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Significant restrictions on the tax deductibility of expenses
Following a new rule entered into force on 21 March 2015, Taxand Greece explores the tax deductibility of expenses incurred by Greek enterprises.
The new provision (i) introduces a restriction on the tax deductibility of an extensive scope of payments (ii) imposes a preliminary obligation to pay 26% tax on the value of such payments under certain circumstances and (iii) shifts the burden of proof to the taxpayer, in relation to the substance of relevant transactions.
The new provision applies in relation to payments made to:
- Entities established in non-cooperative jurisdictions
- Entities established in preferential tax regimes
- Associated enterprises, in the event that the Greek paying enterprise has not complied with applicable transfer pricing documentation requirements in relation to the specific transaction.
- Entities that do not have the appropriate resources, either at their premises or at the level of the group, in order to perform similar type of transactions.
The level of compatibility of the new rule with EU legislation and international tax treaties is highly questionable. This has also been commented upon by the Scientific Committee of the Greek Parliament. Furthermore, a number of questions arise in relation to the practical implementation of the rule and its interaction with other provisions of the Greek Income Tax Code.
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It is anticipated that the Greek Ministry of Finance will soon provide detailed guidelines for the implementation of the new rule and may potentially refine its scope of application, taking also into consideration the comments of the Scientific
Committee and the significant market reactions.