Deduction of expenses from gross income

The Greek Ministry of Finance released instructions for the correct and uniform application of the provisions of Articles 5 (paragraphs 7 and 9), 15-18 inclusive of Law 3091/2002 to all tax authorities in Greece. Under the provisions of paragraph 7 of the above-mentioned article a new section is added to case of paragraph 1 of Article 31 of K.F.E. (Income Tax Code). These new provisions establish the non-deduction from the companies’ gross income of the amounts of depreciation pertaining to their fixed assets, which are bought from an offshore company. As “offshore company” is regarded, according to an express wording in the aforesaid provisions, it is considered the company, which is located in a foreign country on the basis of the law of which it performs activities exclusively in other countries and enjoy a particularly favourable tax treatment.

Therefore, the companies that buy fixed assets from an offshore company shall register in their books amounts of depreciation concerning such assets, but when such companies should submit its annual income tax return it will be obliged to amend its results with respect to the amounts of such depreciation by adding them as a book difference.

On an ancillary, the Organisation for Economic Co-operation and Development (OECD)has released a list of countries which have been designated as tax heaven countries . This list indicates the following countries.
· Andorra
· Anguilla
· Antigua and Barbuda
· Aruba
· Commonwealth of the Bahamas
· Bahrain
· Belize
· British Virgin Islands
· Cook Islands
· Dominican Republic
· Gibraltar
· Grenada
· Guernsey, Sark, Alderney
· Isle of Man
· Jersey
· Liberia
· Principality of Lichtenstein
· Republic of Maldives
· Republic of Marshall Islands
· Principality of Monaco
· Montserrat
· Nauru
· Netherlands Antilles
· Niue
· Panama
· Samoa
· Principality of Seychelles
· Santa Lucia
· St Christopher and Nevis
· St Vincent and the Grenadines
· Tonga
· Turks and Caicos
· U.S. Virgin Islands
· Vanuatu
Therefore, the companies (Greek tax payers) shall have to inquire whether the foreign company from which they will purchase fixed assets is located in one of the above-mentioned countries or territories, to determine whether it is an offshore company. Another criteria which could be used in order to find if the issuer of a tax record is an offshore company are as follows: – The issuer of the tax record is not the producer – manufacturer of the product but he / it is an intermediary – manufacturer. This is because the offshore companies, as a rule, act as intermediaries in triangular transactions in which the goods are being sent from one country and they are invoiced from another country. – In the tax records (apart from very few exceptions) no VAT number is written, since most offshore companies do not have / provide a VAT number. – As address of the company’s location (registered office) the “P.O.” (BOX OFFICE) is usually mentioned.

In the event that the status of the supplying company of being an offshore company or not does not arise from the above-mentioned sample details, the companies purchasing fixed assets will be obliged to submit such evidence to the authorised auditors / controllers. Without limitation, such details are the following: – The company’s balance sheet, for finding out whether there is activity, fixed assets and personnel. – Details regarding the employed personnel and the facilities / premises of the company. – Details pertaining to the company’s activities, etc.

The foregoing shall apply, according to the provisions of Article 30 case b’ of such law, to the accounting periods commencing on or after 1 January 2000. That is to say, the foregoing shall apply to fixed assets purchased by companies from offshore companies on or after 1.1.2003.

Furthermore, under the provisions of paragraph 9 of this article it is provided that there will be no deduction from the companies’ gross earnings of the other expenditures made by such companies for the purchase of goods or for the acquisition of services rendered by an offshore company nor there will be any deduction of the fees or amounts of remuneration paid by such companies to an offshore company for the utilisation in Greece of technical assistance, patens, trademarks, designs, secret industrial methods and formulas, intellectual property or other similar rights. Exception to this rule are the expenses pertaining to the purchase or transportation to Greece of crude oil, petroleum products or other products for which full sale price indexes are published and which constitute the object of negotiation in a regulated product exchange market.

Therefore, the companies that have purchased goods (commodities, raw and secondary materials, etc.) or have received services from an offshore company, with the exception of the crude oil, etc., and which have reduced its profit in its books by the amount of such expenses, will be obliged when it should submit its annual income tax return to amend its results with (by adding) the amount of the non-deductible expenses.