Greece enacts changes in transfer pricing penalties and issues guidance on transfer pricing documentation and audit issues

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1 27 October 2015 Global Tax Alert News from Transfer Pricing EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: Services/Tax/International- Tax/Tax-alert-library#date Greece enacts changes in transfer pricing penalties and issues guidance on transfer pricing documentation and audit issues Executive summary On 17 October 2015, Greece enacted changes to the applicable transfer pricing (TP) documentation rules based on Law 4337/ and guidance issued by the Ministry of Finance regarding documentation and audit of transfer pricing issues. Such changes relate to: Penalties for failure to comply with filing obligations related to the Summary Information Table and the TP Documentation File Acceptable databases sanctioned for the performance of annual benchmarking studies Clarifications regarding the penalty of par 7 article 39 of Law 2238/1994 and applicable audit framework for fiscal years for which the deadline to file a corporate income tax return expired for the period from 1 January 2011 through 31 December 2011 Detailed discussion Amendments to penalties applicable to the filing of Summary Information Tables submission and TP Documentation Based on the new Law 4337/ , the following changes are introduced to the penalties imposed in case of non-compliance with TP obligations (amendment of article 56 of Law 4174/2013):

2 Penalties for late filing of the Summary Information Table will be calculated at 0.1% on the value of the transactions subject to documentation requirements with a minimum penalty of 500 and a maximum penalty of 2,000. Penalties for an inaccurate filing of the Summary Information Table will be calculated at 0.1% on the value of the amounts to which the inaccuracy relates with a minimum penalty of 500 and a maximum penalty of 2,000, unless the inaccuracy of the amounts does not exceed 10% of the value of the total transactions subject to documentation (in such case no penalty applies). Penalties for non-filing of the Summary Information Table will be calculated at 0.1% on the value of the transactions subject to documentation requirements with a minimum penalty of 2,500 and a maximum penalty of 10,000. In the case of filing an amended Summary Information Table, a penalty applies only to the extent that the amounts are amended and such amendments exceed the amount of 200,000. In the case that the amended amounts exceed 200,000, then the penalty is calculated at 0.1% on the value of the transactions subject to documentation requirements with a minimum penalty of 500 and a maximum penalty of 2,000. In the case of failure to provide the tax authorities with TP Documentation within 30 days from the official request, a penalty of 5,000 applies, which is increased to 10,000 if TP Documentation is provided after 60 days, and to 20,000 if it is provided after 90 days or it is not provided at all. Based on the new Law, no penalty appears to explicitly apply anymore for the filing of an incomplete or insufficient TP Documentation File. However, in such cases, the penalties for not providing the TP Documentation File are likely to be applicable. Based on the new provisions, the penalties applicable to cases of non-compliance with TP filing obligations are reduced. However, it appears that based on the above provisions there may be cases when no penalty applies in the case of an inaccurate Summary Information Table whereas a penalty may apply in the case that the taxpayer proceeds to correct the inaccuracy through an amending Summary Information Table. Thus, prior to any corrective actions with respect to the Summary Information Table, the respective implications should be carefully examined as compared to the implications of inaccuracy of the Summary Information Table. The above changes appear to be applicable for penalties imposed from 12 October 2015 (date of submission of the draft law in the Greek Parliament) and relate to years started after 1 January 2014 (as the amended Law 4174/2013 provisions apply for fiscal years starting after 1 January 2014). However, it is important to note the ambiguity created by the fact that Law 4337/2015 also has another reference that may be interpreted such that the amendments are applicable from 1 December 2015 (the latter is likely a wrong reference to provisions, but this needs to be confirmed by the Ministry of Finance). Guidance on performance of benchmarking studies Circular 1142/2 October 2015 introduced changes to the previously issued guidance regarding the databases allowed to be used for the performance of benchmarking studies for years started or starting from 1 January 2014 forwards. Specifically, under the new guidance, a taxpayer may perform the benchmarking study for a fiscal year based on the available database versions during the period of the two months prior the end of such fiscal year and up to the expiration deadline for filing the Summary Information Table for such fiscal year (i.e., for entities with a year end as of 31 December 2015, practically this means that the taxpayers may use only database versions available during the period November 2015 to April 2016). In addition, it was clarified that assuming the conditions of operations remain unchanged, any benchmarking study may be used for the documentation of transactions in the next two years with the update of the financial data of the comparable entities. The specific clarification was required because of the unclear wording in the previous guidance for the use of updated benchmarking studies; 2 Global Tax Alert Transfer pricing

3 however, the new wording creates a new ambiguity, i.e., whether taxpayers should also ensure that upon the update of the benchmarking study apart from the availability of financial data, the comparable entities also should continue to meet the remaining screening criteria. TP audit framework for years with a corporate income tax return filing deadline from 1 January 2011 to 31 December 2011 The Ministry of Finance with the Document ΔΕΛΔ ΕΞ2015 clarified that: For the fiscal years ended as of 31 August 2010 through 31 December 2011 in the case of TP adjustments, the penalty of article 39 (par 7) of Law 2238/1994 calculated as 20% on the value of the TP adjustment applies irrespective of whether the result is a taxable profit or tax loss. For fiscal years ended as of 31 August 2010 up through 31 July 2011 (years for which the income tax return filing deadline expired from 1 January 2011 to 31 December 2011) only the TP audit framework under provisions of par 17 of art 11 of Law 4110/2013 applies. In practice, with the said clarification, the Department of Cost Accounting and Market Research of the General Secretariat of Consumers will not have access to the TP Documentation Files for such years, whereas in the case that the TP Documentation Files are not submitted to the tax authorities following a subsequent request, a penalty of only 20% on the value of transactions applies. (Previously, there was the ambiguity whether in addition to the above penalty another penalty calculated at 10% of the value of the transactions was also applicable under Law 3728/2008.) Global Tax Alert Transfer pricing 3

4 For additional information with respect to this Alert, please contact the following: Ernst & Young Business Advisory Solutions SA, Athens Stefanos Mitsios Spyros Kaminaris Christos Kourouniotis Global Tax Alert Transfer pricing

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