Greece: Moving towards a tax audit rationalisation?

January 30, 2018

During the past few years, Greek enterprises have been faced with a radical change in the domestic legislative tax framework along with the conduct of rather aggressive tax audits by the Greek Tax Authorities (GTA). Nevertheless, recent developments in relation to the definition of the 'tax evasion crime' and the statutory limitation period for the assessment of taxes by the GTA appear to rationalise the tax audit practices followed to date.

Up until recently, the most common and burdensome consequence of a tax audit was the potential opening of a criminal case before the criminal authorities to investigate the committing of the infamous tax evasion crime (Article 66 of Greek Law 4174/2013 – Tax Procedures Code).

The reason for this was that, under Greek tax law, tax evasion is committed when the taxpayer intentionally avoids the payment of taxes through – among other things – the deduction of expenses deemed non-tax deductible by law (tax adjustments). In cases where the tax not paid, corresponding to said tax adjustments, exceeded the amount of €100,000 ($122,000), the objective condition of the tax evasion crime was considered as being fulfilled; accordingly, it was up to the criminal authorities to investigate further whether the subjective condition of the crime, in other words the intention to commit tax evasion by the taxpayer, also existed.

Given that tax adjustments traditionally constitute a fairly common finding in the course of a tax audit, in conjunction with the fact that the respective tax evasion threshold is rather low when it comes to large enterprises, the majority of Greek enterprises and their management were often faced with criminal sanctions merely for not applying or not correctly interpreting the tax deductibility rules. However, the GTA have very recently issued interpretative guidelines (Circular 1209/2017 of the Public Revenue Authority), explicitly stating that ordinary tax adjustments found in the course of a tax audit unrelated to the concealment of income should not, in principle, qualify as tax evasion and therefore, no criminal procedures should be initiated as a result.

Another issue often dealt with by Greek enterprises is the continuous extension of the five-year statutory limitation period for the assessment of taxes by the GTA, either by virtue of legislative provisions, or on the grounds of tax evasion commitment or due to the existence of new/supplementary data brought to the attention of the GTA. However, recent groundbreaking decisions of the Greek Supreme Court (Council of State (Plenary) Decision 1738/2017):

restored the application of the five-year statutory limitation rule; and
led the GTA to adopt the position (Legal Council of State Opinion 265/2017, adopted by the Independent Authority of Public Revenue by virtue of Circular 1191/2017) that the default statutory limitation period could be extended when new/supplementary data were brought to light. The latter would not include data that had been duly brought before the GTA within the five-year statutory limitation period but which had not been duly and properly evaluated by the GTA, nor the data that the GTA could have obtained within the five-year statutory limitation period.

These developments appear to change the tax audit landscape by adding a degree of legal certainty upon the implementation of tax evasion and statutory limitation provisions by the GTA. It could even be said that the developments mark the beginning of a new tax audit era, focusing on the audit of recent tax years and moving into the uncharted waters of audit, such as the application of the general anti-avoidance rule (GAAR) or even the application of targeted anti-avoidance rules (TAAR), which have not yet been tested to their full extent.