Greece has stepped up efforts to expand its tax base, including moves towards capturing tax evasion. This effort involves controlling and combating tax evasion in different areas such as the VAT (G.S.T), income tax and other tax. Furthermore, Greek authorities are also investigating proof of residence in order to avoid tax evasion in ways related to “false” and “misleading declaration” of tax residence.
Greek law requires individuals who declare they are permanent tax residents abroad, and pay tax in Greece only for their income deriving from Greece, to prove -through specific documents- to Greek authorities that they are residents abroad and not residents of Greece. This results in their being taxed in Greece only on their Greek income and not for their worldwide income. It is obvious that law relates to and affects residents abroad who retain interests in Greece, including Greeks who live in countries like USA, Australia, Canada, Germany etc. According Ministry officials, the law is being broadly interpreted, thus including everyone who has a Greek tax record number and generally some kind of economic interest in Greece.
The Law
An amendment of the Greek Income Tax Code in 2011 was supplemented by Ministerial Decrees, later in 2012. This change directly affects foreign residents of Greek origin, as the law states that foreign residents whose permanent tax residency is abroad, should prove on their own initiative that their tax domicile is indeed abroad. From a legal point of view, the burden of proof is passed on from the Greek state to the taxpayer. This includes foreign residents of Greek origin who have economic interests in Greece (such as property acquired through inheritance or purchases). Statistical studies show that a large number of foreign residents of Greek origin maintain interests in Greece, the majority of them being property rights. Law 3943/2011, covers not only those who now declare the change of their residence due to relocation abroad, but also, those who have already declared that they reside abroad. In particular, article 61, par 7 and 8 of the Income Tax Code as amended by article 12, par 5 of 3943 law states that:
“A person who declares that he or she is subject to tax only on the Greek sourced income, should submit to the Greek competent Tax Office of residents abroad the documentation to prove it, according to a Ministerial Decree. If the documentation is not submitted or submitted late, the individual is considered to be domiciled in Greece and is subjected to tax in Greece for his or her worldwide income”.
The ministerial Decree 1145 (2012) sets out the necessary documentation, which proves the residence abroad. These documents include tax returns or certificate from a public authority of the domicile country (tax authority, municipality, etc.) from which the person derives his or her global income, proving the permanent home of the taxpayer. These documents may include the taxpayer’s family members (spouse, children) in order to prove the strong bond with the person’s domicile country.
Brief international law overview
Such laws are not unknown in tax systems of various nations around the world. Experts in international law acknowledge that there are states which seek, through tax laws, the repeated certification of tax residence. On the other hand, countries are vigilant against individuals who declare that they have transferred their tax residence to another state, aiming to capture individuals who did not in fact transfer their actual residence to another state and are still residents of the former.
In Europe, Switzerland provides a well-known example, such relocations often leading to disagreements between the individuals and the state of their original residence. In other cases, such as Monaco, authorities confirm the residence of the individual via different methods. Experts of European law also note the intention of French nationals to emigrate to nearby Belgium, even to towns which lie a few kilometres from the border, in order to avoid possible French taxation of 75 per cent. However, a few days ago, Le Conseil Constitutionnel de la Republique Francaise issued a ruling disapproving this practice.
It is obvious that in the above examples from the international tax world, two issues are of paramount importance; the first and of major importance being the confirmation of the tax residency and; the second concerns proving relocation. Both of these are covered in the new Greek tax law. In essence then, the foreign residents of Greek origin who declare that they live abroad, now have to prove it by submitting certain documents.
The issue
This is an extremely serious issue since not submitting the relevant documents is not punishable only in terms of imposing a fine. The law is very strict and it incurs an onerous penalty, that is, the Greek tax authorities will treat the foreign residents as Greek tax residents and will tax them on their worldwide income, i.e. including also the income that derives from their domicile country. For example, if foreign residents of Greek origin who live and work in Sydney or New York or Buenos Aires, do not comply with the legal provisions in order to prove the residence abroad, the Greek tax authorities will consider them as Greek tax residents and will tax them on their worldwide income. Hence, any income they declare in Australia or USA or Argentina, as well as income from any other country of the world will be taxable in Greece. Conclusively, not submitting the necessary documentation directly affects the relationship between the foreign resident of Greek origin and the Greek state. Eventually create serious problems for an individual. For example, it could lead to the enforcement of legal measures such as seizures of property, since the Greek property of foreign residents is known and accessible to Greek tax authority. As far as the second issue -that of relocation-is concerned, the Greek tax authority does not accept in advance the residence transfer by former residents of Greece, despite the fact that there is a real and actual relocation. It should be noted that the Greek state does not accept at all the transfer of residence to certain countries. In the case of countries for which Greek tax authority does not deny transfer of tax residence, it implements a complex series of criteria related to the estate, the income of the former residents and tax rates of the new countries, in order to make final decision on the relocation from a legal point of view. All documentary proof must be submitted by the end of February 2013.
* G. Dimaras & Associates can assist foreign residents with proof of tax residency for the Greek tax authority. Please contact the office in Greece on 0011 302107292373 or email gdimaras@otenet.gr. Alternatively, please contact colleagues in Australia Mr James Jordan at Jordan Djundja Lawyers in Sydney on (02) 9553.9166 orjj@jordandjundja.com.au