Greece: Reshaping the joint liability of a company’s tax debts
Eleanna Kamperi of EY Greece explains the new tax rules reshaping the joint liability of a company’s management and shareholders for tax debts owned by the company.
The new tax rules in Greece aim to rationalise the requirements for a person to be considered as jointly liable, to limit the period during which such liability may exist, and to draw a proper balance between the company and its management, for the payment of the company’s tax debts. In addition, these rules abolish the joint and several liability of shareholders owning certain participation (i.e. more than 10%) in a non-listed capital company.
Joint liability of the management
According to the Greek tax rules, the management of a company is jointly and severally liable for the payment of tax debts owned by the company. These rules were significantly changed during the recent tax reform that took place at the end of 2019.
Specifically, in case a company or a legal entity has failed to pay specific taxes, which then have become overdue, or such debts are assessed following a tax audit, certain persons related to the company are jointly and severally liable for the payment of the company’s tax debt. The rule aims to ensure the collection of tax debts. The said persons may be the managing director, administrators, directors, liquidators, and any person who exercises de facto management of the company.
In case the management is exercised by a company, the persons to be held jointly liable would be sought with reference to the corporate rules. When for example, a Greek S.A. (societe anonyme) is managed by a company, the said company must appoint a private individual to manage the Greek S.A.; in such a case, the private individual shall be jointly and severally liable for the Greek SA’s tax debts, provided that the other conditions are met.
Debts may include taxes, penalties, interest and surcharges arising from the non-payment of income tax, withholding taxes, taxes rolled over to consumption, VAT) and the annual real estate tax (ENFIA), which are owed by the company. Tax debts arising from stamp duty, capital accumulation tax and other taxes, duties and standalone penalties, are not covered within the scope of the new rules.
The joint liability of the management is established during the operation of the company or at the time of its dissolution or merger, or during its liquidation. However, the joint liability is limited only to tax debts that became due during the management’s term of office, contrary to the previous regime under which the company’s management at the time of its dissolution could be held jointly liable for tax debts arising prior to their term.
Moreover, under the new rules, the management of the company must be acting at fault. The burden of proof for the non-existence of fault lies with the management. A ministerial decision is anticipated to be issued, providing indicative cases where no fault shall exist. Under the previous regime, the joint liability was established merely due to the exercise of their management, irrespective of whether the management was acting at fault.
The rules also apply to pending cases. A specific procedure applies for the relief of the persons who were considered jointly and severally liable under the previous rules, provided that said liability is not established under the current rules.
Joint liability of shareholders of non-listed capital companies
Prior to the recent reform, shareholders of non-listed capital companies (e.g. Greek S.A., limited liability company, private company) holding a participation of more than 10% were jointly and severally liable with the company, for the payment of the tax debts, upon its dissolution. The shareholder’s liability was capped to the amount of dividends collected during the last three years before the company’s dissolution.
Under the new rules, the above shareholder’s liability has been abolished. A matter that has not been clarified yet is the interaction of the abolished rules with other tax rules referring to the liability of the shareholders. For example, the special real estate tax (a 15% tax applicable to companies holding Greek real estate, unless they are exempt therefrom) provides that the company’s shareholders are jointly liable with the company for the payment of the main tax due. Up to now, the administrative guidelines or jurisprudence have not touched upon such matters.
It remains to be seen how the above rules aiming to rationalise the joint liability of the management will be interpreted by the Greek tax administration.
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