International Tax Planning and Transfer Pricing Planning: Greece from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
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Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The high tax country Greece in the OECD context
    • 2.3 Transfer pricing rules of Greece
      • 2.3.1 Laws and rules
      • 2.3.2 Arm's length principle
      • 2.3.3 Transfer pricing methods
      • 2.3.4 Definition of related companies
      • 2.3.5 Reporting requirements
      • 2.3.6 Documentation requirements
      • 2.3.7 Cost sharing
      • 2.3.8 Interaction between customs valuation and transfer pricing
      • 2.3.9 Dispute resolution
    • 2.4 Calculation of the case studies in international tax planning between Greece and the USA
      • 2.4.1 Design of the tables
      • 2.4.2 The treaty Greece-USA in brief
      • 2.4.3 BEPS Project progress
      • 2.4.4 Greece in brief
      • 2.4.5 The USA in brief
      • 2.4.6 Design of case studies
      • 2.4.7 Case study 1: Dividends from Greece to the US
      • 2.4.8 Case study 2: Interests from Greece to the US
      • 2.4.9 Case study 3: Royalties from Greece to the US
      • 2.4.10 Case study 4: Management and technical service fees from Greece to the US
      • 2.4.11 Case study 5: Capital gains with Greece as asset country to the US as seller country
      • 2.4.12 Case study 6: Dividends from the US to Greece
      • 2.4.13 Case study 7: Interests from the US to Greece
      • 2.4.14 Case study 8: Royalties from the US to Greece
      • 2.4.15 Case study 9: Management and technical service fees from the US to Greece
      • 2.4.16 Case study 10: Capital gains with the US as asset country and Greece as seller country
    • 2.5 Concluding remarks
  • 3 Notes
Abstract tax planning

According to the International Monetary Fund, Greece confirms in 2016 with a gross domestic product (GDP) of US$ 195,878 million the sixteenth-highest GDP of the European Union. In Greece, corporate income tax is levied at the rate of 29.00%. Thus, Greece is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in low taxing countries by means of tax planning measures. Greece has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, Growth has rebounded in the second half of 2016 and is projected to gain strength in 2017 and 2018 as structural reforms start to bear fruit, the conclusion of a policy review with creditors raises business and consumer confidence and the economic and political environment stabilizes. Exports of services are underperforming because of structural rigidities and capital controls (which particularly affect the export revenue from the shipping industry). Employment is projected to increase but unemployment remains far too high. The Guaranteed Minimum Income should help address rising poverty and make growth more inclusive. The implementation of key structural reforms to reduce the regulatory burden and ease regulation in the energy and transport sectors will boost productivity and growth. The high level of non-performing loans undermines credit growth, holding back investment. To deal with this, the authorities should implement already legislated incentives and performance targets for banks to monitor their progress in reducing bad debt. This chapter provides a survey on the actual tax law frame conditions in Greece and practical support in international tax planning and transfer pricing planning between Greece and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing Greece applies the arm’s length principle and follows the OECD Guidelines, the following transfer pricing methods are applicable: the comparable uncontrolled price method, the resale price method, the cost plus method, the transactional net margin method, TNMM, and the transactional profit split method. TNMM and the profit split method may be applied only if the transactional transfer pricing methods cannot be used without proper justification. Companies are regarded as related when a company: either in value or number holds directly or indirectly at least 33% of another company’s shares, participation in equity, profit rights or voting rights; is related to any other company that either in value or number, holds directly or indirectly at least 33% of another company's share, participation in equity, profit rights or voting rights, or is associated with any physical person that has a substantial, directly or indirectly, influence or control on the other company. There are reporting and documentation requirements. Cost sharing is allowed. There is interaction between customs valuation and transfer pricing. There are regulations on advance pricing agreements.

Introduction

International tax planning and transfer pricing planning between Greece, a developed country with high standards of living and high Human Development Index, that is strategically located at the crossroads of Europe, Asia, and Africa, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2016 3rd place of the most populous countries in the world (4.40% of the world population).

According to the International Monetary Fund, [1] Greece confirms in 2016 with a gross domestic product (GDP) of US$ 195,878 million the sixteenth-highest GDP of the European Union. In Greece, corporate income tax is levied at the rate of 29.00%. Thus, Greece is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in low taxing countries by means of tax planning measures. Greece has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD, [2] in Greece growth has rebounded in the second half of 2016 and is projected to gain strength in 2017 and 2018 as structural reforms start to bear fruit, the conclusion of a policy review with creditors raises business and consumer confidence and the economic and political environment stabilizes. Exports of services are underperforming because of structural rigidities and capital controls (which particularly affect the export revenue from the shipping industry). Employment is projected to increase but unemployment remains far too high. The Guaranteed Minimum Income should help address rising poverty and make growth more inclusive. The implementation of key structural reforms to reduce the regulatory burden and ease regulation in the energy and transport sectors will boost productivity and growth. The high level of non-performing loans undermines credit growth, holding back investment. To deal with this, the authorities should implement already legislated incentives and performance targets for banks to monitor their progress in reducing bad debt. The huge public debt undercuts confidence in the Greek economy, a situation that calls for additional debt relief. Even if the ambitious medium-term fiscal targets established in the 2015 agreement with creditors were met, more should be done to make public debt clearly sustainable. The implementation of structural reforms would boost growth and thereby improve debt dynamics. Broadening further the tax base and ensuring that the new independent public revenue agency improves tax compliance and collection would increase revenues.

According to Orbitax, [3] (Daily Tax News Digest of 27 December 2016),

on 22 December 2016, Law 4446/2016 was published in the Greek Official Gazette, which includes a number of tax reform measures for 2017. The main measures are summarized as follows.

Voluntary Disclosure Program:

A new voluntary disclosure program for undeclared income is introduced that will run through 31 May 2017. Under the program, both individual and corporate taxpayers may file an initial or amended return for undeclared amounts that should have been included in returns filed for tax years up to 2015.

Tax is imposed based on the rate applicable in the relevant year plus a penalty tax of 8% to 10% of the tax amount if declared by 31 March 2017, and 10% to 13% of the tax amount if declared by 31 May 2017 (the older the liability, the higher the penalty tax rate). The resulting amount assessed should be paid as a lump sum within 30 days of assessment, although the taxpayer may request payment in installments.

Assessment Appeals Changes:

Changes are made in the tax assessment appeal procedure, including:

  • Appeals will be heard by:

a) The single member Administrative Court of First Instance in cases of assessments up to EUR 60,000;

b) The three-member Administrative Court of First Instance in cases of assessments over EUR 60,000 up to EUR 150,000; and

c) The Court of Appeals in cases of assessments over EUR 150,000; and

d) The amount of tax in dispute that must be paid prior to the appeals process is reduced from 50% to 20%.

Other Main Measures:

  • The capital gains tax suspension on the transfer of real estate is extended to 31 December 2017;
  • A requirement is introduced that all salaries be paid electronically, and if not paid electronically, the salary expense would be disallowed as a deduction;
  • A rule is introduced where the capitalization or distribution of tax-free reserves will trigger a corporate income tax liability, regardless of any tax losses the taxpayer may have for the year;
  • A new provision is introduced concerning the transfer of foreign permanent establishment (PE) losses under which losses from the business activities of a foreign PE can be set off in the same tax year and against future profits, provided the PE is located in an EU/EEA jurisdiction that has a tax treaty with Greece that allows the profits of a PE to be taxed in Greece (applies retroactively from 1 January 2014); and
  • The annual revenue threshold for taxpayers to use cash accounting for value added tax is increased from EUR 500,000 to EUR 2 million; cash accounting is also allowed for taxpayers in their first year of operation.

The measures generally apply from 1 January 2017 unless otherwise indicated.

According to Orbitax, [4]...

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