Hellenic Business Council in Bulgaria Recent Tax Reform in Greece: impact on cross border business 13 April 2010

Transcription

1 Hellenic Business Council in Bulgaria Recent Tax Reform in Greece: impact on cross border business 13 April 2010 Irina Tsvetkova, Country Managing Partner, Bulgaria Vassilios Vizas, Tax Partner, Greece Orlin Hadjiiski, Senior Tax Manager, Bulgaria

2 Agenda Introduction Overview of Greek tax reform key changes Changes in corporate taxation taxation of dividends Other changes in corporate taxation Individual taxation issues

3 at a glance Global - more than 163,000 people - offices in 151 countries Bulgaria Present in Bulgaria since full-time professionals Service lines - assurance - tax - advisory services - legal services (rendered by the connected law firm Tsvetkova, Bebov & Partners) Greece Present in Greece since 1961, comprising of 3 entities with premises in Athens, Piraeus and Thessaloniki 800 full-time professionals Service lines assurance tax advisory services legal services Client portfolio consisting of leading Greek, Bulgarian and multinational businesses

4 Introduction Greece Bulgaria: Key tax facts Greece CIT max Rate: 40% VAT Rate: 21% Individual tax max rate: 45% Dividend WHT: 0% Bulgaria CIT max Rate: 10% VAT Rate: 20% Individual tax max rate: 10% Dividend WHT: 5% / 0% if payable to EU/EEA companies Slide 4

5 Overview of Greek tax reform key changes New system for corporate taxation in Greece The Greek tax reform how we got here Greek taxation system has become a top political agenda issue in Greece the last few months The much expected tax bill has been in discussion since late December first draft issued early March Many changes since first draft subject to fierce criticism and controversies A revolution to change Greece George Papandreou, Prime Minister Changes are taking the country back 20 years Technical Chamber of Greece Slide 5

6 Overview of Greek tax reform key changes Key aspects of the tax reform Heavy increases in taxation Individual tax scale from 40% to 45% CIT rate to 40% on distributable profits VAT rate to 21% from 19% Annual real estate tax from 0,1% to max. 2%! Abolition of a number of special preferential treatments: widening the taxable base Introduction of significant measures against tax heavens Introduction of measures to counter tax evasion Slide 6

7 Overview of Greek tax reform key changes But some changes never came Main areas of disappointment of business community Increase in taxation Lack of structural changes (e.g. new tax codes, relaxation of conditions on deductibility, rationalization of tax audits) Deferral of abolition of the Code of Books and Records Increased taxation for executives (up to 90% for banking bonuses!!) Lack of significant incentives for business development Non-introduction of group taxation, full exemption on intra-group dividends Non-introduction of participation exemption system Slide 7

8 Changes in corporate taxation taxation of dividends New system for corporate taxation in Greece Radical changes in Greek corporate taxation system Differentiation between distributed and undistributed profits Undistributed profits are taxed at the following rates: 24% for % for % for % for % for 2014 Distributed profits are taxed at a rate of 40%, with a credit granted for tax previously paid on such profits Slide 8

9 Changes in corporate taxation taxation of dividends New system for corporate taxation in Greece Radical changes in Greek corporate taxation system The new system is complex and may give rise to considerable issues such as: What is the message on CIT rate in Greece? 20% or 40%. The latter may be viewed as a non-competitive tax rate Compatibility of an increased rate for distributed profits with Parent Subsidiary Directive Compatibility of taxation of previous year retained earnings upon distribution thereof with Greek constitution Slide 9

10 Changes in corporate taxation taxation of dividends Some illustrations of changes under the new rules For a Greek individual participating in a Bulgarian EAD company, the effective tax rate increases from 23,5% to 50,5%, as the new rules include foreign dividends in the individual tax scale with no credit for foreign underlying corporate tax. Example based on profits of EAD of 100, fully distributed. Greek individual Dividend of 90 Bulgaria EAD Profits of 100 Slide 10

11 Changes in corporate taxation taxation of dividends Some illustrations of changes under the new rules For a Bulgarian individual participating in a Greek SA company, the effective tax rate increases from 31,6% to 43%. Example based on profits of the Greek SA of 100, fully distributed. Bulgarian individual Dividend of 76 Greek SA Profits of 100 Slide 11

12 Changes in corporate taxation taxation of dividends Some illustrations of changes under the new rules For a Greek company participating in a Bulgarian company, the effective tax rate increases but only if the Greek SA distributes profits. Effective tax rate will depend on the level of distributable profits Greek SA Dividend of 90 Bulgarian EAD Profits of 100 Slide 12

13 Changes in corporate taxation taxation of dividends A potential issue: cash repatriation from a Bulgarian subsidiary to a Greek parent Needs a careful evaluation of pros and cons Dividends result to additional tax in Greece (from 14% - 30%) Upstream loan could end up with no interest deduction in Greece (double taxation) Service fees result to higher taxation in Greece Equity injection by the Bulgarian subsidiary into a new entity and extension of a loan to the Greek parent Merger of Greek parent company into the Bulgarian subsidiary, resulting in a PE left in Greece (or vice-versa) Slide 13

14 Changes in corporate taxation taxation of dividends Value chain transformation; a case for shift to low tax jurisdiction? Difference between Greek Bulgarian ratio may affect value chain Target: shifting profits from Greece to Bulgaria Issues to consider: Exit taxes in Greece: there is no explicit provision on exit tax Capital gains on transfer of business? Transfer pricing considerations Cross border merger possibilities Future distribution of dividends from Bulgaria to Greece triggers Greek tax Slide 14

15 Changes in corporate taxation taxation of dividends Possible tax planning regarding Greek businesses in Bulgaria Relocation of Greek companies to Bulgaria Bulgarian profits would not be subject to Greek taxation if: - Greek Parent Co merges into BG Sub by leaving a permanent establishment (e.g. Branch office) in Greece; - Greek tax implications of cross-border merger need careful analysis Following the merger there would be: - No Greek taxation of the profits of BG Sub; - No Bulgarian taxation of the profits of the Greek PE (exemption method under the tax treaty between Bulgaria and Greece); - 40% Greek taxation on profits of the PE if transferred to BG Sub (24% if not transferred) PE BG Sub GR BG Slide 15

16 Other changes in corporate taxation Anti-tax heaven measures: is Bulgaria a tax heaven? New rules to tackle tax evasion Two new categories of jurisdictions: Non-cooperative jurisdiction (follows OECD principles) Low tax jurisdictions: this captures even EU countries, with an effective tax rate <50% of Greek tax. For transactions with companies in such jurisdictions: Substance and arm s length prices tests will be very strict, even between unrelated parties Interest charged by such company will not be deductible Compatibility of such strict provisions with EU law is questionable Slide 16

17 Individual taxation issues Individual taxation issues Increase of taxable profits for individuals Maximum rate set at 45% for 40% Effectively taxation is increased for taxable income >30k Euro Increased taxation on real estate properties (up to % increase!) Dividends are now included in taxable basis, taxed at 45% maximum Credit is provided for corporate tax, but only for Greek company dividends! Thus profits distributed by a Bulgarian company to a Greek individual could be subject to an ETR of 50,5 this could provide basis for challenge under EU law!! Slide 17

18 Individual taxation issues Impact on Greek expatriates in Bulgaria Increased tax scale applies even to expatriates if they remain Greek residents Question whether they would be liable to tax on benefits such as car leasing 90% taxation on banking bonus not applicable to non-greek banks Stock options taxable depending on price on exercise date Crucial is the test for change in residence: Greek resident should demonstrate intention to permanent settle in Bulgaria, in order to become Bulgarian tax resident Slide 18

19 Individual taxation issues Impact on Greek expatriates in Bulgaria Shifting the tax residence to Bulgaria Greek expatriates may become Bulgarian tax residents if: They have a permanent home in Bulgaria and don t have a permanent home in Greece; Their centre of vital interests is in Bulgaria in case they have permanent homes both in Bulgaria and Greece; They habitually abide in Bulgaria in case their centre of vital interests cannot be determined. Slide 19

20 Thank you!!! Irina Tsvetkova Country Managing Partner, PwC Bulgaria Tel: Vassilios Vizas Tax Partner, PwC Greece vassilios.vizas@gr.pwc.com Tel: Orlin Hadjiiski Senior Tax Manager, PwC Bulgaria orlin.hadjiiski@bg.pwc.com Tel: All rights reserved. refers to the network of member firms of International Limited, each of which is a separate and independent legal entity.