Greece: ASC rules on the tax treatment of interest-bearing loans concerning stamp duty and VAT
Maria Iliopoulou of EY in Greece explains the key conclusions which emerged from the Greek Administrative Supreme Court’s recent decisions on the granting of non-banking loans.
Through the landmark decisions No. 2163-4/2020 and 2323-5/2020, Greece’s Administrative Supreme Court (ASC) ruled on a range of legal matters concerning the tax treatment of interest-bearing loan agreements in terms of stamp duty and VAT.
The decisions of the ASC were issued on the occasion of interest-bearing loan agreements concluded by a Greek company with a foreign-affiliated company, which was a non-banking entity. The dispute arose in the context of a typical payment of a loan, as well as in the context of the offset of repayment by the Greek company of an existing loan through the grant of a new loan of at least equivalent value by the same foreign lender.
The granting of non-banking loans in return for consideration (interest) by persons who carry out an independent economic activity falls within the scope of VAT and therefore, according to an explicit provision of law (Article 63 of L. 2859/2000 - VAT Code), was decided as being exempt from stamp duty.
In particular, the imposition of stamp duty on interest-bearing loans by persons engaging in activities within the scope of VAT, has been abolished since January 1 1987 pursuant to Article 57 of L. 1642/1986 (currently Article 63 of the VAT Code) which, pursuant to Article 33 of the 6th Directive 77/388/EEC on VAT (Directive), explicitly defined that as of the introduction of VAT law, the provisions for the imposition of stamp duty on cases provided for in the provisions of Article 2 of the same law and their ancillary agreements shall be repealed.
However, the relevant interpretative Circular POL 44/1987 included loans in general within those transactions which would still be subject to the stamp duty, while for bank loans, an explicit legislative exemption was introduced.
In this context, the ASC, by way of interpretation of Article 2 (transactions subject to tax), Article 3 (taxable persons), Article 4 (economic activity), Article 8 (on the provision of services) and Article 22 (on the granting of credits) of the VAT Code, in conjunction with Article 63 of the VAT Code and in the light of the provisions of the Directive and the relevant case law of the Court of Justice of the European Union (CJEU), accepted that the regular granting of interest-bearing loans by a taxable person acting in that capacity, constitutes a provision of services in return for consideration and such activity is subject to VAT and falls within the general concept of granting of credits. The above apply provided that the granting of a loan is carried out with a business or commercial purpose characterised by a concern to maximise returns on capital investments. The same applies even if the granting of a loan is on an occasional basis, if the creditor acts as a taxable person in the context of another economic activity.
In particular, for VAT purposes, the imposition of interest is the crucial element when evaluating the supply of funding services, while the legal form and status of the lender as a banking or financial institution is irrelevant provided that the latter carries out an independent economic activity, i.e. pursues a business purpose aimed at making a profit from the granting of funds. Thus, such a transaction falls within the scope of VAT and therefore the imposition of stamp duty in both capital and interest (as well as on any ancillary agreements) is illegal as it is contrary to Article 63 of the VAT Code and the provisions of the Directive, as has been interpreted by the case law.
Based on the above argumentation and case law, it should be examined whether other cases of granting credits, such as under cash pooling agreements/schemes, are also outside the scope of stamp duty.
Moreover, the decisions are in principle binding only between the specific litigant parties up until their conclusions would potentially be endorsed by the tax administration through the issuance of a relevant circular. However, the above interpretative position of the ASC is expected to be followed by the administrative courts, which hear the merits of a case and are bound by the ASC’s case law.
In this context, it appears that companies which, prior to the tax audit, remitted stamp duty on interest-bearing loan agreements, can - subject to the five-year limitation period from the end of the year in which the return was filed - amend the respective stamp duty returns and at the same time request for the refund of the amounts unduly paid on the basis of lack of tax liability.
For companies that, after the completion of the tax audit, remitted the stamp duty as assessed by the tax authorities, the possibility of requesting the annulment of the final corrective tax assessments under the procedure of Article 63B of the Tax Procedure Code could be examined. The said article applies to tax acts issued as of January 1 2020 and provides for a three-year limitation period.