which may be used as a tax credit against further tax liability upon upstream distribution. Withholding tax will fall into the provisions of Double Taxation Treaties and the EU Parent Subsidiary Directive. Partnerships (OE), limited partnerships (EE), civil associations and joint ventures keeping double entry accounting books (above 1.5 M annual turnover) are now treated like corporations (AE) and limited liability companies (EPE) in respect to corporate and dividend taxation (26% CIT & 10% w/h on dividends). Taxation of BoD members fees and salaries is increased to 40% (previously 35%). Inbound foreign dividends received by resident individuals are subject to a 10% final withholding tax. Foreign tax credit In case of inbound foreign dividends from EU, not qualifying under the Parent- Subsidiary Directive, foreign tax credit is now limited only in respect to tax paid in first tier subsidiary (previously in any lower tier subsidiary). 4

5 EU Participation exemption The wording is improved to imply that income qualifying under the EU Participation Exemption, kept in a tax-free reserve, is not offset with losses carried forward. Distribution of such tax-free reserve falls within the provisions of the EU Parent Subsidiary Directive. Taxation of income from of capital Investment income (interest) from bank deposits is now taxed at 15% (previously 10%). This provision is effective as from Dec. 1 st, A tax credit is provided in respect to tax withheld on interest from bank deposits in countries with a Double Taxation Treaty. Interest paid by individuals to foreign individuals and legal entities is subject to 20% and 33% withholding tax (not applicable to countries with a Double Tax Treaty) respectively (previously 40%). Interest paid to a foreign company with no permanent establishment in Greece is now subject to a 33% (previously 40%) withholding tax (not applicable to countries with a Double Tax Treaty). Capital gains tax from transfer of real estate (20%) is now introduced in respect to individuals. Capital gains from non-listed shares In regard to sales of non-listed shares, tax on the value of transaction (5%) is replaced by a 20% capital gains tax. Capital gains from listed shares Capital gains realised from sales of listed shares acquired as from and onwards will be subject to a 20% tax (final as regards individuals). Transfer (transaction) tax applicable in case of sale of shares listed on a stock exchange continues to exist. Transactions with tax heavens and preferential tax regimes Sales of goods performed by Greek companies to individuals/legal entities established in non-cooperative countries or countries with preferential tax regimes without physical movement of the goods and a) followed by subsequent sales of the same goods to another Greek company at a higher price or b) at a price lower than the price charged to another Greek or foreign company, will result into a profit adjustment in Greece unless proven that they represent real transactions and that they were not made with the intent of tax evasion or avoidance. 5

6 Group life insurance benefits Group life insurance benefits offered by employers to employees are subject, upon maturity, to a final withholding tax at 10% for amounts up to 40,000 Euros and at 20% for amounts higher than 40,000 Euros, whereas if paid periodically such amounts are subject to a 15% final withholding tax. Such rates double in case of early redemption. Purchase of company s own shares Payments to shareholders from a company for purchase of own redeemable shares is now subject to withholding tax on dividends (previously tax-free). Bad debts by banks 1% of annual average loans granted by bank institutions are now deductible for tax purposes as a bad debt. Transfer Pricing and APAs The concept associated enterprises is now broadened. The audit shall be performed by the Tax Office for Large Enterprises. OECD TP Guidelines must be taken into account. The obligation of Transfer Pricing documentation file is extended to cover intercompany transactions between resident companies. Intercompany transactions with a total annual value up to 100,000 Euros do not fall within the obligation of transfer pricing documentation if the total turnover of the associated companies participating in such transactions does not exceed 5,000,000 Euros. If the total turnover of the associated contracting parties is higher than 5,000,000 Euros, transactions with a total annual value up to 200,000 Euros are exempted. The Transfer Pricing documentation file must be compiled within fifty (50) days as from the end of the previous tax year, while especially for tax year 2012 the file must be drafted by end of March The contents of the TP documentation file for 2012 will be in accordance with existing legislation. A decision of the Minister of Finance which will be issued within one month will stipulate the contents of the TP documentation file for the next years. The documentation file is followed by a summary information table filed electronically within the same above deadline to the General Secretariat of Information Systems of the Ministry of Finance containing minimum information such as the group structure, the functions performed and risks assumed by the contracting parties and the Transfer Pricing method followed. The Transfer Pricing documentation file is now subject to an update obligation in case of change of market conditions. 6

7 All intercompany transactions including loans, share transfers and transfers of real estate property now fall within the Transfer Pricing provisions. Royalty and management fees payments between associated enterprises are now expressly treated within the Transfer Pricing provisions. Payments made to associated companies established in a non-cooperative country or a country with a preferential tax regime shall fall within the Transfer Pricing provisions. In case of late filing of the summary information table or the TP documentation file, a fine ranging from 1,000 to 10,000 Euros applies, whereas non-filing of such incurs a fine ranging from 10,000 to 100,000 Euros. In case of a TP adjustment, regular tax provisions (main tax, plus interest) apply. The regime of article 26 of l. 3728/2008 (Transfer Pricing provisions by Ministry of Development) is now abolished. The procedure for entering into an advance pricing arrangement (APA) with the tax authorities is now introduced. Tax certificate The requirement of tax certificate issued by certified auditors is now extended also to branches of foreign companies. Unless otherwise stated above, the new amendments will apply in respect to tax year 2013 and onwards. B. VAT Commercial leases Leases of real estate property for exercise of business activities, either on an independent basis or under mixed agreements may optionally be subject to VAT (instead of stamp duty), following a relevant application filed by the lessor. The present newsletter contains general information only and is not intended to provide specific professional advice or services. If you need further assistance or information with regard to the above please contact: I.Stavropoulos@stplaw.com V.Michalopoulou@stplaw.com 7