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IT Related Service Fees Classified as “Business Income”
The Administrative Court of First Instance recently issued a decision, taking a position on the appropriate qualification and tax treatment of IT related fees paid by a Greek enterprise to a foreign IT service provider. Taxand Greece considers this case and the broader impact this outcome may have on royalty payment classification especially in relation to IT services.
The case concerns the cross-border provision of Information and Communication Technology (ICT) services to a Greek enterprise. These services comprise of operations, management, maintenance and technical support services regarding the ICT infrastructure, the system software and the WAN intra-company network connecting the parent company with its subsidiaries, as well as the subsidiaries with each other.
The Court took the position that the payments in question may not be considered as falling within the scope of royalties under the relevant Double Taxation Convention between Greece and the state of tax residence of the foreign-service provider. Therefore, the Court held that these payments should qualify as business income, thus being exempt from withholding tax in Greece.
The Court's decision is of significance given the common practice of Greek tax authorities, who tend to interpret the term "royalties" in a broad manner, thus erroneously considering that certain service fees (e.g. fees for advisory services, IT- related services etc.) are subject to withholding tax in Greece. It is possible to reclaim unlawfully withheld withholding tax. There is a specific procedure in such cases. The possibility for a refund does not itself derive from this decision since it is a decision binding only for the related parties.
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