1. Working from Greece during the pandemic
The tax residence of natural and legal persons is not changed by the mere fact of being unable to move due to COVID-19. In particular, the Independent Authority for Public Revenue (IAPR) has issued additional clarifications regarding tax residence of natural persons and legal entities in the context of travel restrictions, worldwide. A stay of a natural person, a foreign tax resident, in Greece for the period from 9 November 2020 until 14 May 2021 is not taken into account when determining the tax residence of the natural person, since during this period the measures, imposed domestically, prohibited total or partial movement and, thus, traveling was entirely restricted. Similarly, during the above period, the stay in Greece of persons exercising legal entities management is not taken into account when examining the place of exercise of actual management to determine the tax residence of the legal entity, provided that this stay is exclusively due to COVID-19 related restrictions. It should be noted that in the previous circular, the tax authority excluded the period from March 18 to June 15, 2020, as the first period of objective incapacity for movement. In any case, as far as the period from June 15, 2020 to November 9, 2020 is concerned, the issue will be considered on a case-by-case basis (E 2130/2021).
The guidelines, regulating teleworking from Greece for a foreign employer (home-office) remain insufficient. Tax authorities clarify that in case a natural person - who normally lives and works abroad – is staying in Greece during the above period because of the measures, imposed to prevent the spread of COVID-19, and teleworking constitutes an exemption, then, clearly, the argument that he/she acquires a tax residence in Greece cannot be supported entirely for the aforementioned reason. The explanation put forward is that this temporary situation cannot change his/her usual tax residence, that is, the established routine of life. Similarly, in this case, it cannot be considered that the foreign employer acquires a permanent establishment in Greece only based on the above. Exceptional provision of teleworking from Greece results mainly from the fact that this is not a requirement of the foreign employer while the relevant infrastructure (office, workplace) is still available to the employee on the part of the employer abroad, even if the infrastructure is not used as such. However, even if the taxation of the natural person remains the same, Greece has - in principle - the right to impose a tax on the salary obtained by the foreign tax resident, provided that he/she works from Greece and stays there for a period exceeding six months. The tax authorities have yet to clarify whether they assume that this right to tax is effective - or not - due to the exceptional circumstances imposed by COVID-19. Moreover, it appears that based on its latest guidelines (January 2021), the OECD has identified the problem, urging the states to find mutually beneficial solutions, without, however, providing specific guidelines.
2. New VAT rules in e-commerce
The new VAT rules for cross-border e-commerce activities from business to the final consumer - not subject to tax (B2C) are effective from 1 July 2021. In particular, the existing threshold, established by the respective country (35,000 or 100,000 euros) for intra-Community distance sales is abolished, Previously, if exceeded, the companies had to pay VAT to the consumer Member State. The new provisions now set a new limit of € 10,000 referring to the entire EU, below which intra-Community distance selling of goods can continue to be subject to VAT in the Member State, where the company is established. If companies exceed this threshold, they will be able to pay the tax due in the other Member States through the one-stop-shop (OSS).
Through OSS, companies, involved in intra-Community distance sales, will no longer need to be registered in the other Member State but will be able to have VAT TIN in one Member State. OSS is an electronic system that is essentially an extension of the small one-stop-shop (MOSS). It is to be noted that MOSS is already successfully used for the VAT return due for telecommunications, broadcasting and electronic services provided. The use of OSS is expected to greatly facilitate online sales, thus contributing to broadening the EU single market, while, consequently, reducing the administrative burdens borne by traders arising from registering in the other Member States. The new provisions of the VAT Directive entered into force on 1 July 2021.
Hellenic Corporate Governance Code
3. Towards a new global tax system?
On July 1, 2021, a total of approximately 130 jurisdictions acceded to the OECD/G20 Two Pillar Agreement on addressing the digital economy tax challenges. This is a new global tax architecture involving countries that represent over 90% of world GDP, including Greece. In particular, the Agreement introduces new international tax rules aimed at managing the challenges of the globalized digital economy and practices that allow large multinationals to transfer their profits to low-tax jurisdictions. It is pointed out that the adverse economic effects of the pandemic have made the significance of addressing these issues even more urgent than initially anticipated, due to the overcoming need faced by the states to ensure collection of actual taxes arising from the operations, developed by the entities in the context of the new digital age. The new regulations are expected to be finalized in October 2021, signed in 2022 and enter into force in 2023.
Two Pillar Agreement on Stability to the International Tax System, coordinated by the OECD. The first Pillar includes fairer and more effective regulations, delimiting taxation rights per country over the profits of big-scale multinational corporations operating within the international digital economy. It is pointed out that for the first time the right to taxation in the state of purchase or otherwise use (market/user jurisdiction) is introduced, in case a company is significantly active in it and makes profits through its digital presence, in addition to traditional sales, and notwithstanding whether or not the company has an establishment in the country. On the other hand, the second pillar focuses on imposing a minimum global corporate tax rate of at least 15% to protect the countries' tax base and address the phenomenon of shifting profits to low-tax jurisdictions. Greece is making every effort to improve the competitiveness of the Greek tax system and economy under the Agreement, while the Greek shipping companies, which will continue to enjoy favorable tax benefits in our country, are expected to remain out of the scope of the Agreement.
4. Risks in VAT refund cases
Tax authorities often examine the existence of a permanent establishment in Greece for VAT purposes during VAT refund requests review, in particular, in the context of Groups with an international presence. Foreign companies, requesting VAT refunds in Greece, are inspected, in compliance with the legislation, as to whether they maintain a permanent establishment in the country since, in this case, they are not entitled to the refund. Moreover, should it be identified that they do have a permanent establishment, VAT is generally charged in Greece. According to the case-law of the Court of Justice of the European Union and the Council of State (CoS), permanent establishment for VAT purposes is effective when the foreign company has, permanently, even through an affiliated company or permanent trading partner or subcontractor, the necessary organizational and material infrastructure and the human and technical resources to provide its services in the country. Moreover, the same issue can be considered effective, under certain conditions, if the affiliated Greek company provides support or auxiliary services in Greece. It means that based on the structure of the Group's operations, tax inspection can consider that one of the foreign companies operates in Greece through a permanent and adequate infrastructure. These general criteria, defining the existence or not of a permanent establishment for VAT purposes are confused with the prerequisites defining the existence of a permanent establishment for income tax purposes. However, the Council of State has clarified that the way, in which the treaties for the avoidance of double taxation defined the permanent establishment is irrelevant. (CoS 501/2020, CoS 1062/2019, CoS 167/2018 etc.).
The recent judgment of the Court of Justice of the European Union (C-931/19) confirmed that to be considered as a permanent establishment for VAT purposes even a small number of headcount should be employed in another country. Employment of staff in the country, where the existence or not of a permanent establishment is examined for VAT purposes, is necessary so that it could be considered as having the organizational and material infrastructure that allows the company to provide its services in that country, even if the nature of its business operation’s does not require a significant presence of human resources. This condition, however, can also be met if key business decisions are outsourced to third parties operating in that country and acting independently. This decision is of particular significance as it is added to the existing case law and goes on to further specify the general criteria that have been set.
