Emigration Tax Consequences in Greece
| Author | Vera Georgaki |
| Pages | 1-17 |
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Ver Nota1
The newly-adopted Law n. 3943/2011 (Official Government Gazette issue n. 66/31.03.2011)2 has brought about significant changes in the national income taxation system (Income Taxation Code L. 2238/1994, hereinafter Code), as to the notion of "fiscal resident"3, as well as the tax consequences in case of transfer of domicile or habitual residence abroad. According to its heading " Fighting fraud, staffing audit and other provisions concerning the Ministry of Finance ", and its explanatory memorandum as well, especially with regard to the article 12 as being illustrated below, it is obvious that the Greek legislator aims at establishing a more efficient legal framework in order to combat "the systematic tax avoidance that has been developed mainly the last years". Moreover, in the first part headed "General presentation" of the memorandum (A.II) is mentioned that ".. At international level, the phenomenon of tax evasion is being developed by opting to be subject to taxation of countries or jurisdictions with no or particularly low taxation for the natural or legal persons or legal entities of any kind and description..". Notwithstanding the anti-abuse objectives of these new provisions, it must be pointed out that according to consistent case law of the Court of Justice, despite the field of direct taxation being outside the competences of Community legislative organs, the Member
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States have to comply with the imperative principles of Community Law4 concerning the preclusion of national provisions, restrictive of the fundamental general freedom of movement of persons and its specific manifestations of freedom of movement of workers and freedom of establishment, as well as the freedom of movement of capital, enshrined in articles 21, 45, 49 and 63 TFEU5 respectively. The same freedoms are, also, provided for by the respective horizontal provisions of the European Economic Area Agreement, in articles 28, 31 and 40.
The article 12 par. 6 of the abovementioned new Act of Law, embodied in article 76 par. 5 of the Code, provides as follows: "If a person liable to tax return transfers his domicile or habitual residence to a state included in the catalogue of the states contained in the paragraph 4 of the article 51A, he is considered as having his domicile in Greece and is subject to tax for his worldwi de income pursuant to the first intent of the paragraph 1 of article 26". Art . 51 A par. 4 provides: "Non-cooperative7 are those states that are not member states of the European Union, their situation with regard to transparency and information exchange on tax matters has been examined by the Organisation for Economic Cooperation and Development (OECD), and which: a) have not concluded a convention of administrative assistance on the field of taxation and b) have not concluded such convention of administrat ive assistance with other 12 states at least. The above conditions must be met jointly".
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The provisions at issue could be considered under any potential infringement of the Treaty freedom of movement of capital and payments (the sole applicable principle) to or from third countries as guaranteed by article 63 of TFEU, should the disputed transfer of residence fall within its scope of application. Indeed, in accordance with the Council Directive 88/361/EEC8 which is applicable in this case, based on the indicative nomenclature of capital movements annexed to the aforementioned directive9, especially on the previsions contained in paragraph headed "XI. Personal Capital Movements... F. Transfers of assets constituted by residents, in the event of emigration, at the time of their installation or during their period of stay abroad ", in conjunction with the prior provision in the text of the Directive according to which "The capital movements listed in this Nomenclature are taken to cover ... some capital movements are ca rried out by a single person for his own account (e.g. transfers of assets belonging to emigrants)..", the movement of residence might entail, inter alia, capital movements, for instance transfer of movable or financial assets, bank accounts or any kind of payment means10. In this context, therefore, on the basis, moreover, of the overriding public policy reasons consisting in fighting evasion, workability of tax authorities and effectiveness of fiscal supervision11 pursued by the Law in question, as referred to explicitly and in detail in the preamble of the above explanatory memorandum, there should be asked whether the above restrictive measures satisfy the ECJ's proportionality test, i.e. whether the same result could not be attained by less restrictive measures12, in spite of the express Treaty derogations laid down in article 65 par. 1 thereof.
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It should be observed from the outset that the consistent ECJ case law in respect of restrictions in exercising the rights to free movement within the territory of the Union, cannot be applicable to capital movements between MSs and third countries13, let alone non-cooperative third countries; the latter are not part of the economic, financial and legal framework of the Union, as well as the lack of a binding guarantee of reciprocity in this field of capital movement should be stressed14. The Commission at this regard has argued that ".. an immediate collection of tax at the moment of transfer of such assets constitutes a restriction on the free movement of capital ... However ... a lack of administrative cooperation may justify a restriction in these circumstances .."15. Furthermore, according to the article 65 par. 1 of TFEU, member states have the entitlement to distinguish between ".. taxpayers who are not in the same situation with regard to their place of residence .. (are entitled) to take all the requisite measures to prevent infringements of national law .. in particular in the field of taxation ..".
The provisions at issue, however, do not distinguish between persons domiciled i n hellenic territory and those in a third country post-emigration, i.e. by establishing a legal fiction provide exactly for the same treatment to both categories16, subjecting them to unlimited extended tax liability (or trailing taxes17). While such a treatme nt could be an appropriate measure for fighting tax base erosion by shifting profits in third countries not committed to information exchange, it, also, deters completely greek residents - comprising those with probably no intention of circumventing national tax regulations - from exercising their Treaty freedom to capital movement (resulting from their emigration decision), as it will reduce, on a stable and continuous basis, the value of the assets transferred, falling
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within the aforementioned notion of capital movement18. There should be noted, though, that the transfer of residence does not constitute in itself a capital movement19; therefore, in such a case, there are no specific rules to be respected.
As far as the Grand-Duchy of Liechtenstein is concerned, the aforementioned ECJ's principle of proportionality should be observed, also, in respect of the freedom of movement of persons applicable to this state, member of the above cited EEA Agreement. It could be argued that either the free movement of capital20 or the right to move out of hellenic territory would be the case, such an unlimited provision21 entails overly burdensome effects for the resident wishing to leave this territory, without allowing for counter-proof provided by the latter, i.e. demonstration of absence of any abusive intention by transferring capital items in that states, effective maintenance of residence in the latter.
Paragraph 6 of the article 76 of the Code, inserted therein by article 12 par. 6, provides as follows: " 6a. If a person liable to tax return transfers his domicile or habitual residence outside Greece and was subject to tax in
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Greece for his worldwide income the previous five years before the declaration of his domicile or habitual residence change, provided that: aa) transfers his domicile or habitual residence to a state in which his income is subject to favourable tax regime, within the meaning of the paragraph 7 of article 51A, and bb) has substantial economic int erests in Greece, as they are defined in case b. below, he is considered as being subject to tax in Greece, for his worldwide income for a five-year period of time, which commences once the declaration of the change of his domicile or habitual residence is filed.
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The natural person is considered to have substantial economic interests in Greece, if at the time of the declaration of his domicile or habitual residence change:
aa) is holding a participation of at least 25% in a company subject to tax pursua nt to the provisions of paragraph 4 of article 222 or of at least 5% in a legal person subject to tax according to the provisions of the paragraphs 1 and 2 of the article 10123, or bb) his income derived in Greece exceeds the 30% of his total income or excee ds the amount of 45.000 Euros, or cc) the value of his assets in Greece, from which income is derived, exceeds the 30% of the value of his total assets or exceeds the amount of 150.000 Euros". The article 51A paragraph 7 is worded as follows: "For the application of the provisions of this article, the natural or legal person or legal entity is considered subject to favourable tax regime in a State outside Greece, even if his domicile or the registered office or the central effective administration or the...
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