On 24 April 2019, Greece published Law 4607/2019 in the Official Journal containing measures to implement certain aspects of the EU’s Tax Avoidance Directive (ATAD). This includes the replacement of existing rules to bring them in line with ATAD. The ΑΤΑD provides for harmonized action against corporate tax avoidance practices across the European Union in line with the conclusions of the OECD BEPS.
The law amends existing domestic tax regulations by implementing the following ATAD provisions:
The interest deduction limitation rules
The Law 4607/2019, including that the deduction of net interest expense (borrowing costs) is limited to 30% of EBITDA. The 30% limitation does not apply to exceeding borrowing costs up to the amount of Euro 3M. Taxpayers are entitled to carry forward indefinitely, exceeding borrowing costs above the 30% limitation. The new rule excludes several types of financial undertakings such as credit institutions, insurance companies, and specific institutions for occupational retirement. In addition the new law does not include the ATAD rules exempting stand-alone companies or the group ratio rules because Greece does not allow for group tax consolidation.
CFC rules
The controlled foreign company (CFC) rules, including that a foreign entity or permanent establishment (PE) will be considered a CFC, and its non-distributed passive income included in the taxable income of a Greek taxpayer if the following conditions are met:
- The Greek shareholder by itself, or together with its associated enterprises (in which it holds 25 percent ownership) holds directly or indirectly more than 50% rights in the capital of the CFC;
- the actual corporate tax paid by the CFC is less than 50 percent of what would be payable in Greece; and
- 30% or more of the income before taxes accruing to the CFC falls within the specified passive income sources including dividends, interest, royalties, etc.
CFC rules do not apply to companies or permanent establishments resident in EU/EEA Member States provided that such entities carry on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances. In such case, the tax authorities bear the burden to prove the absence of a substantive economic activity.
GAAR rule
The general anti-abuse rule (GAAR), including that an arrangement or a series of arrangements may be disregarded if they have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the tax law, and not for valid commercial reasons that reflect economic reality. The revised rule adopts the main purpose test in place of the essential purpose test under the previous tax law; thus it is not triggered by genuine tax-efficient structures.
A decision by the Governor of the Independent Public Revenue Authority determines the implementation of the GAAR and all other relevant matters. In interpreting the rule, the case law of the Court of Justice of the European Union is used by the tax authorities as a means of interpretation.
The new ATAD rules apply to tax years beginning on or after 1 January 2019.
