Transferring tax residence has been in the limelight of tax matters for many years in a row for good reason. It is no coincidence that several circulars, decisions by the Directorate for Dispute Resolution and documents by the Council of State are regularly disclosed, aiming to resolve important ambiguities and issues that constantly arise during this process.
Transferring Tax Residence – Key issues
By passing Law 4172/2013 “Income Tax, emergency measures for implementing Law 4046/2012, Law 4093/2012 and Law 4127/2013 and other provisions”, tax residence was defined, both for natural and legal persons, in a single article (Article 4 of the said law), for the first time.
Up to this day, the Tax Administration has provided no detailed instructions for legal persons. Starting from 01/01/2020, tax audits will be mostly performed for fiscal years governed by the provisions of Law 4172/2013. Therefore, we eagerly expect the decisions that the Directorate for Dispute Resolution will reach with regard to cases of fictitious transfer of activity through establishing new companies in neighbouring countries where lower tax rates apply, a practice quite popular during the previous decade.
Following the adoption of Law 4646/2019 “Tax reform to foster growth in future Greece”, the said article is as follows:
1. A natural person is considered to be a Greek tax resident, when:
a) his permanent or primary home or habitual abode or centre of vital interests, i.e. his personal and economic relations, are in Greece, or
b) he is a consular, diplomatic or government official working under similar jurisdiction or a civil servant who is a Greek national and works abroad.
2. Without prejudice to paragraph 1, a natural person staying in Greece for a time period exceeding one hundred eighty three (183) days, in total, during any twelve-month period, is considered to be a Greek tax resident since the first day of his presence in Greece. The previous sub-paragraph does not apply to natural persons staying in Greece solely on tourist, medical, therapeutic or other similar private grounds when their stay does not exceed three hundred sixty-five (365) days, including short intervals abroad.
a) By joint decision of the Minister of Finance and the Governor of the Independent Authority for Public Revenue, the procedure for transferring tax residence of natural persons is defined, including the competent service to which the tax return should be submitted, as well as any other issues or details required to implement the provisions of this article.
3. A legal person or a legal entity is considered to be a Greek tax resident, for any tax year, when:
a) it was incorporated or established under Greek law,
b) its registered office is in Greece, or
c) the place of effective management is located in Greece at any time during a tax year.
4. The “place of effective management” is located in Greece based on actual facts and circumstances, taking into account:
a) the place of exercising the day-to-day management,
b) the place of making strategic decisions,
c) the place where the annual general meeting of shareholders or partners is held,
d) the place where the books and records are kept,
e) the place where the meeting of the members of the BoD or other executive management board takes place,
f) the residence of the members of the BoD or other executive management board.The residence of the majority of the shareholders or partners may also be taken into consideration along with the above facts and circumstances.
At this point, it is worth citing the explanatory report of the Law:
“On Article 1
It is proposed to amend Article 4(1)(a) of the Income Tax Code on criteria to define tax residence in accordance with the order and terminology provided in the OECD Model Tax Convention on Income and on Capital https://www.oecd.org/ctp/model-tax-convention-on-income-and-on-capital-condensed-version-20745419.htm. To this end, “social relations” are deleted, as, according to the Commentary on the afore-mentioned OECD Model Convention, social relations are included in personal relations. Furthermore, the provision on vital interests is rephrased, because to assess actual facts constituting a person’s centre of vital interests, all personal and economic relations to a place, i.e. where the person develops close personal and economic relations, should be also considered (see Council of State 2105/2018, recital 7, Council of State 1445/2016, recital 8).Moreover, following the amendment of paragraph 2, it is defined that a natural person staying in Greece for a time period exceeding one hundred eighty three (183) days, in total, is considered to be a Greek tax resident since the first day of his presence in Greece. This amendment eliminates any references to time spent abroad, to prevent any disputes on when a person is considered a Greek tax resident. The provision of the previous sub-paragraph does not apply to natural persons staying in Greece solely on tourist, medical, therapeutic or other similar private grounds when their stay does not exceed three hundred sixty-five (365) days, including short intervals abroad.”Until Law 4646/2019 was passed, Circ. 1201/2017 (which replaced Circ. 1058/2015 following the Council of State decisions No. 1445/2016 and 1215/2017) was the main circular on the implementation of the respective provisions on transferring the tax residence of natural persons, where the right of transferring the tax residence of one of the spouses was established.
Law 4646/2019 rephrased the part of the Article referring to natural persons. The Tax Administration should provide the respective instructions on the implementation of the provision as in force, since the phrase “one hundred eighty three (183) days, in total, during any twelve-month period” defines the time basis as the actual staying period, which could extend in two different calendar years, and not as the calendar year.
Common pitfalls
Although, required documentation and time limits are clearly defined each time, negative decisions requiring the worldwide income to be declared in Greece are not rare. It should also be noted, that according to Council of State decision No. 2105/2018, the Directorate for Dispute Resolution is not competent to decide on a taxpayer’s request to transfer his tax residence and the respective rejection by the Tax Office Supervisor, as it is not closely and necessary related to a relevant individual tax obligation, but it aims to settle the tax status of the taxpayer submitting the request.
Therefore, persons seeking to transfer their tax residence so that only income arising in Greece is subject to Greek taxation, should get proper guidance by an expert tax consultant, who will assess all possible tax burden.