Greece: Clarifications on the tax treatment of foreign trusts and foundations

Ilias Sakellariou

The Greek Independent Authority for Public Revenue (IAPR) published on July 24 2017 a decision (POL. 1114/2017) to provide administrative guidance on the Greek tax treatment of foreign trusts and foundations.

Greece is a civil law jurisdiction and has not ratified the Hague Trusts Convention. Consequently, such legal arrangements and fiduciary relationships (especially trusts) that originated and are still primarily governed by common law jurisdictions were always treated ambiguously in the Greek tax legislative framework. However, historically, the use of such legal arrangements has grown to be popular amongst Greek nationals, given the special ties of many Greeks with common law jurisdictions, such as the Greek shipping community's ties with Cyprus and the UK.

The abovementioned decision provides comprehensive guidance on several kinds of transactions and flows of funds that may be effected through the use of trusts and foundations by applying both the Greek Income Tax Code and the Code of Gift and Inheritance Tax.

First of all, it is clarified that distributions from a trust or foundation to its settlor (trustor) or founder (when he is a beneficiary, as well) are treated as dividend distributions. Moreover, for income tax purposes, it is stipulated that trusts and foundations are considered as legal entities, as per the latest Greek Income Tax Code, and are subject to the Greek corporate tax rate of 29% for any Greek real estate property income they acquire, while the usual Greek withholding tax rates on royalties, interest and dividends also apply to them. In this context, it is recognised that they are entitled to treaty protection, if they are tax resident in a country that has signed a double tax treaty (DTA) with Greece. In addition, it is stipulated that they are subject to Greek controlled foreign companies (CFC) rules.

On the contrary any income or assets received by a beneficiary (who has not contributed assets in a trust or foundation) is treated according to the Greek Code of Gifts and Inheritance. The decision refers to cases of both living (inter vivos) trusts and to testamentary trusts. Therefore, depending on if the settlor/founder is still alive or not at the time of the payments or transfers to the beneficiary, these will be respectively regarded as either donations or inheritance and the beneficiary will be burdened with the relevant Greek donation or inheritance tax. This look-through approach is in general congruent with the approach taken by most civil law jurisdictions on the subject issue.

Finally, several relevant tax issues are clarified, including the application under the previous Greek Income Tax Code, which was effective up to December 31 2013. To this end, taxpayers may still benefit from the Voluntary Disclosure Programme (VDP) Law 4446/2016 and comply for any past tax years by filing the relevant tax returns by September 30 2017 (expiry date of the VDP Law).

In general, the decision clears that each case should be looked into separately, depending on the actual facts and arrangements and there are still issues that may cause conflicts of law and may need further clarifications. Overall, however, it cannot be argued that this long-awaited interpretative guidance provides, for the first time, a comprehensive explanation of the Greek tax treatment of foreign trusts and foundations.

Ilias Sakellariou (ilias.sakellariou@gr.ey.com), Marousi

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