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Greece: Another wide interpretation of royalties against the digital economy


Ilias Sakellariou

Greece has always adopted a very broad interpretation of what it considers as royalties in the context of its double tax treaties (DTAs), based on specific observations and the reservation that it has expressed on Article 12 of the OECD Model Tax Convention.

The Greek Income Tax Code remains loyal to this practice by including in its definition of royalties, among others, the right to use software for commercial exploitation or personal use. The Greek General Secretariat of Public Revenues has tried to narrow the royalties' application in Greece by issuing administrative guidance. However, the exact interpretation of what is considered as software remains unclear because the term has been traditionally stretched by the Greek tax authorities to include almost all aspects of the electronic and digital economy. Taxpayers have challenged this view in various instances and cases, which have reached the Greek Supreme Administrative Court, but the results have been mixed and there has been no conclusive decision yet.

In a recent example, a Greek advertising company provided marketing services to Greek clients, including placing online advertisements on an online global social network. The advertising company filed a written query to the Greek Ministry of Finance, asking if the payment of advertising fees to the Irish social network company constituted a payment of royalties in the context of the DTA between Greece and Ireland. The competent Directorate of International Economic Relationships of the ministry replied that, regarding the DTAs that Greece has signed with other states, income arising in a Contracting State by a resident of the other Contracting State in return for "the use of software of a platform for placing advertisements" is included in the definition of royalties, taking into account Greece's observations on Article 12.

As a result, it seems that the Greek authorities continue to understand anything digital or connected to the internet as software and use of software and, thus, as royalties. However, this is a result that is not in line with the conclusions and recommendations of the OECD BEPS Action 1 report on the digital economy. For example, the report clearly states that the digital economy should not be ring-fenced from the rest of the economy for tax purposes. On the contrary, this is exactly what is happening in Greek practice, meaning that the same business activities (e.g. advertising activities) are treated differently depending on their being digitalised or not.

On another note, it is rumoured that Greece is also ready to introduce a new withholding tax of 3%, which will be imposed specifically to payments for short-term accommodation rentals that take place through internet sharing economy sites, but the exact mechanism and details of this are still unknown.

Overall, given that Greece has been a strong BEPS supporter, perhaps the authorities could wait and not rush in to defining anything as software and royalties when dealing with all these new business models (e.g. SaaS, IaaS, PaaS, XaaS, Cloud computing, UCC platforms etc.). Furthermore, the BEPS report recognises the need to monitor the developments on the exact impact of the changes and has therefore extended its research on them to 2020. If Greece does not hold back, its practice will probably cause more problems and economic disparities in the near future because of the exponential development of the digital economy and the emergence of innovative and unpredictable business models that will continue to challenge our way of thinking, living and doing business.

Ilias Sakellariou (, Marousi


Tel: +30 210 2886 000


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